tamir_s1-043010.htm
As filed with the Securities
and Exchange Commission on April 30, 2010
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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
TAMIR
BIOTECHNOLOGY, INC.
(Exact
name of registrant as specified in its charter)
Delaware
(State
of incorporation or other
jurisdiction
of incorporation or organization)
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22-2369805
(I.R.S. Employer
Identification No.)
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300
Atrium Drive
Somerset,
NJ 08873
(732)
652-4525
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Charles
Muniz
Chief
Executive Officer
300
Atrium Drive
Somerset,
NJ 08873
(732)
652-4525
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
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Kevin
T. Collins, Esq.
Goodwin
Procter LLP
The
New York Times Building
620
Eighth Avenue
New
York, NY 10018-1405
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Approximate
date of commencement of proposed sale to the public:
From
time to time after the effective date of this Registration
Statement
If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. /
/
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, other
than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /x/
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. /
/
If this
Form is a registration statement pursuant to General Instruction I.D. or a
post-effective amendment thereto that shall become effective upon filing with
the Commission pursuant to Rule 462(e) under the Securities Act, check the
following box. / /
If this
Form is a post-effective amendment to a registration statement filed pursuant to
General Instruction I.D. filed to register additional securities or additional
classes of securities pursuant to Rule 413(b) under the Securities Act, check
the following box. /
/
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer,” and “small reporting company” in Rule 12b-2 of the Exchange
Act.
Large accelerated
filer / / |
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Accelerated filer /
/ |
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Non-accelerated
filer / / (Do not check if a smaller reporting
company) |
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Smaller reporting
company /x/ |
CALCULATION
OF REGISTRATION FEE
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Proposed
Maximum
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Proposed
Maximum
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Amount
of
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Title
of Each Class of
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Offering
Price
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Aggregate
Offering
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Registration
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Securities to be
Registered
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Amount to be
Registered(1)
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per
Share
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Price
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Fee(5)
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Common
Stock issuable upon conversion of notes
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24,916,667
(2)
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$0.24
(3)
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$ 5,980,000
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$426.37
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Common
Stock issuable upon exercise of Series A warrants, execrable at $0.15 per
share.
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21,666,664
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$0.24
(4)
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$5,199,999
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$370.76
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Common
Stock issuable upon exercise of Series B warrants, execrable at $0.25 per
share
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21,666,664
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$0.25
(4)
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$5,416,666
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$386.21
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(1)
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We
are registering the resale of shares of common stock by Selling Security
Holders that we will issue to the Selling Security Holders upon the
conversion of the notes and exercise of the warrants, which were issued to
the Selling Security Holders as a result of private placements we
completed in October 2009. Pursuant to Rule 416 under the Securities Act,
this registration statement also covers such additional shares of common
stock as may hereafter be offered or issued with respect to the shares
being registered hereby as a result of stock splits, stock dividends,
recapitalization or similar adjustments.
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(2)
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Assume
the accrual of three years interest at a rate of 5% on the principal of
the notes and the payment of such accrued interest with shares of common
stock upon the maturity date of the notes.
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(3)
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Estimated
solely for the purpose of computing the registration fee pursuant to Rule
457(c) under the Securities Act. We have estimated the offering
price to be $0.24 per share based on the average of the high and low sales
prices of the registrant’s common stock as reported on the Pink Sheets
market on April 26, 2010.
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(4)
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Estimated
solely for the purpose of computing the registration fee pursuant to Rule
457(g) under the Securities Act. Represents the higher of: (a)
the exercise price of the warrants and (b) the offering price of the
securities of the same class as the common stock underlying the warrants
calculated in accordance with Rule 457(c).
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(5)
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Calculated
pursuant to Rule 457(a) based on an estimate of the proposed maximum
aggregate offering price.
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The registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said section 8(a), may
determine.
SUBJECT
TO COMPLETION, DATED ____________, 2010
TAMIR
BIOTECHNOLOGY, INC.
68,249,995
shares of Common Stock
This
prospectus relates to the offer for sale of up to 68,249,995 shares of
our common stock by certain existing holders of the securities, referred to as
Selling Security Holders throughout this document. Each of the Selling Security
Holders will receive all of the net proceeds from the sale of shares by that
holder. We will not receive any of the proceeds of this offering.
On April
27, 2010, our stockholders approved an amendment to our certificate of
incorporation which changed our name from Alfacell Corporation to Tamir
Biotechnology, Inc. This amendment to our certificate of
incorporation had been previously approved by our board of directors and was
filed with the State of Delaware on April 27, 2010.
Our
common stock is traded on the Pink Sheets market and prices are quoted under the
symbol “ACEL”. On April 26, 2010, the last reported price was
$0.25.
Investing
in our stock involves substantial risks. See “Risk Factors” beginning on page
3.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
The date
of this Prospectus is _________, 2010
The
information in this prospectus is not complete and may be changed. The Selling
Security Holders will not sell these securities until after the Registration
Statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
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Prospectus
Summary
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1 |
Risk
Factors
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3 |
Forward-Looking
Statements
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Use
of Proceeds
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Determination
of Offering Price
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Dilution
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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Business
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Management
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Executive
Compensation
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Certain
Relationships and Related Party Transactions
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Security
Ownership of Certain Beneficial Owners and Management
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Selling
Security Holders
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Description
of Securities Registered
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Plan
of Distribution
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Legal
Matters
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Experts
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Where
You Can Find Additional Information
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Consolidated
Financial Statements
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F-1 |
You
should rely only on the information contained in this prospectus. We have not
authorized anyone to provide you with different information. We are not making
an offer of these securities in any state where the offer is not permitted. You
should not assume that the information contained in this prospectus is accurate
as of any date other than the date on the front of this prospectus.
PROSPECTUS
SUMMARY
This
summary highlights information found elsewhere in this prospectus. Accordingly,
it does not contain all of the information which may be important to
you. Prospective purchasers should read the following summary
carefully in conjunction with the more detailed information appearing elsewhere
in this Prospectus concerning Tamir Biotechnology, Inc. and the securities being
offered, including our financial statements and related notes and the
information under “Risk Factors.” As used herein, references to “we”, “our”,
“us” and “our Company” refer to Tamir Biotechnology, Inc.
ABOUT
THIS PROSPECTUS
We have
not authorized any dealer, salesperson or other person to give any information
or represent anything not contained in this prospectus. You should
not rely on any unauthorized information. This prospectus does not
offer to sell or buy any securities in any jurisdiction in which it is
unlawful. The information in this prospectus is current as of the
date on the cover.
This
prospectus is part of a Registration Statement on Form S-1 that we filed with
the Securities and Exchange Commission that relates to the offer for sale of
68,249,995 shares of our common stock by certain existing holders of the
securities, referred to as Selling Security Holders throughout this document.
Each of the Selling Security Holders will receive all of the net proceeds from
the sale of shares by that holder. We will not receive any of the proceeds of
this offering. The common stock is traded on the Pink Sheets market and prices
are quoted under the symbol “ACEL.” On April 26, 2010, the last
reported price was $0.25.
You
should read both this prospectus and any prospectus supplement together with
additional information described below under the heading “Where You Can Find
More Information.”
THE
COMPANY
Tamir
Biotechnology, Inc. (formerly known as Alfacell Corporation) is a
biopharmaceutical company primarily engaged in the discovery and development of
a new class of therapeutic drugs for the treatment of cancer and other
pathological conditions. Our proprietary drug discovery and development program
consists of novel therapeutics developed from amphibian ribonucleases
(RNases).
RNases
are biologically active enzymes that split RNA molecules. RNases are enzymes
which play important roles in nature, among which is the development of an
organism and in cell functions. RNA is an essential bio-chemical cellular
component necessary to support life. There are various types of RNA, all of
which have specific functions in a living cell. They help control several
essential biological activities, namely, regulation of cell proliferation,
maturation, differentiation and cell death. Therefore, we believe they are ideal
candidates for the development of therapeutics for cancer and other
life-threatening diseases, including HIV and autoimmune diseases, that require
anti-proliferative and apoptotic, or programmed cell death,
properties.
ONCONASE®
(ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of
pancreatic ribonuclease isolated from the eggs of the Rana pipiens (the Northern
Leopard frog). Ranpirnase is the smallest known protein belonging to the
superfamily of pancreatic ribonuclease and has been shown, on a molecular level,
to re-regulate the unregulated growth and proliferation of cancer cells. Unlike
most anti-cancer agents that attack all cells regardless of phenotype (malignant
versus normal) and cause severe toxicities, ONCONASE® is
not an indiscriminate cytotoxic drug (cell killing agent). ONCONASE®
primarily affects exponentially growing malignant cells, with activity
controlled through unique and specific molecular mechanisms.
Tamir
Biotechnology, Inc. was initially incorporated in Delaware in 1981 under the
name of Alfacell Corporation. The Company changed its name to Tamir
Biotechnology, Inc. on April 27, 2010. Our principal executive
offices are located at 300 Atrium Drive, Somerset, New Jersey 08873 and our telephone number is
(732)
652-4525.
RISKS
ASSOCIATED WITH OUR BUSINESS
Our
business is subject to numerous risks and uncertainties, as more fully described
under “RISK FACTORS” beginning on page 3, which you should carefully consider
before purchasing our common stock. For example:
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We
are highly dependent on achieving success in the clinical testing,
regulatory approval and commercialization of ONCONASE®, and our other compounds
currently under development. If we fail to obtain the necessary
regulatory approvals, we will not be allowed to commercialize
ONCONASE®
and our business will be harmed.
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We
have incurred losses since inception and anticipate that we will incur
continued losses for the foreseeable future. We do not have a current
source of product revenue and may never be
profitable.
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We
will need additional financing to continue operations, which may not be
available on favorable or acceptable terms, if it is available at
all.
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We
are highly dependent on our only executive officer, Charles Muniz, our
President, Chief Executive Officer and Chief Financial
Officer. If we lose key management personnel or are unable to
attract and retain the talent required for our business, our business
could be materially harmed.
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We
are involved in several lawsuits, and unfavorable results of legal
proceedings could have a material adverse effect on
us.
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In
addition, the ability of new shareholders to influence corporate matters may be
limited because a small number of stockholders beneficially currently own a
substantial amount of our common stock. As of March 12, 2010, Mr.
Muniz owns approximately 32% of our common stock; Knoll Capital Management LP,
Fred Knoll and Europa International, Inc. own a total of approximately 30% of
our common stock; McCash Family Limited Partnership owns approximately 10% of
our common stock; James O. McCash and James O. McCash Trust own
approximately 6% of our common stock; and Unilab LP owns approximately
10% of our common stock.
RISK
FACTORS
An
investment in our common stock is speculative and involves a high degree of
risk. You should carefully consider the risks and uncertainties
described below and the other information in this prospectus and our other SEC
filings before deciding whether to purchase shares of our common
stock. If any of the following risks actually occur, our business and
operating results could be harmed. This could cause the trading price
of our common stock to decline, and you may lose all or part of your
investment.
Risks
related to the Development of our Product Candidates
We
are highly dependent on achieving success in the clinical testing, regulatory
approval and commercialization of ONCONASE®, and our other compounds
currently under development. If we fail to obtain the necessary
regulatory approvals, we will not be allowed to commercialize ONCONASE®
and our business will be harmed.
The Food
and Drug Administration, or FDA, in the United States and comparable regulatory
agencies in foreign countries impose substantial pre-market approval
requirements on the introduction of pharmaceutical products. These requirements
involve the completion of lengthy and detailed pre-clinical and clinical testing
and other costly and time consuming procedures. Satisfaction of these
requirements typically takes several years depending on the level of complexity
and novelty of the product. The length of time required to complete a clinical
trial depends on several factors including the size of the patient population,
the ability of patients to get to the site of the clinical study, and the
criteria for determining which patients are eligible to join the study. A
significant portion of our expenditures have been devoted and, in the future
will be devoted, to the clinical trials for our lead product candidate,
ONCONASE® . Although the financing
we received in October 2009 will enable us to commence a new clinical trial for
ONCONASE®, we will be required to
obtain additional financing to complete this trial and pursue the further
development of ONCONASE®. Such
financing may not be available, and even if it is available, it may not be
available on terms favorable or acceptable to us.
All
statutes and regulations governing the conduct of clinical trials are subject to
future changes by various regulatory agencies, including the FDA, which could
affect the cost and duration of our clinical trials. Any unanticipated costs or
delays in our clinical studies would delay our ability to generate product
revenues and to raise additional capital and could cause us to be unable to fund
the completion of the studies.
We may
not market or sell any product for which we have not obtained regulatory
approval. We cannot assure you that the FDA or other regulatory
agencies will ever approve the use of our products that are under development.
Even if we receive regulatory approval, such approval may involve limitations on
the indicated uses for which we may market our products. Further, even after
approval, discovery of previously unknown problems could result in additional
restrictions, including withdrawal of our products from the market.
If we
fail to obtain the necessary regulatory approvals, we cannot market or sell our
products in the United States or in other countries and our viability would be
threatened. If we fail to achieve regulatory approval or foreign marketing
authorizations for ONCONASE®
we will not have a product suitable for sale or product revenues and may not be
able to continue operations.
Our
profitability will depend on our ability to develop, obtain regulatory approvals
for, and effectively market ONCONASE®
as well as entering into strategic alliances for the development of new drug
candidates from the out-licensing of our proprietary RNase technology. The
commercialization of our pharmaceutical products involves a number of
significant challenges. In particular, our ability to commercialize
ONCONASE®
depends on the success of our clinical development programs, our efforts to
obtain regulatory approval and our sales and marketing efforts or those of our
marketing partners, directed at physicians, patients and third-party payors. A
number of factors could affect these efforts including
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our
ability to demonstrate clinically that our products are effective and
safe;
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delays
or refusals by regulatory authorities in granting marketing
approvals;
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our
limited financial resources relative to our
competitors;
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our
ability to obtain and maintain relationships with current and additional
marketing partners;
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the
availability and level of reimbursement for our products by third party
payors;
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incidents
of adverse reactions to our
products;
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misuse
of our products and unfavorable publicity that could result;
and
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the
occurrence of manufacturing or distribution
disruptions.
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Based
upon guidance provided by the FDA at a pre-NDA meeting, we decided not to file a
new drug application (NDA) for ONCONASE®
for unresectable malignant mesothelioma (UMM) and to not pursue further clinical
trials of ONCONASE®
for the treatment of UMM.
The
results of the preliminary statistical analysis of the data from the
confirmatory Phase IIIb clinical trial we conducted for ONCONASE®
in patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. Although a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a pre-defined primary data set for
this sub-group of patients in the trial, at a pre-NDA meeting with the FDA held
in January 2009, the FDA recommended that an additional clinical trial be
conducted in this sub-group of patients prior to our submitting an NDA for
ONCONASE®. Based
upon our assessment that it would be difficult to design and conduct a clinical
trial that would comply with the FDA’s recommendation and allow us to file an
NDA, we have determined at this time not to pursue further clinical trials for
the treatment of UMM. Based upon the results of certain preclinical
testing performed on ONCONASE®
we have decided to pursue a Phase II clinical trial for ONCONASE®
for the treatment of non-small cell lung cancer in patients who have reached
maximum progression on their current chemotherapy regimens. Although the
financing we received in October 2009 will enable us to initiate this Phase II
clinical trial, we will be required to obtain additional financing to complete
this clinical trial and pursue further development of ONCONASE®.
We cannot assure you that we will be able to commence or complete the new Phase
II clinical trial for ONCONASE®,
or that the results from this clinical trial will be positive. Even if the
results from this Phase II clinical trial are positive, we cannot assure you
that the results of subsequent Phase III clinical trials will be positive or
will support marketing approval of ONCONASE®
in the United States or in any other jurisdictions.
Budget
constraints may force us to delay our efforts to develop certain drug product
candidates in favor of developing others, which may prevent us from
commercializing all drug product candidates as quickly as possible.
Because
we are an emerging company with limited resources, and because developing new
drug product candidates is an expensive process, we must regularly assess the
most efficient allocation of our research and development budget. As a result,
we may have to further prioritize development activities and may not be able to
fully realize the value of some of our drug product candidates in a timely
manner, and they may be delayed in reaching the market, if at all. A reduction
in spending on our other drug product candidates could delay our
commercialization efforts and negatively impact our ability to diversify our
development risk across a broad portfolio of drug product
candidates.
Risks
Related to Our Financial Position and Need for Additional Capital
We
have incurred losses since inception and anticipate that we will incur continued
losses for the foreseeable future. We do not have a current source of product
revenue and may never be profitable.
We are a
development stage company and since our inception one of the principal sources
of our working capital has been private sales of our common
stock. Over the past three fiscal years, we have incurred aggregate
net losses of approximately $25.6 million and since our inception we have
incurred aggregate net losses of approximately $108.9 million. We expect to
incur additional losses and, as our development efforts, efforts to file an NDA
for ONCONASE® and
clinical testing activities continue, our rate of losses may increase. We also
expect to experience negative cash flows for the foreseeable future as we fund
our losses and capital expenditures. Our losses have adversely impacted, and
will continue to adversely impact, our working capital, total assets and
stockholders’ equity. To date, we have not sold or received approval to sell any
drug product candidates, and it is possible that revenues from drug product
sales will never be achieved. We cannot at this time predict when or if we will
be able to develop other sources of revenue or when or if our operations will
become profitable, even if we are able to commercialize some of our drug product
candidates.
We will
seek to generate revenue through licensing, marketing and development
arrangements prior to receiving revenue from the sale of our products.
Currently, we are party to four non-US regional marketing and distribution
agreements and we may not be able to successfully negotiate any additional
agreements. In the past, we have entered into several development arrangements
which have resulted in limited revenues for us. We cannot assure investors that
these arrangements or future arrangements, if any, will result in significant
amounts of revenue for us in the future. We, therefore, are unable to predict
the extent of any future losses or the time required to achieve profitability,
if at all.
We
will need additional financing to continue operations, which may not be
available on favorable or acceptable terms, if it is available at
all.
Based
upon our current operations and our plans for a Phase II clinical trial for
ONCONASE®
for the treatment of non-small cell lung cancer in patients who have reached
maximum progression on their current chemotherapy regimens, we expect that our
current cash reserves should be sufficient to support our activities through
July 2010. Although our current cash reserves will enable to
initiate this Phase II clinical trial, provided we obtain the required approval
from the FDA, we will need to obtain additional financing to complete the
clinical trial and pursue further development of ONCONASE®. As
a result of our continuing losses and lack of capital, the report of our
independent registered public accounting firm on our July 31, 2009 audited
financial statements included an explanatory paragraph which states that our
recurring losses from operations and negative cash flows from operating
activities raise substantial doubt about our ability to continue as a going
concern. Our financial statements at July 31, 2009 do not
include any adjustments that might result from the outcome of this
uncertainty. We will need additional financing to conduct our
business after July 2010. Factors that would affect our ability to
obtain capital in the future and the amount and timing of additional capital
required include, but are not limited to, the following:
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the
condition of the capital markets in general and the willingness of
investors to invest in development stage biotech companies, in
particular;
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the
progress and cost of research and development and clinical trial
activities relating to our drug product
candidates;
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the
costs of preparing, filing and prosecuting patent applications,
maintaining and enforcing our patent claims and other intellectual
property rights and investigating and defending against infringement
claims asserted against us by others;
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the
emergence of competing technologies and other adverse market
developments;
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changes
in or terminations of our existing licensing, marketing and distribution
arrangements;
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the
amount of milestone payments we may receive from current and future
collaborators, if any; and
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the
cost of manufacturing scale-up and development of marketing operations, if
we undertake those activities.
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our
degree of success in commercializing our drug product candidates,
including entering into additional marketing and distribution
agreements;
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our
ability to obtain marketing approval of our product
candidates
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Additional
financing may not be available when we need it or be on terms acceptable to us.
If adequate financing is not available or we are unable to conclude a strategic
transaction prior to the time our current cash reserves are exhausted we will be
required to cease operations. If additional capital is raised through
the sale of equity, our stockholders’ ownership interest could be diluted and
such newly-issued securities may have rights, preferences, or privileges
superior to those of our other stockholders. The terms of any debt securities we
may sell to raise additional capital may place restrictions on our operating
activities.
We
will need additional capital in the future and the Notes may make it more
difficult for us to obtain the needed capital.
We will
need to obtain additional financing over time to fund our
operations. The security interest in all of our assets which secures
our obligations under the Notes, the covenants in the Notes, the conversion
terms of the Notes and the exercise terms of the Warrants issued with
the Notes could make it difficult for us to obtain needed financing or could
result in our obtaining financing with unfavorable terms. Our failure
to obtain financing or obtaining financing on unattractive terms could have a
material adverse effect on our business.
A
portion of the proceeds received pursuant to our October 2009 private financing
were placed in an escrow account, and pursuant to the terms of an escrow
agreement governing the escrow account may only be used for certain limited
purposes.
In
connection with our October 2009 private financing, we entered into an escrow
agreement whereby certain investors placed $1.6 million of the proceeds paid for
their units purchased in the financing in an escrow account. The escrow
agreement shall terminate on the earlier of the date that all funds have been
disbursed from the escrow account and April 19, 2011, at which time any
remaining funds will be disbursed to us. Such amounts can be
disbursed from the escrow account only to satisfy obligations of ours owed to
clinical research organizations, hospitals, doctors and other vendors and
service providers associated with the clinical trials which we intend to conduct
for our ONCONASE®
product. Until such time that the escrow agreement terminates, we are
not permitted to use the funds in the escrow account for any other
purposes.
We
face certain litigation risks, and unfavorable results of legal proceedings
could have a material adverse effect on us.
As
described under the heading “LEGAL PROCEEDINGS” of this Registration Statement
on Form S-1, we are a party to certain lawsuits. Regardless of the merits of any
claim, litigation can be lengthy, time-consuming, expensive, and disruptive to
normal business operations and may divert management’s time and resources, which
may have a material adverse effect on our business, financial condition and
results of operations, including our cash flow. The results of complex legal
proceedings are difficult to predict. Should we fail to prevail in these
matters, or should any of these matters be resolved against us, we may be faced
with significant monetary damages, which also could materially adversely affect
our business, financial condition and results of operations, including our cash
flow. In addition, we may incur higher general and administrative expenses than
we have in the past in order to defend and prosecute this litigation, which
could adversely affect our operating results.
The ability of our stockholders to recover against Armus
Harrison & Co., or AHC, may be limited because we have not been able to
obtain the reissued reports of AHC with respect to the financial statements
included in our Annual Report on Form 10-K for the fiscal year ended July 31,
2009, nor have we been able to obtain AHC’s consent to the use of such report
herein.
Section
18 of the Securities Exchange Act of 1934, or Exchange Act, provides that any
person acquiring or selling a security in reliance upon statements set forth in
a Form 10-K may assert a claim against every accountant who has with its consent
been named as having prepared or certified any part of the Form 10-K, or as
having prepared or certified any report or valuation that is used in connection
with the Form 10-K, if that part of the Form 10-K at the time it is filed
contains a false or misleading statement of a material fact, or omits a material
fact required to be stated therein or necessary to make the statements therein
not misleading (unless it is proved that at the time of such acquisition such
acquiring person knew of such untruth or omission).
In June
1996, AHC dissolved and ceased all operations. Therefore, we have not been able
to obtain the reissued reports of AHC with respect to the financial statements
included in the Annual Report on Form 10-K for the fiscal year ended July 31,
2009 nor have we been able to obtain AHC’s consent to the use of such report
herein. As a result, in the event any persons seek to assert a claim against AHC
under Section 18 of the Exchange Act for any untrue statement of a material fact
contained in these financial statements or any omissions to state a material
fact required to be stated therein, such persons will be barred. Accordingly,
you may be unable to assert a claim against AHC under Section 18 of the Exchange
Act for any purchases of the Company’s common stock made in reliance upon
statements set forth in our Annual Report on Form 10-K for the fiscal year ended
July 31, 2009. In addition, the ability of AHC to satisfy any claims properly
brought against it may be limited as a practical matter due to AHC’s dissolution
in 1996.
Our
investments could lose market value and consequently harm our ability to fund
continuing operations.
The
primary objective of our investment activities is to preserve principal while at
the same time maximizing yields without significantly increasing risk. To
achieve this objective, we maintain our portfolio of cash and cash equivalents
in a variety of securities, including government and corporate obligations and
money market funds. The market values of these investments may fluctuate due to
market conditions and other conditions over which we have no control.
Fluctuations in the market price and valuations of these securities may require
us to record losses due to impairment in the value of the securities underlying
our investment. This could result in future charges to our earnings. All of our
investment securities are denominated in US dollars.
Investments
in both fixed-rate and floating-rate interest earning instruments carry varying
degrees of interest rate risk. Fixed-rate securities may have their fair market
value adversely impacted due to a rise in interest rates. In general, securities
with longer maturities are subject to greater interest rate risk than those with
shorter maturities. While floating-rate securities generally are subject to less
interest rate risk than fixed-rate securities, floating-rate securities may
produce less income than expected if interest rates decrease. Due in part to
these factors, our investment income may fall short of expectations or we may
suffer losses in principal if securities are sold that have declined in market
value due to changes in interest rates.
Risks
Related to the Commercialization of our Product Candidates
Our
product candidates may not be accepted by the market.
Even if
approved by the FDA and other regulatory authorities, our product candidates may
not achieve market acceptance, which means we would not receive significant
revenues from these products. Approval by the FDA does not necessarily mean that
the medical community will be convinced of the relative safety, efficacy and
cost-effectiveness of our products as compared to other products. In addition,
third party reimbursers such as insurance companies and HMOs may be reluctant to
reimburse expenses relating to our products.
We
are and will be dependent upon third parties for manufacturing our products. If
these third parties do not devote sufficient time and resources to our products
our revenues and profits may be adversely affected.
We do not
have the required manufacturing facilities to manufacture our product. We
presently rely on third parties to produce ONCONASE® for
use in clinical trials. We have entered into a ten-year purchase and supply
agreement with SPL, for the manufacturing of ranpirnase (protein drug substance)
from the oocytes, or the unfertilized eggs, of the Rana pipiens frog, which is
found in the Northwest United States and is commonly called the leopard
frog.
Additionally,
we contract with Ben Venue for the manufacturing of ONCONASE® and
with Bilcare, Catalent and Aptuit for the storage, labeling and shipping of
ONCONASE® for
clinical trial use. We utilize the services of these third party manufacturers
solely on an as needed basis with terms and prices customary for our
industry.
We use
FDA CGMP licensed manufacturers for ranpirnase and ONCONASE®. We
have identified alternative providers for the manufacturing services for which
we may contract. In order to replace an existing service provider we must amend
the Investigational New Drug Application (IND) for our Product Candidate to
notify the FDA of the new manufacturer. Although the FDA generally will not
suspend or delay a clinical trial as a result of replacing an existing
manufacturer, the FDA has the authority to suspend or delay a clinical trial if,
among other grounds, human subjects are or would be exposed to an unreasonable
and significant risk of illness or injury as a result of the replacement
manufacturer.
We intend
to rely on third parties to manufacture our products if they are approved for
sale by the appropriate regulatory agencies and are commercialized. Third party
manufacturers may not be able to meet our needs with respect to the timing,
quantity or quality of our products or to supply products on acceptable
terms.
Because
we do not have in-house marketing, sales or distribution capabilities, we have
contracted with third parties and expect to contract with third parties in the
future for these functions and we will therefore be dependent upon such third
parties to market, sell and distribute our products in an effort to generate
revenues.
We
currently have no in-house sales, marketing or distribution capabilities. In
order to commercialize any product candidates for which we receive FDA or
non-U.S. approval, we expect to rely on established third parties who have
strategic partnerships with us to perform these functions. To date, we have
entered into four marketing and distribution agreements for ONCONASE® in
regions outside the United States. We cannot assure you we will be able to
maintain these relationships or establish new relationships with
biopharmaceutical or other marketing companies with existing distribution
systems and direct sales forces to market any or all of our product candidates
on acceptable terms, if at all.
In
addition, we may incur significant expenses in determining our commercialization
strategy with respect to one or more of our product candidates for regions
outside the United States. The determination of our commercialization strategy
with respect to a product candidate will depend on a number of factors,
including:
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the
extent to which we are successful in securing third parties to collaborate
with us to offset some or all of the funding obligations with respect to
product candidates;
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the
extent to which our agreement with our collaborators permits us to
exercise marketing or promotion rights with respect to the product
candidate;
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how
our product candidates compare to competitive products with respect to
labeling, pricing, therapeutic effect, and method of delivery;
and
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whether
we are able to establish agreements with third party collaborators,
including large biopharmaceutical or other marketing companies, with
respect to any of our product candidates on terms that are acceptable to
us.
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If
we are unable to obtain favorable reimbursement for our product candidates,
their commercial success may be severely hindered.
Our
ability to sell our future products may depend in large part on the extent to
which reimbursement for the costs of our products is available from government
entities, private health insurers, managed care organizations and others.
Third-party payors are increasingly attempting to contain their costs. We cannot
predict what actions third-party payors may take, or whether they will limit the
coverage and level of reimbursement for our products or refuse to provide any
coverage at all. Reduced or partial reimbursement coverage could make our
products less attractive to patients, suppliers and prescribing physicians and
may not be adequate for us to maintain price levels sufficient to realize an
appropriate return on our investment in our product candidates or to compete on
price.
In some
cases, insurers and other healthcare payment organizations try to encourage the
use of less expensive generic brands and over-the-counter, or OTC, products
through their prescription benefits coverage and reimbursement policies. These
organizations may make the generic alternative more attractive to the patient by
providing different amounts of reimbursement so that the net cost of the generic
product to the patient is less than the net cost of a prescription brand
product. Aggressive pricing policies by our generic product competitors and the
prescription benefits policies of insurers could have a negative effect on our
product revenues and profitability.
Many
managed care organizations negotiate the price of medical services and products
and develop formularies for that purpose. Exclusion of a product from a
formulary can lead to its sharply reduced usage in the managed care organization
patient population. If our products are not included within an adequate number
of formularies or adequate reimbursement levels are not provided, or if those
policies increasingly favor generic or OTC products, our market share and gross
margins could be negatively affected, as could our overall business and
financial condition.
The
competition among pharmaceutical companies to have their products approved for
reimbursement may also result in downward pricing pressure in the industry or in
the markets where our products will compete. We may not be successful in any
efforts we take to mitigate the effect of a decline in average selling prices
for our products. Any decline in our average selling prices would also reduce
our gross margins.
In
addition, managed care initiatives to control costs may influence primary care
physicians to refer fewer patients to oncologists and other specialists.
Reductions in these referrals could have a material adverse effect on the size
of our potential market and increase costs to effectively promote our
products.
We are
subject to new legislation, regulatory proposals and managed care initiatives
that may increase our costs of compliance and adversely affect our ability to
market our products, obtain collaborators and raise capital.
There
have been a number of legislative and regulatory proposals aimed at changing the
healthcare system and pharmaceutical industry, including reductions in the cost
of prescription products and changes in the levels at which consumers and
healthcare providers are reimbursed for purchases of pharmaceutical
products. These include the Affordable Health Care for America Act,
recently passed by the United States Congress and singed into law by the
President and the Prescription Drug and Medicare Improvement Act of 2003.
Although we cannot predict the full effects on our business of the
implementation of this new legislation, it is possible that current legislation,
as well as legislation that may be adopted in the future, will result in
decreased reimbursement for prescription drugs, which may further exacerbate
industry-wide pressure to reduce the prices charged for prescription drugs. This
could harm our ability to market our products and generate
revenues. As a result of current legislation, as well as legislation
that may be adopted in the future, we may determine to change our current manner
of operation, provide additional benefits or change our contract arrangements,
any of which could harm our ability to operate our business efficiently, obtain
collaborators and raise capital.
Competition
in the biopharmaceutical field is intense and subject to rapid technological
change. Our principal competitors have substantially greater resources to
develop and market products that may be superior to ours.
If we
obtain regulatory approval for any of our drug product candidates, the extent to
which they achieve market acceptance will depend, in part, on competitive
factors. Competition in our industry is intense, and it is increased by the
rapid pace of technological development. Existing drug products or new drug
products developed by our competitors may be more effective or have fewer side
effects, or may be more effectively marketed and sold, than any that we may
develop. Our principal competitors have substantially greater research and
development capabilities and experience and greater manufacturing, marketing,
financial, and managerial resources than we do. Competitive drug compounds may
render our technology and drug product candidates obsolete or noncompetitive
prior to our recovery of research, development, or commercialization expenses
incurred through sales of any of our drug product candidates. The FDA’s policy
of granting “fast track” approval for cancer therapies may also expedite the
regulatory approval of our competitors’ drug product candidates.
To our
knowledge, no other company is developing a product with the same mechanism of
action as ONCONASE®.
However, there may be other companies, universities, research teams or
scientists who are developing products to treat the same medical conditions our
products are intended to treat.
We also
compete with other drug development companies for collaborations with large
pharmaceutical and other companies.
Risks
Related to this Offering and the Market for our Common Stock
Our
stock price has been and is likely to continue to be volatile, and an investment
in our common stock could decline in value.
The
market price of our common stock, like that of the securities of many other
development stage biotechnology companies, has fluctuated over a wide range and
it is likely that the price of our common stock will fluctuate in the future.
For example, over our past three fiscal years, the sale price for our common
stock has fluctuated from a low of $0.06 to a high of $4.29. The
market price of our common stock could be impacted by a variety of factors,
including:
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the
success or failure of our clinical trials or those of our
competitors;
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announcements
of technological innovations or new drug products by us or our
competitors;
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Actual
or anticipated fluctuations in our financial results;
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our
ability to obtain financing, when
needed;
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economic
conditions in the United States and abroad;
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Comments
by or changes in our assessments or financial estimates by securities
analysts;
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adverse
regulatory actions or decisions;
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Losses
of key management;
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changing
governmental regulations;
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our
ability to secure adequate third party reimbursement for products
developed by us;
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developments
or disputes concerning patents or other proprietary
rights;
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product
or patent litigation; and
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Public
concern as to the safety of products developed by
us.
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The stock
market continues to experience extreme price and volume fluctuations and these
fluctuations have especially affected the market price of many biotechnology
companies. Such fluctuations have often been unrelated to the operating
performance of these companies. Volatility or a lack of positive performance in
our stock price may adversely affect our ability to retain key employees, all of
whom have been granted stock options. These factors and fluctuations, as well as
political and market conditions, may materially adversely affect the market
price of our common stock.
A
few significant stockholders control the direction of our
business. If the ownership of our common stock continues to be highly
concentrated, it will prevent other shareholders from influencing significant
corporate actions.
The
ability of other shareholders to influence corporate matters may be limited
because a small number of stockholders beneficially currently own a substantial
amount of our common stock. As of March 12, 2010, Mr. Muniz owns
approximately 32% of our common stock; Knoll Capital Management LP, Fred Knoll
and Europa International, Inc. own a total of approximately 30% of our common
stock; McCash Family Limited Partnership owns approximately 10% of our common
stock; James O. McCash and James O. McCash Trust own approximately 6% of our
common stock; and Unilab LP owns approximately 10% of our common
stock. For more details of beneficial ownership of our shares, see
“SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.” Our
significant shareholders will be able to exert a significant degree of influence
over our management and affairs and all actions requiring stockholders approval,
such as the election of directors and approval of significant corporation
transaction.
In
addition, Delaware corporate law provides that certain actions may be taken by
consent action of stockholders holding a majority of the outstanding shares. In
the event that the requisite approval of stockholders is obtained by consent
action, without any meeting of stockholders, dissenting or non-participating
stockholders generally would be bound by such vote. Through their concentration
of voting power, our significant shareholders could delay, deter or prevent a
change in control of our company or other business combinations that might
otherwise be beneficial to our other stockholders. Accordingly, this
concentration of ownership may harm the market price of our common stock. In
addition, the interest of our significant stockholders may not always coincide
with the interest of the Company’s other stockholders. In deciding how to vote
on such matters, they may be influenced by interests that conflict with our
other shareholders’.
Our
incorporation documents may delay or prevent the removal of our current
management or a change of control that a stockholder may consider
favorable.
We are
currently authorized to issue 1,000,000 shares of preferred stock. Our Board of
Directors is authorized, without any approval of the stockholders, to issue the
preferred stock and determine the terms of the preferred stock. This provision
allows the Board to affect the rights of stockholders, since the Board of
Directors can make it more difficult for common stockholders to replace members
of the Board. Because the Board is responsible for appointing the
members of our management, these provisions could in turn affect any attempt to
replace current management by the common stockholders. Furthermore, the
existence of authorized shares of preferred stock might have the effect of
discouraging any attempt by a person, through the acquisition of a substantial
number of shares of common stock, to acquire control of us. Accordingly, the
accomplishment of a tender offer may be more difficult. This may be beneficial
to management in a hostile tender offer, but have an adverse impact on
stockholders who may want to participate in the tender offer or inhibit a
stockholder’s ability to receive an acquisition premium for his or her
shares.
Events
with respect to our share capital could cause the price of our common stock to
decline.
Sales of
substantial amounts of our common stock in the open market, or the availability
of such shares for sale, could adversely affect the price of our common stock.
We had 47,313,880 shares of common stock outstanding as of the end of our most
recently completed fiscal quarter ended January 31, 2010. The following
securities that may be exercised into shares of our common stock were issued and
outstanding as of January 31, 2010:
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Options.
Stock options to purchase 3,624,267 shares of our common stock at a
weighted average exercise price of approximately $1.82 per
share.
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Warrants.
Warrants to purchase 51,183,890 shares of our common stock at a weighted
average exercise price of approximately $0.56 per share. These
warrants include warrants issued in connection with the private financing
we completed in October 2009.
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Notes.
Senior Secured Convertible Notes convertible into an aggregate of
24,916,667 shares of our common stock at a conversion price of $0.15 per
share, assuming the accrual of three years interests at a rate of 5% on
the principals of the Notes upon their maturity date and the payment of
such accrued interest with shares of our common
stock.
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The
shares of our common stock that may be issued under the options and warrants are
currently registered with the SEC, are being registered with the
SEC on a registration statement to which this prospectus forms a part,
or are
eligible for sale without any volume limitations pursuant to Rule 144 under the
Securities Act.
The
securities issued in our October 2009 private financing include the
following:
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Notes.
Senior Secured Convertible Notes, or the Notes, convertible into an
aggregate of 24,916,667 shares of our common stock at a conversion price
of $0.15 per share, assuming three-year interests will accrue in full at a
rate of 5% on the principals of the Notes upon their maturity
date.
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Series
A Warrants. Series A Warrants to purchase an aggregate of 21,666,664
shares of our common stock at an exercise price of $0.15 per share with a
three-year term.
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Series
B Warrants. Series B Warrants to purchase an aggregate of 21,666,664
shares of our common stock at an exercise price of $0.25 per share with a
five-year term (the Series B Warrants and the Series A Warrants
collectively refereed to as the
Warrants).
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Pursuant
to the terms of an investor rights agreement or the Investor Rights Agreement
entered into in connection with the financing, we must file a “resale”
registration statement covering all of the shares issuable upon conversion of
the Notes and the shares issuable upon exercise of the Warrants, up to the
maximum number of shares able to be registered pursuant to applicable SEC
regulations, by May 1, 2010 as the filing deadline and obtain the effectiveness
of such registration statement within 90 days following the filing deadline or
within 120 days following the filing deadline if the SEC reviews and has written
comments to the registration statement. If any securities
issuable upon conversion or exercise, respectively, of the Notes and Warrants
are unable to be included on the initial “resale” registration statement, we
have agreed to file subsequent registration statements until all of the
securities have been registered. We are obligated to maintain the effectiveness
of the “resale” registration statement until all securities therein are sold or
otherwise can be sold pursuant to Rule 144 under the Securities Act,
without any restrictions. A cash penalty at the rate of 1% per month will
be triggered in the event the Company fails to file or obtain the effectiveness
of a registration statement prior to the deadlines set forth in the Investor
Rights Agreement or if the Company ceases to be current in filing its periodic
reports with the SEC. The aggregate penalty accrued with respect to each
investor may not exceed 6% of the original purchase price paid by that investor,
or 12% if the only effectiveness failure is the Company’s failure to be current
in its periodic reports with the SEC.
We
have significant secured indebtedness as a result of a private financing, which
we closed in October 2009, pursuant to which we issued the Notes. If
we are unable to perform our obligations under such notes, the holders of such
notes would be entitled to realize upon their security interest by taking
control of all or a portion of our assets.
We
substantially increased our debt when we issued the Notes in the aggregate
principal amount of $3.25 million pursuant to a private financing in October
2009. The Notes mature on the earliest of (i) October 19, 2012;
(ii) the closing of a public or private offering of the Company’s debt or equity
securities subsequent to the date of issuance of the Notes resulting in gross
proceeds of at least $8,125,000, other than a transaction involving a
stockholder who holds 5% or more of the Company’s outstanding capital stock as
of the date of issuance of the Notes; or (iii) on the demand of the holder of a
Note upon the Company’s consummation of a merger, sale of substantially all of
its assets, or the acquisition by any entity, person or group of 50% or more of
the voting power of the Company. Interest accrues on the principal amount
outstanding under the Notes at a rate of 5% per annum, and is due upon maturity.
Upon an event of default under the Notes, the interest rate shall increase to
7%. The Notes are convertible into shares of the Company’s common
stock at the option of the holder of such note at a price of $0.15 per share at
any time prior to the date on which the Company makes payment in full of all
amounts outstanding under such note. The Notes are not prepayable for a period
of one year following the issuance thereof.
The Notes
are secured by a senior security interest and lien on all of the Company’s
rights, title and interest to all of the assets owned by the Company as of the
issuance of the Notes or thereafter acquired pursuant to the terms of a security
agreement entered into by the Company with each of the investors. In the case of
an event of default under the Notes, the holders of the notes would be entitled
to realize their security interests and foreclose on our assets. In addition,
the holders of the notes would be entitled to declare the principal and accrued
interest thereunder to be due and payable. Our assets may not be sufficient to
fully repay amounts outstanding under the Notes in the event of any such
acceleration upon an event of default.
The
trading market for our common stock may be limited since our common stock is no
longer listed on the Nasdaq Capital Market.
On
January 6, 2009 our common stock was delisted from the Nasdaq Capital
Market. Since then our common stock has been quoted on the Pink
Sheets and may be thinly traded at times. You may be unable to sell
our common stock during times when the trading market is limited.
We
are subject to penny stock rules. As a consequence, sale of our stock by
investors may be difficult.
The term
“penny stock” generally refers to low-priced speculative securities of very
small companies. We are subject to SEC's penny stock rules.
Before a
broker-dealer can sell a penny stock, SEC rules require the firm to first
approve the customer for the transaction and receive from the customer a written
agreement to the transaction. The firm must furnish the customer a document
describing the risks of investing in penny stocks. The firm must tell the
customer the current market quotation, if any, for the penny stock and the
compensation the firm and its broker will receive for the trade. Finally, the
firm must send monthly account statements showing the market value of each penny
stock held in the customer's account.
Penny
stocks may trade infrequently, which means that it may be difficult to sell our
shares once you own them. Because it may be difficult to find quotations for
certain penny stocks, they may be impossible to accurately price. Investors in
penny stocks should be prepared for the possibility that they may lose their
whole investment.
Risks
Related to Our Operations
Our
lack of operating experience may cause us difficulty in managing our
growth.
We have
no experience in selling pharmaceutical or other products or in manufacturing or
procuring drug products in commercial quantities in compliance with FDA
regulations and we have only limited experience in negotiating, establishing and
maintaining collaborative relationships and conducting later stage phases of the
regulatory approval process. Our ability to manage our growth, if any, will
require us to improve and expand our management and our operational and
financial systems and controls. If our management is unable to manage growth
effectively, our business and financial condition would be adversely affected.
In addition, if rapid growth occurs, it may strain our operational, managerial
and financial resources, which are limited.
If
we lose key management personnel or are unable to attract and retain the talent
required for our business, our business could be materially harmed.
We
currently have only one executive officer, Charles Muniz, our President, CEO and
CFO. We are highly dependent on Mr. Muniz, who has an employment
contract with us. During the fiscal year ended July 31, 2009, Kuslima
Shogen, our scientific founder and former CEO retired, and Lawrence A. Kenyon,
our former President, CFO and Corporate Secretary, resigned.
We do not
have key man insurance on any of our management. If we were to lose
the services of Mr. Muniz or other members of our management team, and were
unable to replace them, our product development and the achievement of our
strategic objectives could be delayed.
In
addition, our success will depend on our ability to attract and retain qualified
commercial, scientific, technical, and managerial personnel. While we have not
experienced unusual difficulties to date in recruiting and retaining personnel,
there is intense competition for qualified staff and there is no assurance that
we will be able to retain existing personnel or attract and retain qualified
staff in the future.
We
handle hazardous materials and must comply with environmental laws and
regulations, which can be expensive and restrict how we do business. We could
also be liable for damages, penalties, or other forms of censure if we are
involved in a hazardous waste spill or other accident.
Our
research and development processes involve the controlled storage, use, and
disposal of hazardous materials and biological hazardous materials. We are
subject to federal, state, and local laws and regulations governing the use,
manufacture, storage, handling, and disposal of hazardous materials and certain
waste products. Although we believe that our safety procedures for handling and
disposing of these hazardous materials 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, even by a third party, we could be held liable for any damages that
result, and such liability could exceed the $2,000,000 limit of our current
general liability insurance coverage and our financial resources. In the future,
we may not be able to maintain insurance on acceptable terms, or at all. We
could also be required to incur significant costs to comply with current or
future environmental laws and regulations.
We
may be sued for product liability.
Our
business exposes us to potential product liability that may have a negative
effect on our financial performance and our business generally. The
administration of drugs to humans, whether in clinical trials or commercially,
exposes us to potential product and professional liability risks which are
inherent in the testing, production, marketing and sale of new drugs for humans.
Product liability claims can be expensive to defend and may result in large
judgments or settlements against us, which could have a negative effect on our
financial performance and materially adversely affect our business. We maintain product
liability insurance to protect our products and product candidates in amounts
customary for companies in businesses that are similarly situated, but our
insurance coverage may not be sufficient to cover claims. Furthermore, liability
insurance coverage is becoming increasingly expensive and we cannot be certain
that we will always be able to maintain or increase our insurance coverage at an
affordable price or in sufficient amounts to protect against potential losses. A
product liability claim, product recall or other claim, as well as any claim for
uninsured liabilities or claim in excess of insured liabilities, may
significantly harm our business and results of operations. Even if a product
liability claim is not successful, adverse publicity and time and expense of
defending such a claim may significantly interfere with our
business.
Material
weaknesses or deficiencies in our internal control over financial reporting
could harm stockholders’ and business partners’ confidence in our financial
reporting, our ability to obtain financing, and other aspects of our
business.
Internal
control over financial reporting can provide only reasonable and not absolute
assurance that deficiencies or weaknesses are identified. Additionally,
potential control deficiencies that are not yet identified could emerge and
internal controls that are currently deemed to be in place and operating
effectively are subject to the risk that those controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Identification and corrections of these
types of potential control deficiencies could have a material impact on our
business, financial position, results of operations and disclosures and impact
our ability to raise funds.
Risks
Related to Our Intellectual Property
Our
proprietary technology and patents may offer only limited protection against
infringement and the development by our competitors of competitive
products.
We own
two patents jointly with the United States government. These patents expire in
2016. We also own eighteen other United States patents with expiration dates
ranging from 2013 to 2024, four European patents with expiration dates ranging
from 2010 to 2019, three Japanese patents with expiration dates ranging from
2010 to 2016 and one Singaporean patent with an expiration date in
2024. Of the patents we own, five of the United States patents, two
of the European patents and two of the Japanese patents have claims that cover
ONCONASE® (by
itself or together with other pharmaceuticals) or relevant manufacturing
methodology. The scope of protection afforded by patents for
biotechnological inventions is uncertain, and such uncertainty applies to our
patents as well. Therefore, our patents may not give us competitive advantages
or afford us adequate protection from competing products. Furthermore, others
may independently develop products that are similar to our products, and may
design around the claims of our patents. Patent litigation and intellectual
property litigation are expensive and our resources are limited. To date, we
have not received any threats of litigation regarding patent
issues. However, if we were to become involved in litigation, we
might not have the funds or other resources necessary to conduct the litigation
effectively. This might prevent us from protecting our patents, from defending
against claims of infringement, or both.
We
may be sued for infringing on the intellectual property rights of
others.
Our
commercial success also depends in part on ensuring that we do not infringe the
patents or proprietary rights of third parties. The biotechnology industry has
produced a proliferation of patents, and it is not always clear to industry
participants, including us, which patents cover various types of products. The
coverage of patents is subject to interpretation by the courts, and the
interpretation is not always uniform. While we have not been sued for infringing
the intellectual property rights of others, there can be no assurance that the
drug product candidates that we have under development do not or will not
infringe on the patent or proprietary rights of others. Third parties may assert
that we are employing their proprietary technology without authorization.
Moreover, United States patent applications filed in recent years are
confidential for 18 months, while older applications are not published
until the patent issues. Further, some applications are kept secret during the
entire length of their pendency by request of the applicant in special
circumstances. As a result, there may be patents of which we are unaware, and
avoiding patent infringement may be difficult. Patent holders sometimes send
communications to a number of companies in related fields, suggesting possible
infringement. If we are sued for patent infringement, we would need to
demonstrate that we either do not infringe the patent claims of the relevant
patent and/or that the patent claims are invalid, which we may not be able to
do. Proving invalidity, in particular, is difficult since it requires a showing
of clear and convincing evidence to overcome the presumption of validity enjoyed
by issued patents. Parties making claims against us may be able to obtain
injunctive or other equitable relief that could effectively block our ability to
further develop, commercialize and sell products, and such claims could result
in the award of substantial damages against us. In the event of a successful
claim of infringement against us, we may be required to pay damages and obtain
one or more licenses from third parties. We may not be able to obtain these
licenses at a reasonable cost, if at all. In that event, we could encounter
delays in product introductions while we attempt to develop alternative methods
or products or be required to cease commercializing affected products and our
operating results would be harmed.
In the
future, others may file patent applications covering technologies that we may
wish to utilize with our proprietary technologies, or products that are similar
to products developed with the use of our technologies. If these patent
applications result in issued patents and we wish to use the claimed technology,
we would need to obtain a license from the third party, and this would increase
our costs of operations and harm our operating results.
FORWARD
LOOKING STATEMENTS
This
prospectus includes forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. The words “believe,” “may,”
“will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar
expressions, as they relate to us, our business, or our management, are intended
to identify forward looking statements. We have based these forward looking
statements largely on our current expectations and projections about future
events and financial trends affecting the financial condition of our
business. These forward looking statements are subject to a number of
risks, uncertainties and assumptions that may be beyond our
control. All of our forward looking statements are qualified in their
entirety by reference to the factors discussed in this prospectus under the
heading “RISK FACTORS”that could cause results to differ materially from those
projected in these forward looking statements.
We
caution you that the risk factors contained herein are not
exhaustive. We operate in a continually changing business climate
which can be expected to impact our forward looking statements, whether as a
result of new information, future events, or otherwise, after the date of this
prospectus. In light of these risks and uncertainties, the forward looking
events and circumstances discussed in this prospectus may not occur and actual
results could differ materially from those anticipated or implied in the forward
looking statements. Accordingly, you should not rely on forward
looking statements as a prediction of actual results.
USE
OF PROCEEDS
Each of
the Selling Security Holders will receive all of the net proceeds from the sale
of shares by that holder. We will not receive any of the net proceeds from the
sale of the shares. The Selling Security Holders will pay any underwriting
discounts and commissions and expenses incurred by the Selling Security Holders
for brokerage, accounting, tax or legal services or any other expenses incurred
by the Selling Security Holders in offering or selling their shares. We will
bear all other costs, fees and expenses incurred in effecting the registration
of the shares covered by this prospectus, including, without limitation, blue
sky registration and filing fees, and fees and expenses of our counsel and
accountants.
A
portion of the shares covered by this prospectus are, prior to their sale under
this prospectus, issuable upon conversion of the Notes or exercise of the
Warrants. When the Notes are converted we will be relieved of
our debt obligations for the Notes at the rate of $0.15 per share issued.
Assuming that the Notes are converted on October 19, 2012, the maturity
date of the Notes, and that interest will accrue at the rate of 5% through the
maturity date, a total of $3,737,500 of principal and
accrued interest would be converted into 24,916,667 shares of our
common stock. If all of the Series A Warrants are exercised for cash at the
exercise price of $0.15 per share, we will receive a total of $3,250,000 from
such exercise. If all of the Series B Warrants are exercised for cash at the
exercise price of $0.25 per share, we will receive a total of $5,416,666 from
such exercise.
The Notes
and Warrants were issued in a private placement which we closed in October
2009. We received proceeds from the Notes in the aggregate principal
amount of $3,250,000 and assuming 100% exercise of the Warrants for cash, we
will receive $8,666,666 from the payment of the exercise price. At
the time of the private placement, we intended to use the proceeds for general
corporate purposes, including the funding of research and development
activities. The use of a portion of such proceedings is subject to
certain limitations. In connection with our October 2009 private
financing, we entered into an escrow agreement whereby certain investors placed
$1.6 million of the proceeds paid for their units purchased in the financing in
an escrow account. The escrow agreement will terminate on the earlier
of the date that all funds have been disbursed from the escrow account and
April 19, 2011, at which time any remaining funds will be disbursed to
us. Such amounts can be disbursed from the escrow account only to
satisfy obligations of ours owed to clinical research organizations, hospitals,
doctors and other vendors and service providers associated with the clinical
trials which we intend to conduct for our ONCONASE® product. Until such
time that the escrow agreement terminates, we are not permitted to use the funds
in the escrow account for any other purposes.
DETERMINATION
OF OFFERING PRICE
The
securities may be sold in one or more transactions at prevailing market prices
at the time of the sale on the over-the counter bulletin board or at privately
negotiated prices determined at the time of sale.
DILUTION
We are
not selling any of the shares of common stock in this offering. All of the
shares sold in this offering will be held by the Selling Security Holders at the
time of the sale, so that no dilution will result from the sale of the
shares.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following discussion of our financial condition and results of operations should
be read together with our consolidated financial statements and notes to those
statements included in this prospectus.
Overview
We are a
biopharmaceutical company engaged in the research, development, and
commercialization of drugs for life threatening-diseases, such as malignant
mesothelioma and other cancers. Our corporate strategy is to become a
leader in the discovery, development, and commercialization of novel
ribonuclease (RNase) therapeutics for cancer and other life-threatening
diseases.
We are a
development stage company as defined in Accounting Standards Codification (ASC)
“Development Stage Entities”. We are devoting substantially all of
our present efforts to establishing a new business and developing new drug
products. Our planned principal operations of marketing and/or licensing new
drugs have not commenced and, accordingly, we have not derived any significant
revenue from these operations.
Since our
inception in 1981, we have devoted the vast majority of our resources to the
research and development of ONCONASE®, our
lead drug candidate, as well as other related drug candidates. In
recent years we have focused our resources towards the completion of the
clinical program for ONCONASE® in
patients suffering from unresectable malignant mesothelioma, or
UMM.
During
our fiscal year ended July 31, 2009, our efforts were primarily focused on the
completion of our confirmatory Phase IIIb clinical trial for UMM and preparation
of the remaining components of our NDA. The results of the
preliminary statistical analysis of the data from the confirmatory Phase IIIb
clinical trial for ONCONASE® in
patients suffering from UMM did not meet statistical significance for the
primary endpoint of survival in UMM. However, a statistically
significant improvement in survival was seen in the treatment of UMM patients
who failed one prior chemotherapy regimen, a currently unmet medical need and
one of the predefined primary sub-group data sets for patients in the
trial. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an
NDA. At this time, we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to pursue,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
effected a reduction in force and reduced our operations to the minimum
sustainable level required to pursue strategic alternatives and additional
capital during the fiscal year ended July 31, 2009. Charles Muniz, a
long time supporter and significant shareholder our company, was elected to our
Board and appointed our President, CEO and CFO. Additional changes to
our executive team during the fiscal year included the resignation of James
Loughlin as a member of our Board and Chairman of the Audit Committee,
resignation of Lawrence A. Kenyon as our President, CFO, Corporate Secretary and
member of our Board and pursuant to a retirement agreement, Kuslima Shogen, our
scientific founder, retired as our CEO and scientific founder. Ms.
Shogen resigned from our Board in January 2010.
Almost
all of the $72.6 million of research and development expenses we have incurred
since our inception has gone toward the development of ONCONASE® and related drug
candidates. For the fiscal years 2009, 2008 and 2007, our research
and development expenses were approximately $3.3 million, $8.5 million, and $5.5
million, respectively, almost all of which were used for the development of
ONCONASE® and related drug
candidates.
We
have incurred losses since inception and we have not received FDA approval of
any of our drug candidates. We expect to continue to incur losses for
the foreseeable future as we continue our efforts to receive marketing approval
for our drug candidates, which includes the sponsorship of human clinical
trials. Until we are able to consistently generate revenue through
the sale of drug or non-drug products, we anticipate that we will be required to
fund the development of our pre-clinical compounds and drug product candidates
primarily by other means, including, but not limited to, licensing the
development or marketing rights to some of our drug candidates to third parties,
collaborating with third parties to develop our drug candidates, or selling
Company issued securities.
We fund
the research and development of our products primarily from cash receipts
resulting from the sale of our equity securities and convertible debentures in
registered offerings and private placements. Additionally, we have
raised capital through other debt financings, the sale of our tax benefit and
research products, interest income and financing received from Kuslima Shogen,
our former CEO. During the fiscal year ended July 31, 2009, we
received gross proceeds of $13,220 from exercises of stock options and
approximately $1.1 million from the sale of our tax benefit. In
October 2009, we received a capital infusion of $3.25 million in gross proceeds
from a private financing. These proceeds will be used to continue our
operations, explore strategic alternatives and initiate a Phase II clinical
study for non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens. We have incurred
losses since inception and, to date, we have generated only small amounts of
capital from commercial agreements for ONCONASE®.
Results
of Operations
Fiscal
Year Ended July 31, 2009, as Compared to Fiscal Year Ended July 31,
2008
We are a
development stage company as defined in ASC “Development Stage
Entities.” We are devoting substantially all our present efforts to
establishing a new business and developing new drug products. Our
planned principal operations of marketing of new drugs have not commenced and,
accordingly, we have not derived any significant revenue from these
operations. We focus most of our productive and financial resources
on the development of ONCONASE®. We
did not record any revenue in fiscal years 2009 or 2008.
Research
and development expense for fiscal year 2009 was $3.3 million compared to $8.5
million for fiscal year 2008, a decrease of approximately $5.2 million, or
61.6%. The decrease was primarily due to decreased expenses of
approximately $4.2 million related to costs incurred for the ONCONASE®
rolling NDA submission of our confirmatory Phase IIIb ONCONASE®
clinical trial for malignant mesothelioma; decreased compensation expense of
approximately $0.7 million, due to the reduction in force; and a decrease of
approximately $0.3 million in expenses due to the completion of the Phase I
component of our Phase I/II ONCONASE®
clinical trials.
General
and administrative expense for fiscal year 2009 was approximately $2.4 million
compared to approximately $5.8 million for fiscal year 2008, a decrease of
approximately $3.4 million, or 58%. This decrease was primarily due
to decreased compensation expense of approximately $2.4 million directly related
to the retirement agreement executed by Kuslima Shogen, our former CEO in fiscal
year 2008, the resignation of our President and CFO in fiscal 2009 and
share-based compensation. Additionally, a decrease in professional
fees for consultants and legal advisors of approximately $0.9 million was
related to negotiations that resulted in commercial partnerships for
ONCONASE® in fiscal year
2008 and reduced operations in fiscal year 2009. Other general and
administrative expenses also decreased by approximately $0.1 million.
Investment
income for fiscal year 2009 was approximately $26,000 compared to $228,000 for
fiscal year 2008, a decrease of $202,000. The decrease was due to
lower balances of cash and cash equivalents on hand during the fiscal year 2009
as compared to the same period in 2008.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2009 (July 1, 2008 to June 30, 2009), we had approximately
$1,274,000 of total available state tax benefit that was saleable. On
December 1, 2008, we received approximately $1,140,000 from the sale of our
total available state tax benefit, which was recognized as state tax benefit in
the fiscal year ended July 31, 2009.
We have
incurred net losses during each year since our inception. The net
loss for fiscal year 2009 was approximately $4.5 million as compared to $12.3
million in fiscal year 2008. The decreased net loss was primarily
related to the decreased research and development expenses incurred in 2009 as
compared to 2008. The cumulative loss from the date of inception,
August 24, 1981 to July 31, 2009, amounted to $108.9 million. Such
losses are attributable to the fact that we are still in the development stage
and, accordingly, have not derived sufficient revenues from operations to offset
the development stage expenses.
Fiscal
Year Ended July 31, 2008, as Compared to Fiscal Year Ended July 31,
2007
We did
not record any revenue in fiscal years 2008 and 2007.
Research
and development expense for fiscal year 2008 was $8.5 million compared to $5.5
million for fiscal year 2007, an increase of approximately $3 million, or
53.4%. The increase in research and development expenses is directly
related to increased expenses of approximately $3.2 million related to our
preparations for the completion of the ONCONASE®
rolling NDA submission, which included the required statistical analysis of the
data from our confirmatory Phase IIIb clinical trial, offset by a decrease
of approximately $0.2 million in expenses incurred from the completion of the
Phase I component of our Phase I/II ONCONASE®
clinical trials.
General
and administrative expense for fiscal year 2008 was approximately $5.8 million
compared to approximately $4.1 million for fiscal year 2007, an increase of
approximately $1.7 million, or 41.6%. This increase was primarily the
result of increased compensation expense of approximately $1.1 million directly
related to the planned retirement of Kuslima Shogen, our former CEO, in
2009. Additionally, professional service fees for consultants and
legal advisors increased approximately $0.5 million as a result of our increased
activity in pursuing and negotiating commercial agreements in fiscal year
2008. Other general and administrative expenses increased by a total
of approximately $0.1 million in 2008 as a result of increased commercial
insurance premiums.
Investment
income for fiscal year 2008 was $0.2 million compared to $0.4 million for fiscal
year 2007, a decrease of $0.2 million. The decrease was due to lower
balances of cash and cash equivalents on hand during the fiscal year 2008 as
compared to the same period in 2007.
New
Jersey has enacted legislation permitting certain corporations located in New
Jersey to sell a portion of its state tax loss carryforwards and state research
and development credits in order to obtain tax benefits. For the
state fiscal year 2008 (July 1, 2007 to June 30, 2008), we had approximately
$2.5 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $2.0 million. In
December 2007, we received approximately $1.8 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2008.
For the
state fiscal year 2007 (July 1, 2006 to June 30, 2007), we had approximately
$2.3 million of total available state tax benefits that qualified for sale, of
which New Jersey permitted us to sell approximately $0.6 million. In
December 2006, we received approximately $0.5 million from the sale of these
state tax benefits, which was recognized as state tax benefit in the fiscal year
ended July 31, 2007.
The net
loss for fiscal year 2008 was $12.3 million as compared to $8.8 million in
fiscal year 2007.
Six-Month
Period Ended January 31, 2010, as Compared to Six-Month Period Ended January 31,
2009
We focus
most of our productive and financial resources on the development of
ONCONASE® and
as such, except for the sales for the six month period ended January 31, 2010 in
the amount of $18,750 which resulted from the sale on a named-patient basis of
our product ONCONASE® as
approved by the Swiss government, we did not have any material sales in the six
month periods ended January 31, 2010 and 2009.
Research
and development expense for the six month period ended January 31, 2010 was
approximately $0.3 million compared to approximately $2.8 million for the same
period in 2009, a decrease of approximately $2.5 million, or 90%. The
decrease was primarily related to decreased expenses of approximately $1.8
million related to costs incurred for the ONCONASE®
rolling NDA submission for our Phase IIIb clinical trial for malignant
mesothelioma and decreased compensation expense of approximately $0.7 million
from the reduction in force and decreased stock-based compensation.
General
and administrative expense for the six month period ended January 31, 2010 was
approximately $0.8 million compared to $1.8 million for the same period in 2009,
a decrease of $1.0, or 54%. This decrease was primarily due to
decreased compensation expense of approximately $0.7 million from decreased
stock-based compensation expense, the retirement of Kuslima Shogen, our former
CEO and the resignation of Lawrence Kenyon, our former CFO. Public
relations related costs and other general administrative expenses also decreased
by approximately $0.3 million due to our reduced operations in fiscal year
2010.
Interest
expense for the six month period ended January 31, 2010 increased by
approximately $5.9 million compared to the same period last
year. This increase was directly due to the beneficial conversion
feature of the convertible debenture and warrants we issued in October 2009 and
the original recognition of and the change in valuation of the derivative
liability.
New
Jersey permits certain corporations located in New Jersey to sell a portion of
their state tax loss carryforwards and state research and development credits,
or state tax benefit. For the state fiscal year 2010 (July 1, 2009 to
June 30, 2010, we had approximately $723,000 of total available state tax
benefit that was saleable. On February 8, 2010, we received
approximately $647,000 from the sale of our total available state tax benefit,
which will be recognized as state tax benefit in the period it was
received. For the state fiscal year 2009 (July 1, 2008 to June 30,
2009), we had approximately $1,274,000 of total available state tax benefit that
was saleable. On December 1, 2008, we received approximately
$1,140,000 from the sale of our total available state tax benefit, which was
recognized as state tax benefit for the six months ended January 31,
2009.
The net
loss for the six month period ended January 31, 2010 was approximately $6.9
million as compared to $3.5 million for the same period last year, an increase
of $3.4 million. The cumulative loss from the date of inception,
August 24, 1981 to January 31, 2010, amounted to $115.9 million. We
have incurred net losses during each year since our inception. Such
losses are attributable to the fact that we are still in the development stage
and, accordingly, have not derived sufficient revenues from operations to offset
our development stage expenses.
Liquidity
and Capital Resources
We have
reported cumulative net losses of approximately $25.6 million for the three most
recent fiscal years ended July 31, 2009. The net losses from date of
inception, August 24, 1981, to January 31, 2010 amount to approximately $115.9
million. As of January 31, 2010, we have a working capital deficit of
approximately $10.5 million.
We have
financed our operations since inception primarily through the sale of our equity
securities and convertible debentures in registered offerings and private
placements. Additionally, we have raised capital through other debt
financings, the sale of our state tax benefit and research products, and
investment income and financing received from Kuslima Shogen, our former
CEO. As of January 31, 2010, we had approximately $0.7 million
in cash and cash equivalents. We currently believe that our cash
reserves including the proceeds received in February 2010 from the sale of our
state tax benefit of approximately $0.6 million and the $1.6 million restricted
cash intended for future clinical trials can support our activities through July
2010, based upon our reduced operations.
The
primary use of cash over the next six months will be to fund our clinical and
pre-clinical research and development efforts for ONCONASE®. The
most significant expenses will be incurred for the currently planned Phase II
clinical study for non-small cell lung cancer. Additional expenses
are also expected to be incurred as we continue to move our drug product
candidates towards the next phase of clinical and pre-clinical
development. We will need to obtain additional financing in order to
continue our operations. Given current market conditions, it may be
very difficult, if not impossible, to obtain such financing. If we
are not able to obtain additional financing, in order to continue our operations
we will need to pursue strategic alternatives for the further development of
ONCONASE®.
The audit
report of our independent registered public accounting firm on our fiscal year
ended July 31, 2009 financial statements expressed that there was substantial
doubt about our ability to continue as a going concern. Continued
operations are dependent on our ability to raise additional capital from various
sources such as those described above. Such capital raising
opportunities may not be available or may not be available on reasonable
terms. Our financial statements do not include any adjustments that
may result from the outcome of this uncertainty.
Off-Balance
Sheet Arrangements
We have
no off-balance sheet debt, no exposure to off-balance sheet arrangements, no
special purpose entities, nor activities that include non-exchange-traded
contracts accounted for at fair value as of January 31, 2010.
Contractual
Obligations and Commercial Commitments
Our major
outstanding contractual obligations relate to our building and equipment
operating leases. During the fiscal year ended July 31, 2008, we
entered into an equipment capital lease which obligates us to pay $635 per month
for five years and during the fiscal year ended July 31, 2007, we entered into
separate building and equipment operating leases, which obligates us to pay an
average of $25,393 per month for the building and $1,866 per month for the
equipment for ten and five years, respectively. Below is a table that
presents our contractual obligations and commercial commitments as of July 31,
2009:
|
|
|
|
|
Payments
Due in Fiscal Year
|
|
|
|
Total
|
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
and Thereafter
|
|
Building
lease
|
|
$
|
2,750,685
|
|
|
$
|
302,036
|
|
|
$
|
317,446
|
|
|
$
|
317,446
|
|
|
$
|
317,446
|
|
|
$
|
332,856
|
|
|
$
|
1,163,455
|
|
Equipment
lease
|
|
|
83,612
|
|
|
|
31,024
|
|
|
|
25,976
|
|
|
|
25,976
|
|
|
|
636
|
|
|
|
-
|
|
|
|
-
|
|
Total
Contractual cash obligations
|
|
$
|
2,834,297
|
|
|
$
|
333,060
|
|
|
$
|
343,422
|
|
|
$
|
343,422
|
|
|
$
|
318,082
|
|
|
$
|
332,856
|
|
|
$
|
1,163,455
|
|
On
January 15, 2010, Charles Muniz, our President and CEO, as an individual,
entered into a quarterly lease agreement with I&G Garden State, LLC or
I&G for new office on the fourth floor of 300 Atrium Drive, Somerset, NJ,
which space we will occupy as our new office. The lease expires on
June 30, 2010, renewable for successive three-month periods upon thirty days
prior notice and payment of $15,790.50 for the following three months'
rent. Since the beginning of the lease term, we have been paying the
quarterly rent payments directly to I&G.
In
January 2010, we vacated our old facility pursuant to the complaint filed by our
landlord, I&G in November 2009. In February 2010, I&G
withdrew the remaining balance of the Company’s secured irrevocable letter of
credit which was placed in March 2007 in the amount of approximately
$81,000. On February 5, 2010, our former landlord, I&G, commenced
an action against us. The lawsuit seeks unspecified damages for
an alleged breach of a lease agreement dated March 14, 2007 between
the Company and I&G. We intend to vigorously defend this
action.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants discuss their most
"critical accounting policies" in Item 7 - Management's Discussion and Analysis
of Financial Condition and Results of Operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently
uncertain. The accounting policies set forth below have been
considered critical because changes to certain judgments, estimates and
assumptions could significantly affect our financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles or GAAP, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those
estimates.
Cash
Equivalents
We
consider all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. The carrying value of
these investments approximates their fair market value due to their short
maturity and liquidity.
Property
and Equipment
Property
and equipment is recorded at cost and is depreciated using the straight-line
method over the estimated useful lives of the respective
assets. Maintenance and repairs that do not extend the life of assets
are charged to expense when incurred. When assets are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in operations for
the period in which the transaction takes place.
Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to estimated undiscounted
cash flows expected to be generated by the asset. If the carrying
amount exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount exceeds the fair value of
the asset.
Income
Taxes
Income
taxes are accounted for under the provisions of ASC "Accounting for Income
Taxes". Under this method, deferred tax assets and liabilities are
recognized for the 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. Management provides valuation allowances against the
deferred tax assets for amounts which are not considered “more likely than not”
to be realized.
Revenue
Recognition
We
recognize revenue in accordance with Staff Accounting Bulletin (SAB) No. 104,
“Revenue Recognition,” issued by the staff of the SEC. Under SAB No.
104, revenue is recognized when persuasive evidence of an arrangement exists,
delivery has occurred and/or services have been rendered, the sales price is
fixed or determinable, and collectibility is reasonably assured.
We enter
into marketing and distribution agreements, which contain multiple
deliverables. Under the provisions of “Accounting for
Revenue Arrangements with Multiple Deliverables,” we evaluate whether these
deliverables constitute separate units of accounting to which total arrangement
consideration is allocated. A deliverable qualifies as a separate
unit of accounting when the item delivered to the customer has standalone value,
there is objective and reliable evidence of fair value of items that have not
been delivered to the customer, and, if there is a general right of return for
the items delivered to the customer, delivery or performance of the undelivered
items is considered probable and substantially in the control of the
company. Arrangement consideration is allocated to units of
accounting on a relative fair-value basis or the residual method if the company
is unable to determine the fair value of all deliverables in the
arrangement. Consideration allocated to a unit of accounting is
limited to the amount that is not contingent upon future performance by the
company. Upon determination of separate units of accounting and
allocated consideration, the general criteria for revenue recognition are
applied to each unit of accounting.
Research
and Development
Research
and development costs are expensed as incurred. These costs include,
among other things, consulting fees and costs related to the conduct of human
clinical trials. We also allocate indirect costs, consisting
primarily of operational costs for administering research and development
activities, to research and development expenses.
Share-Based
Compensation
In
December 2004, the Financial Accounting Standards Board issued amended guidance
on accounting for “Stock Compensation”. The amended guidance requires
all share-based payments, including stock option grants to employees, to be
recognized as an operating expense in the statement of
operations. The expense is recognized over the requisite service
period based on fair values measured on the date of grant. We adopted
the amended guidance on Stock Compensation effective August 1, 2005 using the
modified prospective method and, accordingly, prior period amounts have not been
restated. Under the modified prospective method, the fair value of
all new stock options issued after July 31, 2005 and the unamortized fair value
of unvested outstanding stock options at August 1, 2005 are recognized as
expense as services are rendered.
Leases
With
respect to our operating leases, we apply the provisions of ASC “Accounting for
Leases”, recognizing rent expense on a straight-line basis over the lease term
due to escalating lease payments and landlord incentives.
Contingencies
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines, and
penalties and other sources are recorded when it is probable that a liability
has been incurred and the amount of the liability can be reasonably estimated.
Recoveries from other parties are recorded when realized.
Fair
Value of Financial Instruments
Financial
instruments consist of cash, cash equivalents, accounts receivable, and accounts
payable. The carrying value of these financial instruments is a
reasonable estimate of fair value.
Recently
Issued Accounting Pronouncements
In June
2009, the Financial Accounting Standards Board (FASB) issued the FASB Accounting
Standards Codification (the “Codification”). Effective July 1, 2009,
the Codification became the single source of authoritative nongovernmental U.S.
generally accepted accounting principles (GAAP), superseding existing rules and
related literature issued by the FASB, American Institute of Certified Public
Accountants (AICPA) and Emerging Issues Task Force (EITF). The
Codification also eliminates the previous U.S. GAAP hierarchy and establishes
one level of authoritative GAAP. Rules and interpretive releases of
the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. All other literature is
considered non-authoritative. The Codification, which has not changed
GAAP, was effective for interim and annual periods ended after September 15,
2009. The Company adopted the Codification for the quarter ended
October 31, 2009. Other than the manner in which accounting guidance
is referenced, the adoption of the Codification had no impact on the Company’s
financial statements.
In
December 2007, the FASB issued new accounting guidance related to the accounting
for business combinations and related disclosures. This guidance
establishes principles and requirements for how an acquirer recognizes and
measures in its financial statements the identifiable assets acquired, the
liabilities assumed, any noncontrolling interest in the acquiree, and any
goodwill acquired in a business combination. It also establishes
disclosure requirements to enable the evaluation of the nature and financial
effects of a business combination. The guidance is to be applied
prospectively to business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company adopted this guidance, effective August 1,
2009, and it did not have any effect on the Company’s financial
statements.
In
February 2008, the FASB issued amended guidance to delay the fair value
measurement and expanded disclosures about fair value measurements for
nonfinancial assets and nonfinancial liabilities, except for items that are
recognized or disclosed at fair value in the financial statements on a recurring
basis (at least annually), until fiscal years beginning after November 15,
2008. Effective August 1, 2009, the Company adopted the guidance
related to fair value measurements for nonfinancial assets and nonfinancial
liabilities and the adoption of such guidance did not have any effect on the
Company’s financial statements.
In June
2008, the FASB issued guidance for determining whether an equity-linked
financial instrument (or embedded feature) is indexed to an entity’s own stock,
which would qualify as a scope exception to derivative classification under ASC
Topic 815, “Derivatives and Hedging”. The guidance is effective for
fiscal years beginning after December 15, 2008 and early adoption for an
existing instrument is not permitted. The Company adopted this
guidance, effective August 1, 2009. The adoption had no impact on the
Company’s previously accounted for equity-linked financial instruments that were
considered to be indexed to its own equity. Refer to Note 6 for the
result of the adoption on the equity-linked instruments included within the
Securities Purchase Agreement entered into on October 19, 2009.
In
May 2009, the FASB issued guidelines on subsequent event accounting which sets
forth: (1) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements; (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements; (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date and (4) requires the reporting entity to
evaluate subsequent events through the date the financial statements are
issued. The Company adopted these amendments for the fiscal year
ended July 31, 2009 and determined that it did not have a material impact on the
Company’s financial statements. The Company evaluated all events or
transactions that occurred after January 31, 2010 through the date the financial
statements were issued.
In August
2009, the FASB issued amended guidance on the measurement of liabilities at fair
value. The guidance provides clarification that in circumstances in
which a quoted market price in an active market for an identical liability is
not available, the fair value of a liability be measured using one or more of
the valuation techniques that uses the quoted price of an identical liability
when traded as an asset or, if unavailable, quoted prices for similar
liabilities or similar assets when traded as assets. If none of this
information is available, an entity should use a valuation technique in
accordance with existing fair valuation principles. This guidance is
effective for the first reporting period (including interim periods) after
issuance. The Company adopted this guidance in the quarter ended
October 31, 2009. The adoption had no impact on the Company’s
financial statements.
In
October 2009, the FASB issued amended guidance for separating consideration in
multiple-deliverable arrangements. It eliminates the requirement
under previous guidance that all undelivered elements have vendor-specific
objective evidence (VSOE) or third-party evidence (TPE) of fair value before
recognizing a portion of revenue related to the delivered items, and establishes
that revenue be allocated to each element based on its relative selling price,
as determined by VSOE, TPE, or the entity’s estimated selling price if neither
of the aforementioned is available. Additionally, the amended
guidance eliminates the residual method of allocation and expands required
disclosures about multiple-element revenue arrangements. It will be
effective prospectively for revenue arrangements entered into beginning
January 1, 2011, with early adoption permitted.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
There
have been no changes in or disagreements with accountants on accounting or
financial disclosures in the past two fiscal years and the subsequent interim
period thereafter.
On
December 1, 1993, certain stockholders of Armus Harrison & Co., or AHC,
terminated their association with AHC, or the AHC termination, and AHC ceased
performing accounting and auditing services, except for limited accounting
services to be performed on our behalf. In June 1996, AHC dissolved
and ceased all operations. The report of J.H. Cohn LLP with respect
to our financial statements from inception to July 31, 2008 is based on the
report of KPMG LLP from August 1, 1992 to July 31, 2002 and of AHC for the
period from inception to July 31, 1992, although AHC has not consented to the
use of such report herein and will not be available to perform any subsequent
review procedures with respect to such report. Accordingly, investors
will be barred from asserting claims against AHC under Section 18 of the
Exchange Act on the basis of the use of such report in any Annual Report on Form
10-K into which such report is incorporated by reference. In
addition, in the event any persons seek to assert a claim against AHC for false
or misleading financial statements and disclosures in documents previously filed
by us, such claim will be adversely affected and possibly
barred. Furthermore, as a result of the lack of a consent from AHC to
the use of its audit report herein, or to its incorporation by reference into an
Annual Report on Form 10-K, our officers and directors will be unable to rely on
the authority of AHC as experts in auditing and accounting in the event any
claim is brought against such persons under Section 18 of the Exchange Act based
on alleged false and misleading Financial Statements and disclosures
attributable to AHC. The discussion regarding certain effects of the
AHC termination is not meant and should not be construed in any way as legal
advice to any party and any potential purchaser should consult with his, her or
its own counsel with respect to the effect of the AHC termination on a potential
investment in our common stock or otherwise
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are
exposed to market risks, primarily changes in U.S. interest rates. As of January
31, 2010, we held total cash and cash equivalents of approximately $0.7 million.
All cash equivalents have a maturity less than 90 days. Declines in
interest rates over time would reduce our interest income from our
investments.
CONTROLS
AND PROCEDURES
(a)
Evaluation of disclosure controls and procedures.
Under the
supervision and with the participation of our management, including our CEO and
CFO, we evaluated the effectiveness of the design and operation of our
“disclosure controls and procedures” (as defined in Rule 13a-15(e) under the
Exchange Act), as of January 31, 2010, the end of our most recently completed
fiscal quarter. Based on this evaluation, our CEO and CFO concluded
that our disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the rules and forms of the Securities and Exchange
Commission including without limitation, controls and procedures that are
designed to ensure that the information required to be disclosed in reports by
us that we file or submit under the Exchange Act is accumulated and communicated
to our management, including our principal executive and principal financial
officers, as appropriate to allow timely discussion regarding required
disclosures.
(b) Changes
in internal controls.
There
have been no changes in our internal control over financial reporting during the
quarter ended January 31, 2010 that have materially affected, or are reasonably
likely to materially affect, the Company’s internal control over financial
reporting subsequent to the date of the evaluation referred to
above.
BUSINESS
BUSINESS
OVERVIEW
Tamir
Biotechnology, Inc. is a Delaware corporation initially incorporated on August
24, 1981 under the name of Alfacell Corporation. The Company changed
its name to Tamir Biotechnology, Inc. on April 27, 2010. We are a
biopharmaceutical company primarily engaged in the discovery and development of
a new class of therapeutic drugs for the treatment of cancer and other
pathological conditions. Our proprietary drug discovery and
development program consists of novel therapeutics which is being developed from
amphibian ribonucleases (RNases).
RNases
are biologically active enzymes that split RNA molecules. RNases are
enzymes which play important roles in nature, including the embryonic
development of an organism and regulation of various cell
functions. RNA is an essential bio-chemical cellular component
necessary to support life. There are various types of RNA, all of
which have specific functions in a living cell. They help control
several essential biological activities, namely; regulation of cell
proliferation, maturation, differentiation and cell death. Therefore,
they are believed to be good candidates for the development of therapeutics for
cancer and other life-threatening diseases, including HIV and autoimmune
diseases, that require anti-proliferative and apoptotic, or programmed cell
death, properties.
ONCONASE®
(ranpirnase) is a novel amphibian ribonuclease, unique among the superfamily of
pancreatic ribonuclease, isolated from the eggs of the Rana pipiens (the Northern
Leopard frog). Ranpirnase is the smallest known protein belonging to
the superfamily of pancreatic ribonuclease and has been shown, on a molecular
level, to re-regulate the unregulated growth and proliferation of cancer
cells. Unlike most anti-cancer agents that attack all cells
regardless of phenotype (malignant versus normal) and cause severe toxicities,
ONCONASE® is not an indiscriminate
cytotoxic drug (cell killing agent). ONCONASE® primarily affects
exponentially growing malignant cells, with activity controlled through unique
and specific molecular mechanisms.
The
molecular mechanisms which determine the apoptotic cell death induced by
ranpirnase have been identified. tRNA (transfer RNA), rRNA (ribosomal
RNA), mRNA (messenger RNA) and miRNA (micro RNA) are all different types of RNA
with specific functions in a living cell. Ranpirnase preferentially
degrades tRNA and targets miRNA, leaving rRNA and mRNA apparently
undamaged. The RNA damage induced by ranpirnase appears to represent
a “death signal”, or triggers a chain of molecular events culminating in the
activation of proteolytic enzyme cascades which, in turn, induces disintegration
of the cellular components and finally leads to cell death. It has
been shown that there is a protein synthesis inhibition-independent component,
which, together with the changes induced by the protein synthesis inhibition,
results in tumor cell death.
ONCONASE®, our
lead drug product candidate, has been evaluated in human clinical trials for the
treatment of various forms of cancer. Our most recent clinical trial
for ONCONASE® was a
confirmatory Phase IIIb registration trial that was designed to evaluate the
efficacy, safety and tolerability of the combination of ONCONASE® and
doxorubicin as compared to doxorubicin alone in the treatment of patients with
unresectable (inoperable) malignant mesothelioma or UMM, a rare and deadly form
of lung cancer. Enrollment in the Phase IIIb trial was completed in
September 2007. In May 2008, we reported that the preliminary
statistical analysis of data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, a predefined primary data set for this sub-group of
patients in the trial, which represents a currently unmet medical
need. The Food and Drug Administration or the FDA, recommended that
an additional clinical trial be conducted in UMM patients that have failed one
prior chemotherapy regimen, prior to filing a New Drug Application or
NDA. At this time we do not expect to pursue further clinical trials
for ONCONASE® for
the UMM indication. We are evaluating which indications to purse,
including lung cancer and other solid tumors and currently we expect to use the
proceeds we received from the private financing we closed in October 2009 to
pursue a Phase II clinical trial of ONCONASE® for
the treatment of non-small cell lung cancer in patients who have reached maximum
progression on their current chemotherapy regimens.
We
believe that ONCONASE®, as
well as another group of our amphibian RNases known as Amphinases, may also have
applications in a variety of other areas in addition to those being investigated
currently in our clinical development program. Amphinase is currently
in the pre-clinical research and development stage.
We are a
development stage company as defined in the ASC “Development Stage
Entities.” We are devoting substantially all of our present efforts
to establishing a new business and developing new drug products. Our planned
principal operations of marketing and/or licensing new drugs have not commenced
and, accordingly, we have not derived any significant revenue from these
operations.
MARKET
OVERVIEW
According
to the American Cancer Society (ACS) 2009 Cancer Facts and
Figures, cancer is the second leading cause of death in the United
States, accounting for one in every four deaths. The ACS 2009 Cancer Facts and Figures
also estimates that doctors will diagnose over 1.5 million new cases of cancer
in the United States in 2009. The National Institutes of Health or
NIH estimate that the annual cost of cancer in 2008 was approximately $228.1
billion, including $93.2 billion in direct medical costs and $18.8 billion for
morbidity costs, which includes the cost of lost productivity.
Cancer is
characterized by uncontrolled cell division resulting in the growth of a mass of
cells commonly known as a tumor. Cancerous tumors can arise in almost
any tissue or organ and cancer cells, if not eradicated, spread, or metastasize,
throughout the body. Cancer is believed to occur as a result of a
number of factors, including hereditary and environmental factors.
For the
most part, cancer treatment depends on the type of cancer and the stage of
disease progression. Generally, staging is based on the size of the tumor and
whether the cancer has metastasized or spread. Following diagnosis,
solid tumors are typically surgically removed or the patient is given radiation
therapy. Chemotherapy is the principal treatment for tumors that are
likely to, or have, metastasized. Chemotherapy involves the
administration of drugs which are designed to kill cancer cells, affect the
growth of tumors, or reduce bloodflow to tumors, in an effort to reduce or
eliminate cancerous tumors.
Because
in most cases cancer is fatal, cancer specialists attempt to attack the cancer
aggressively, with as many therapies as available and with as high a dose as the
patient can tolerate. Since traditional chemotherapy attacks both
normal and cancerous cells, treatment often tends to result in complicating side
effects. Additionally, cells which have been exposed to several
rounds of chemotherapy develop a resistance to the cancer drugs that are being
administered. This is known as “multi-drug
resistance.” The side effects of chemotherapy often limit the
effectiveness of treatment. Cancers often recur and mortality rates
remain high. Despite large sums of money spent on cancer research,
current treatments are largely inadequate and improved anti-cancer agents are
needed.
We
believe that the products we currently have under development could be used to
target a broad range of solid tumors. The table below shows the
incidence and mortality estimated for the year 2009 for various types of solid
tumor cancers that our products could be designed to treat:
Cancer
Indication
|
|
New
Cases
|
|
Deaths
|
Lung
|
|
219,440
|
|
159,390
|
Breast
|
|
194,280
|
|
40,610
|
Brain
|
|
22,070
|
|
12,920
|
Esophageal
|
|
16,470
|
|
14,530
|
|
|
|
|
|
Source:
National Cancer Institute
|
|
|
COMPETITION
There are
many companies with resources significantly greater than ours that are currently
marketing approved drug products that treat, and are developing new drug
products that are designed to treat, several of the cancers that we may seek to
treat with our products. The drug products currently marketed or developed by
these companies may prove to be more effective that the products we seek to
develop.
We are
not aware, however, of any product currently being marketed that has the same
mechanism of action as our proposed anti-tumor agent, ONCONASE®. Search
of scientific literature reveals no published information that would indicate
that others are currently employing this method or producing such an anti-tumor
agent. However, we cannot assure you that others may not develop new
treatments that are more effective than ONCONASE®.
BUSINESS
STRATEGY
Our goal
is to become a leading biopharmaceutical company focused on discovering and
developing innovative anti-cancer treatments based on our proprietary RNase
technology platform. Our strategy consists of the following key
elements:
Focus
on the growing cancer market
Cancer is
the second leading cause of death in the United States, yet there remain unmet
needs, and current treatments remain ineffective and inadequate for some
populations. Given the life-threatening nature of cancer, the FDA has
adopted procedures to accelerate the approval of cancer drugs. We
intend to continue to use our expertise in the field of cancer research to
target this significant market opportunity for cancer drug
development.
Develop
our existing product portfolio
We
currently have a portfolio of clinical and pre-clinical drug product candidates
under development for potential use as anti-cancer, and other
therapeutics. We intend to further develop these drug product
candidates both by utilizing our internal resources and by continuing to
collaborate with other companies and leading governmental and academic research
institutions.
Commercialize
pharmaceutical products focused on cancer in selected markets
Our
current strategy is to partner with third parties to market our future products
to oncologists and other key specialists involved in the treatment of cancer
patients. We may also elect to develop an appropriately-sized internal
oncology sales and marketing capability in the United States. This group
may function as a standalone operation or in a supportive, co-promotion capacity
in collaboration with a partner.
RESEARCH
AND DEVELOPMENT PROGRAM
Research
and development expenses for the fiscal years ended July 31, 2009, 2008 and 2007
were approximately $3,268,000, $8,503,000 and $5,543,000,
respectively. Our research and development programs focus primarily
on the clinical and pre-clinical research and development of therapeutics from
our pipeline of amphibian RNases.
Clinical
Development Program
ONCONASE® was
most recently evaluated as a treatment for UMM in an international, centrally
randomized, confirmatory Phase IIIb registration trial. Malignant
mesothelioma is a rare cancer, primarily affecting the pleura (lining of the
lungs), and is usually associated with asbestos exposure. The first
Phase III trial of ONCONASE® in
UMM was completed in 2000. The most recent confirmatory Phase IIIb registration
trial was closed to patient accrual in September 2007.
The
confirmatory Phase IIIb registration trial was a randomized and controlled
clinical trial designed to evaluate the efficacy, safety and tolerability of the
combination of ONCONASE® and doxorubicin as
compared to doxorubicin alone, and powered to reach a statistically significant
difference in overall survival between the ONCONASE® +
doxorubicin treatment group and the doxorubicin treatment group at 316 evaluable
events. Patients were stratified based on Cancer Adult Leukemia Group
B (CALGB) Group (1 to 4) and histology and then assigned treatment using a
centralized randomization plan. The primary endpoint of the trial was
overall patient survival. The following data sets were analyzed for
efficacy as per the statistical analysis plan for this clinical
trial:
|
·
|
All
patients randomized who received at least one dose of study therapy
(evaluable patients),
|
|
·
|
Previously
treated patients,
|
|
·
|
All
patients randomized,
|
|
·
|
All
patients who completed 6 cycles of therapy per protocol,
and
|
|
·
|
All
patients with identical inclusion criteria as used in the Alimta
submission.
|
In
addition, secondary endpoints that were analyzed in accordance with the Phase
IIIb clinical trial statistical analysis plan included:
|
·
|
Tumor
response rates,
|
|
·
|
Progression
free survival,
|
|
·
|
Patient
assessment of symptoms associated with malignant
mesothelioma,
|
|
·
|
Investigator
assessment of malignant mesothelioma
symptoms,
|
|
·
|
Narcotic
pain medication usage,
|
|
·
|
Lung
function, and
|
In May
2008, we reported that the results of the preliminary statistical analysis of
data from our ONCONASE®
confirmatory Phase IIIb clinical trial did not meet statistical significance for
the primary endpoint of survival in UMM. However, a statistically significant
improvement in survival was seen in the treatment of UMM patients who failed one
prior chemotherapy regimen, one of the predefined primary sub-group data sets
for patients in the trial, which represents a currently unmet medical
need. At the pre-NDA meeting with the FDA in January 2009, the FDA
recommended that an additional clinical trial be conducted in UMM patients that
have failed one prior chemotherapy regimen, prior to filing an NDA.
A Phase
I/II program to evaluate a new dose and administration schedule of ONCONASE® was initiated in 2005 to
attempt to take advantage of potentially increased efficacy with higher and more
frequent doses of ONCONASE®. The
Phase I portion of this program is complete and currently, we plan to initiate a
Phase II clinical trial in non-small cell lung cancer (NSCLC) for patients who
have reached maximum progression on their current chemotherapy regimens in
2010.
Pre-Clinical
Research Program
Our drug
discovery and pre-clinical research programs form the basis for the development
of specific recombinant RNases for chemically linking drugs and other compounds
such as monoclonal antibodies, growth factors, etc., as well as developing gene
fusion products with the goal of targeting various molecular
functions. These programs provide for joint design and
generation of new products with outside collaborators. Through these
collaborations, we may own these new products along with, or we may grant an
exclusive license to, the collaborating partner(s).
The
multiple effects of biological activity of ONCONASE® has
led to research in other areas of cancer biology. Two important areas
associated with significant market opportunities are radiation therapy and
control of tumor angiogenesis, or new tumor blood vessel
formation. Many types of cancers undergo radiation therapy at early
stages of the disease; however, success of such treatment is often
limited. We believe any agent capable of enhancing tumor
radiosensitivity has great market potential. Moreover, since the
growth of essentially all types of cancer is dependent on new blood vessel
formation, any agent that has anti-angiogenic activity, we believe, is most
desirable.
Ranpirnase Conjugates and
Fusion Proteins
The
concept of targeting potent toxins as effector molecules to kill cancer or other
specifically targeted cells has been extensively evaluated over the last two
decades. An immunotoxin is an antibody linked to a toxic molecule
that is used to destroy specific cells. Several immunotoxins
containing bacterial and plant toxins or other biotoxins, have been evaluated in
human clinical trials. Efficacy has always been limited due to the
high incidence of immunogenicity, or an immune response, and other intolerable
toxicities, including death. Conjugation of ranpirnase to targeting
ligands, or binding to other molecules, appears to eliminate this safety problem
in pre-clinical studies.
A
Cooperative Research and Development Agreement (CRADA) with the National Cancer
Institute, or NCI, has produced RN321, a conjugate of ranpirnase with a
monoclonal antibody that has demonstrated activity against non-Hodgkin’s
lymphoma in preclinical studies. The relative benefit of killing
targeted tumor cells versus non-targeted healthy cells, or the therapeutic
index, is greater than 200,000-fold with this conjugate. This CRADA
has been concluded and data published.
We have
also developed a variety of uniquely designed versions of ONCONASE® and
amphinase conjugates. These compounds target the EGF receptors and
neo-vascularization (tumor blood vessel formation) which have potential clinical
application in a broad spectrum of solid tumors.
Novel Amphibian
Ribonucleases (Amphinases)
We have
also discovered another series of proteins, collectively named amphinases that
may have therapeutic uses. These proteins are
bioactive in that they have an effect on living cells and organisms and have
both anti-cancer and anti-viral activity. All of the proteins
characterized to date are RNases. Preclinical testing of the new
candidates collectively called amphinases showed them to be similarly active to
ranpirnase. Their chemical structure makes them ideal candidates for
genetic engineering of designer products.
These
compounds have undergone screening by the National Institute of Allergy and
Infectious Diseases (NIAID) against various RNA viruses and by outside
collaborators. One of these compounds, AC-03-636 has been determined
to be active in yellow fever, Hepatitis C and Dengue fever. The same
compound has been evaluated at Johns Hopkins University in a sustained time
release formulation for the treatment of brain tumors, or gliomas.
Evaluation Of
ONCONASE® As A Radiation
Enhancer
The p53
gene is a tumor-suppressor gene, which means that if it malfunctions, tumors may
be more likely to develop. Published preclinical studies have
demonstrated that ONCONASE®
causes an increase in both tumor blood flow and in median tumor oxygen partial
pressure, causing tumor cells to become less resistant to radiation therapy
regardless of the presence or absence of the functional p53 tumor-suppressor
gene. In pre-clinical research at the University of Pennsylvania,
ONCONASE®, when
combined with radiation therapy, enhanced the radiation-sensitivity to treatment
in NSCLC tumor cells without causing the common radiation-induced tissue damage
to non-tumor cells. ONCONASE®
inhibited sub-lethal damage repair, or SLDR and potentially lethal
damage repair, or PLDR in these animal models. We believe
these findings further expand the profile of ONCONASE® in vivo activities and its
potential clinical utility and market potential.
ONCONASE® As a Resistance-Overcoming
and Apoptosis-Enhancing Agent
The Fas (CD95) cell surface
receptor (and its Fas
ligand FasL) has been
recognized as an important “death” receptor involved in the induction of the
“extrinsic” pathway of apoptosis. The apoptotic pathways have been
the preferred target for new drug development in cancer, autoimmune, and other
therapeutic areas.
The
Thoracic Surgery Branch of the NCI confirmed the synergy between ranpirnase and
soluble Fas ligand, or
sFasL in inducing
significant apoptosis in sFasL-resistant Fas+tumor
cells. These results provided rationale for using ONCONASE® as a
potential treatment of FasL-resistant tumors and
possibly other disorders such as the autoimmune lympho-proliferative syndrome
(ALPS).
Evaluation Of
ONCONASE® As An Anti-Viral
Agent
The
ribonucleolytic activity was the basis for testing ONCONASE® as a
potential anti-viral agent against HIV. The NIH has performed an
independent in vitro
screen of ONCONASE®
against the HIV virus type 1. The results showed ONCONASE® to
inhibit replication of HIV by up to 99.9% after a four-day incubation period at
concentrations not toxic to uninfected cells. In vitro findings by the NIH
revealed that ONCONASE®
significantly inhibited production of HIV in several persistently infected human
cell lines, preferentially breaking down viral RNA while not affecting normal
cellular ribosomal RNA and messenger RNAs, which are essential to cell
function.
Moreover,
the NIAID also screened ONCONASE® for anti-HIV
activity. ONCONASE®
demonstrated highly significant anti-HIV activity in the monocyte/macrophage, or
anti-viral, system. Ranpirnase may inhibit viral replication at
several points during the life cycle of HIV, including its early
phases. Ranpirnase may inhibit replication of all different HIV-1
subtypes. These properties of ranpirnase are particularly relevant in
view of the extremely high and exponentially increasing rate of mutations of HIV
that occur during infection, and which are primarily responsible for the
development of resistance to several currently available anti-viral
drugs. At present, over 50% of clinical isolates of HIV are resistant
to both reverse transcriptase, mechanisms which combat viral replication, and
protease inhibitors drugs, a class of anti-viral drugs. An additional
25%, while being sensitive to protease inhibitors, are resistant to reverse
transcriptase inhibitor drugs.
COMMERCIAL
RELATIONSHIPS
License
Agreements
In
January 2008, we entered into a U.S. License Agreement for ONCONASE® with
Par Pharmaceutical, Inc. or Par. Under the terms of the License
Agreement, Strativa Pharmaceuticals or “Strativa, the proprietary products
division of Par, received exclusive marketing, sales and distribution rights to
ONCONASE® for
the treatment of cancer in the United States and its territories. We retained
all rights and obligations for product manufacturing, clinical development and
obtaining regulatory approvals, as well as all rights for those non-U.S.
jurisdictions in which we have not currently granted any such rights or
obligations to third parties. We received a cash payment of $5 million upon the
signing of the License Agreement and were entitled to additional development and
sales milestone payments and double-digit royalties on net sales of
ONCONASE®.
On
September 8, 2009, we entered into a Termination and Mutual Release Agreement or
Termination Agreement with Par pursuant to which our License Agreement and
Supply Agreement with Par were terminated. The License Agreement was
terminated and all rights under the license granted to Par revert back to us
under the Termination Agreement. Under the Supply Agreement, we had
agreed to supply all of Par’s requirements for ONCONASE®.
Pursuant to the Termination Agreement, Par will be entitled to a royalty of 2%
of net sales of ONCONASE® or
any other ranpirnase product developed by us for use in the treatment of cancer
in the United States and its territories commencing with the first sale of such
product and terminating upon the later to occur of the 12th anniversary of the first sale
and the date of expiration of the last valid claim of a pending application or
issued patent owned or controlled by us with respect to such
product.
Marketing
and Distribution Agreements
Megapharm
Ltd.
In May
2008, we entered into an exclusive marketing, sales and distribution agreement
with Megapharm Ltd. for the commercialization of ONCONASE® in
Israel. Under the agreement, we are eligible to receive 50% of net
sales in the territory. We will be responsible for the manufacture
and supply of ONCONASE® to
Megapharm, while Megapharm will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
BL&H
Co. Ltd.
In
January 2008, we entered into a marketing and distribution agreement with
BL&H Co. Ltd. for the commercialization of ONCONASE® in
Korea, Taiwan and Hong Kong. Under the agreement, we received a $100,000
up-front fee and are eligible to receive additional cash milestones and 50% of
net sales in the territory. We will be responsible for the manufacture and
supply of ONCONASE® to
BL&H, while BL&H will be responsible for all activities and costs
related to regulatory filings and commercial activities in the
territory.
US
Pharmacia
In July
2007, we entered into a Distribution and Marketing Agreement or the
Distribution Agreement, with USP Pharma Spolka Z.O.O. or the Distributor, an
affiliate of US Pharmacia, pursuant to which the Distributor was granted
exclusive rights for the marketing, sales, and distribution of ONCONASE® for
use in oncology in Poland, Belarus, Ukraine, Estonia, Latvia, and Lithuania or
the Territory for an initial term that ends upon the earlier of
(i) 10 years from the first commercial sale in the Territory and (ii)
the date all of the patents covering the product in the Territory
expire. We received an up-front payment of $100,000 and will also be
entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to the Distributor. We will be responsible for making regulatory filings with
and seeking marketing approval of ONCONASE® in
the Territory and manufacturing and supplying ONCONASE® to
the Distributor. The Distributor will be responsible for all
commercial activities and related costs in the Territory.
In
connection with the Distribution Agreement, we also entered into a Securities
Purchase Agreement, with Unilab LP, an affiliate of US Pharmacia, pursuant to
which we issued a total of 553,360 shares of restricted common stock for
approximately $1.4 million, or $2.53 per share.
GENESIS Pharma
S.A.
In
December 2006, we entered into a Distribution and Marketing Agreement with
GENESIS Pharma S.A. or GENESIS, pursuant to which GENESIS was granted exclusive
rights for the marketing, sales, and distribution of ONCONASE® for use in oncology in Greece,
Cyprus, Bulgaria, Romania, Slovenia, Croatia, Serbia, and the Former Yugoslavian
Republic of Macedonia or the Region for an initial term that ends upon the
earlier of (i) 10 years from the first commercial sale in the Region
and (ii) the date all of the patents covering the product in the Region
expire. We will retain ownership of all intellectual property
relating to ONCONASE® and
responsibility for all regulatory filings with EMEA in the European Union (EU),
with GENESIS providing assistance with regard to regulatory filings in the
non-EU countries included in this agreement. We will also be
responsible for manufacturing and supplying the product to GENESIS, which will
distribute the product. GENESIS will have lead responsibility for all
ONCONASE®
commercialization activities and will manage all operational aspects of the
marketing, sales and distribution of the product in the Region. We
are entitled to receive milestone payments based on the achievement of certain
regulatory approvals and certain sales goals. In addition, we will
receive a royalty on net sales as well as a transfer price for product sold by
us to GENESIS.
Manufacturing
In
January 2008, we entered into a Purchase and Supply Agreement or the Supply
Agreement with Scientific Protein Laboratories LLC or SPL. Under the Supply
Agreement, SPL will manufacture and be our exclusive supplier for the bulk drug
substance used to make ONCONASE®. The
term of the Supply Agreement shall be ten years and we have the right to
terminate the Supply Agreement at any time without cause on two years prior
notice to SPL.
Additionally,
we contract with Ben Venue Laboratories Inc. or Ben Venue for vial filling and
with Bilcare Global Clinical Supplies, Americas or Bilcare, Aptuit, Inc. or
Aptuit and Catalent Pharma Solutions, Inc. or Catalent for the labeling, storage
and shipping of ONCONASE® for
use in clinical trials. Other than these arrangements we do not have
specific arrangements for the manufacture of ONCONASE®.
Products
manufactured for use in clinical trials and for commercial sale must be
manufactured in compliance with Current Good Manufacturing Practices
(CGMP). SPL, Ben Venue, Aptuit and Catalent are all licensed or
approved by the appropriate regulatory agencies and all work is performed in
accordance with CGMP. For the foreseeable future, we intend to rely
on these manufacturers and related service providers, or substitute vendors, if
necessary, to manufacture our product. We believe, however, that
there are substantial alternative providers for the services for which we
contract. For those relationships where we have not entered into
formal agreements, we utilize the services of these third party contractors
solely on an as needed basis with prices and terms customary for companies in
businesses that are similarly situated. In order to replace an
existing manufacturer, we must amend our Investigational New Drug application to
notify the appropriate regulatory agencies of the change. We are
dependent upon our contract manufacturers to comply with CGMP and to meet our
production requirements. It is possible that our contract manufacturers may not
comply with CGMP or deliver sufficient quantities of our products on schedule,
or that we may be unable to find suitable and cost effective alternative
providers if necessary.
Raw
Materials
The major
active ingredient derived from leopard frog eggs is the protein
ranpirnase. We believe we have sufficient egg inventory on hand to
produce enough ONCONASE® for
our future clinical trials and early commercialization. In addition,
we have successfully produced ranpirnase in small proof-of-concept size batches
using recombinant technology. However, this technology requires
additional testing and FDA approval and it may be determined to not be more cost
effective than current methods of production.
PATENTS
AND PROPRIETARY TECHNOLOGY
We have
sought to protect our technology by applying for, and obtaining, patents and
trademark registrations. We have also relied on trade secrets and
know-how to protect our proprietary technology. We continue to
develop our portfolio of patents, trade secrets, and know how. We
have obtained, and continue to apply for, patents concerning our RNase-based
technology.
In
addition, we have filed (and we intend to continue to file) foreign counterparts
to certain U.S. patent applications. Generally, we apply for patent protection
in the United States, Europe, Japan, and certain other foreign
countries.
We own
the following U.S. patents:
Patent
No.
|
Issue
Date
|
Subject
Matter
|
Expiration
**
|
5,529,775
|
June
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
June
2013
|
5,728,805
|
Mar.
1998
|
covers
a family of variants of ONCONASE®
|
June
2013
|
5,540,925
|
July
1996
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
July
2013
|
5,559,212
|
Sept.
1996
|
covers
the amino acid sequence of ONCONASE®
|
Sept.
2013
|
5,595,734
|
Jan.
1997
|
covers
combinations of ONCONASE®
with certain other pharmaceuticals
|
Jan.
2014
|
6,649,392
B1*
|
Nov.
2003
|
covers
a family of recombinant variants of ONCONASE®
|
Apr.
2016
|
6,649,393
B1*
|
Nov.
2003
|
covers
nucleic acids encoding recombinant variants of ONCONASE®
and methodology for producing such variants
|
Apr.
2016
|
6,290,951
B1
|
Sept.
2001
|
covers
alteration of the cell cycle in vivo, particularly
for inducing apoptosis of tumor cells
|
Aug.
2018
|
6,239,257
B1
|
May
2001
|
covers
a family of variants of ONCONASE®
|
Dec.
2018
|
6,175,003
B1
|
Jan.
2001
|
covers
the genes of ONCONASE® and a variant of
ONCONASE®
|
Sept.
2019
|
6,423,515
B1
|
July
2002
|
covers
methodology for synthesizing gene sequences of ranpirnase and a
genetically engineered variant of ranpirnase
|
Sept.
2019
|
7,229,824
B1***
|
June
2007
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
May
2024
|
7,556,952
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,556,951
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,556,953
B2
|
July
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,442,535
B2
|
October
2008
|
covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
7,585,655
B2
|
September
2009
|
covers
a gene encoding a genetically engineered variant of ONCONASE®,
and a vector containing DNA encoding such variant
|
July
2023
|
7,442,536
B2
|
October
2008
|
covers
genetically engineered variants of ONCONASE®
|
July
2023
|
7,585,654
B2
|
September
2009
|
covers
a vector containing DNA encoding a genetically engineered variant of
ONCONASE®,
and a gene encoding a genetically engineered variant of ONCONASE®
|
July
2023
|
7,473,542
B2
|
January
2009
|
Covers
a fusion protein containing a genetically engineered variant of
ONCONASE®
|
July
2023
|
*We own
this patent jointly with the U.S. Government. We do not pay
maintenance fees to keep this patent in force.
We own
the following foreign patents in Europe (European patents are validated in
selected European nations), Japan and Singapore:
Patent
No.
|
Subject
Matter
|
Expiration
**
|
EP
0 500 589
JP
2972334
|
cover
combinations of ONCONASE® with certain other
pharmaceuticals
|
Oct.
2010
|
EP
0 656 783
JP
3655628
|
covers
combinations of ONCONASE® with certain other
pharmaceuticals
|
July
2013
|
EP
0 837 878
JP
3779999
|
covers
a variant of ONCONASE®
|
June
2016
|
EP
1 141 004
|
covers
a family of variants of ONCONASE®
|
December
2019
|
SG
118886
|
covers
variants of ONCONASE® and methods of
making them
|
May
2024
|
**Assumes
timely payment of all applicable maintenance fees and annuities; excludes term
extensions that do or may apply.
***Includes
a term extension of 312 days under 35 U.S.C. §154(b).
We also
have patent applications pending in the United States, Europe, Japan, and other
foreign countries.
The scope
of protection afforded by patents for biotechnological inventions can be
uncertain, and such uncertainty may apply to our patents as well. The
patent applications we have filed, or that we may file in the future, may not
result in patents. Our patents may not give us a competitive
advantage, may be wholly or partially invalidated or held unenforceable, or may
be held not to have been infringed by products that compete with our
products. Patents owned by others may adversely affect our ability to
do business. Furthermore, others may independently develop products
that are similar to our products or that duplicate our products, and may design
around the claims of our patents. Although we believe that our
patents and patent applications are of substantial value to us, we cannot assure
you that such patents and patent applications will be of commercial benefit to
us, will adequately protect us from competing products or will not be
challenged, declared invalid, or found not to have been infringed by competing
products. We also rely on proprietary know-how and on trade secrets
to develop and maintain our competitive position. Others may
independently develop or obtain access to such know-how or trade
secrets. Although our employees and consultants having access to
proprietary information are required to sign agreements that require them to
keep such information confidential, our employees or consultants may breach
these agreements or these agreements may be held to be
unenforceable.
GOVERNMENT
REGULATION
The
manufacturing and marketing of pharmaceutical products in the United States
require the approval of the FDA under the Federal Food, Drug and Cosmetic
Act. Similar approvals by comparable regulatory agencies are required
in most foreign countries. The FDA has established mandatory procedures and
safety standards that apply to the clinical testing, manufacturing and marketing
of pharmaceutical products in the United States. Obtaining FDA approval for a
new therapeutic may take many years and involve substantial
expenditures. State, local and other authorities also regulate
pharmaceutical manufacturing facilities.
As the
initial step in the FDA regulatory approval process, preclinical studies are
conducted in laboratory dishes and animal models to assess the drug's efficacy
and to identify potential safety problems. Moreover manufacturing processes and
controls for the product are required. The manufacturing information
along with the results of these studies is submitted to the FDA as a part of the
Investigational New Drug Application, or IND, which is filed to obtain approval
to begin human clinical testing. The human clinical testing program typically
involves up to three phases. Data from human trials as well as other regulatory
requirements such as chemistry, manufacturing and controls, pharmacology and
toxicology sections, are submitted to the FDA in an NDA or Biologics License
Application, or BLA. Preparing an NDA or BLA involves considerable
data collection, verification and analysis. A similar process in
accordance with EMEA regulations in Europe and with TGA regulations in Australia
is required to gain marketing approval. Moreover, a commercial entity
must be established and approved by the EMEA in a member state of the EU at
least three months prior to filing the Marketing Authorization Application, or
MAA.
We have
not received United States or other marketing approval for any of our product
candidates and may not receive any approvals. We may encounter
difficulties or unanticipated costs in our effort to secure necessary
governmental approvals, which could delay or preclude us from marketing our
products.
With
respect to patented products, delays imposed by the governmental approval
process may materially reduce the period during which we may have the exclusive
right to exploit them.
ENVIRONMENTAL
MATTERS
Our
operations are subject to comprehensive regulation with respect to
environmental, safety and similar matters by the United States Environmental
Protection Agency and similar state and local agencies. Failure to comply with
applicable laws, regulations and permits can result in injunctive actions,
damages and civil and criminal penalties. If we expand or change our existing
operations or propose any new operations, we may need to obtain additional or
amend existing permits or authorizations. We spend time, effort and
funds in operating our facilities to ensure compliance with environmental and
other regulatory requirements.
Such
efforts and expenditures are common throughout the biotechnology industry and
generally should have no material adverse effect on our financial
condition. The principal environmental regulatory requirements and
matters known to us requiring or potentially requiring capital expenditures by
us do not appear likely, individually or in the aggregate, to have a material
adverse effect on our financial condition. We believe that we are in
compliance with all current laws and regulations.
EMPLOYEES
As of
April 20, 2010, we had four full time employees of whom two were engaged in
clinical and pre-clinical research and development activities and two were
engaged in administration and management. All of our employees have
entered into confidentiality agreements with us. We consider
relations with our employees to be good. None of our employees are
covered by a collective bargaining agreement.
DESCRIPTION
OF PROPERTY
In March
2007, we entered into a lease for 15,410 square feet in an industrial office
building located in Somerset, New Jersey to replace our facility in Bloomfield,
NJ as our principal office. The lease term commenced on July 3, 2007
and is scheduled to terminate on November 30, 2017. The average
monthly rental obligation over the full term of the lease is approximately
$25,000. Currently, we are in default of our lease agreement for non
payment of rent and failure to maintain security deposit, although Landlord has
been drawing funds from our secured irrevocable letter of credit. In January
2010, the Company vacated the facility pursuant to the mutual agreement between
the Company and the landlord. The landlord is currently seeking
unspecified damage for an alledged breach of the lease agreement. For
further details, please see “Legal Proceedings” below.
LEGAL
PROCEEDINGS
On
October 9, 2009, Robert Love, a former Chief Financial Officer and alleged
shareholder of the Company, filed a complaint, Love v. Alfacell Corp. et
al., Case No. 3:09-cv-05199-MLC-LHG, against the Company and certain of
its current and former directors in the United States District Court, District
of New Jersey, asserting violations of federal and state securities laws, direct
and derivative common law claims for fraud and breach of fiduciary duty, and a
direct claim for negligent misrepresentation in connection with the Company’s
Phase IIIb clinical trial for ONCONASE®. The
complaint alleges that the Company misled shareholders by issuing allegedly
false projections of when the required number of patients deaths would occur in
the Phase IIIb trial. The Complaint seeks compensatory damages of no
less than $350,000, punitive damages of no less than $20 million, and an
accounting and constructive trust. The Company believes that the
claims are meritless and intends to defend the case vigorously.
Premier
Research Group filed and served a lawsuit against the Company in the Superior
Court of New Jersey, Law Division, Essex County, on or about July 26, 2009,
seeking the recovery of professional fees that arose from clinical trials
purportedly performed in Europe by Premier Research Group as assignee of a
contract between the Company and IMFORM GmbH dated October 27,
2005. An Answer with Separate Defenses and Counterclaim was filed on
or about July 30, 2009. This case remains in the early stages of
discovery.
I & G
Garden State, LLC filed and served a complaint against the Company in the
Superior Court of New Jersey Law Division, Special Civil Part Landlord-Tenant
Section, Somerset County, on or about October 30, 2009, for non-payment of rent
and failure to maintain security deposit. The complaint seeks to have
us vacate the property. On November 13, 2009, the Company and I &
G mutually agreed that the Company will vacate the property on or before
December 31, 2009. In January 2010, the Company vacated the facility
pursuant to the mutual agreement. In February 2010, I & G
withdrew the remaining balance of the Company’s secured irrevocable letter of
credit which was placed in March 2007 in the amount of approximately
$81,000. On February 5, 2010, I & G commenced an action against
the Company. The lawsuit seeks unspecified damage for an alleged
breach of the lease agreement entered into in March 2007 between the
Company and I & G. The Company intends to vigorously defend this
action.
COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock has been quoted on the Pink Sheets since our delisting from the
Nasdaq Capital Market, or Nasdaq, on January 6, 2009 for failure to comply with
the $35 million minimum market value requirement under Marketplace Rule
4310(c)(3)(B) or the $1 per share minimum bid price requirement under
Marketplace Rule 4310(c)(4). In addition, we also did not meet the
$2.5 million minimum stockholders’ equity requirement under Marketplace Rule
4310(c)(3)(A) or the requirement for a minimum net income from continuing
operations of $500,000 in the most recently completed fiscal year or in two of
the last three most recently completed fiscal years under Marketplace Rule
4310(c)(3)(C). Our common stock remains thinly traded at times and
you may be unable to sell our common stock during times when the trading market
is limited. As of November 10, 2009, there were
approximately 975 stockholders of record of our common stock.
Prior to
January 6, 2009, our common stock was listed on Nasdaq and had traded under the
symbol "ACEL" since September 9, 2004. Before September 9, 2004, our
common stock was traded on the OTC Bulletin Board (OTCBB).
The
following table sets forth the range of high and low sale prices of our common
stock for the two fiscal years ended July 31, 2009 and 2008. The
prices were obtained from Pink Sheets and Nasdaq, and are believed to be
representative of inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
|
|
High
|
|
|
Low
|
|
Year
Ending July 31, 2010:
|
|
|
|
|
|
|
First
Quarter
|
|
$
0.32
|
|
|
$
0.21
|
|
Second
Quarter
|
|
0.30
|
|
|
0.14
|
|
Third
Quarter
|
|
0.35
|
|
|
0.13
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2009:
|
|
|
|
|
|
|
First
Quarter
|
|
|
0.85
|
|
|
|
0.40
|
|
Second
Quarter
|
|
|
0.54
|
|
|
|
0.08
|
|
Third
Quarter
|
|
|
0.20
|
|
|
|
0.06
|
|
Fourth
Quarter
|
|
|
0.52
|
|
|
|
0.11
|
|
|
|
|
|
|
|
|
|
|
Year
Ended July 31, 2008:
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
|
2.70
|
|
|
|
1.75
|
|
Second
Quarter
|
|
|
2.69
|
|
|
|
1.45
|
|
Third
Quarter
|
|
|
2.60
|
|
|
|
1.70
|
|
Fourth
Quarter
|
|
|
2.20
|
|
|
|
0.35
|
|
STOCKHOLDER
RETURN PERFORMANCE GRAPH
The
following graph summarizes the total cumulative return experienced by our
stockholders during the five-year period ended July 31, 2009, compared to the
Nasdaq Composite Index and the Nasdaq Pharmaceutical Index. The
changes for the periods shown in the graph and table are based on the assumption
that $100.00 was invested in our common stock and in each index below on July
31, 2004 and that all cash dividends were reinvested. The table does
not forecast performance of our common stock.
DIVIDENDS
We have
not paid dividends on our common stock since inception, and we do not plan to
pay dividends in the foreseeable future. Any earnings we may realize
will be retained to finance our growth. Additionally, pursuant to the
terms of senior secured notes issued in connection with our October 2009 private
financing, we are not permitted to declare or pay any cash dividends or
distributions on its outstanding capital stock for so long as the notes are
outstanding.
MANAGEMENT
DIRECTORS
AND OFFICERS
Name
|
Age
|
Director/Officer
Since
|
Current
Position With Company
|
Charles
Muniz(1)
|
55
|
2009
|
President,
CEO, CFO and Director
|
|
|
|
|
David
Sidransky, M.D
|
49
|
2004
|
Chairman
of the Board
|
|
|
|
|
John
P. Brancaccio
|
62
|
2004
|
Director
|
|
|
|
|
Paul
M. Weiss, Ph.D.
|
52
|
2003
|
Director
|
(1) Mr. Muniz
was elected as our Company’s President, Chief Operating Officer, CFO and
director on April 3, 2009 and entered into an employment agreement with
the Company to serve as our President, CEO and CFO on October 19,
2009. Mr. Muniz
will hold office until his successor is elected and qualified or until his
earlier resignation or removal, death or
resignation.
|
Business
Experience of Directors and Executive Officers
The
Company’s directors and executive officers have provided the following
information about their principal occupation, business experience and other
matters.
Charles Muniz joined us on
April 3, 2009 as our President, COO, CFO and a member of our Board of Directors
and entered into an employment agreement with the Company to serve as our
President, CEO and CFO on October 19, 2009. From 2007 until he joined
our company, Mr. Muniz was a consultant to a wide variety of clients focusing
primarily on the strategic use of operations and technology. Prior to
consulting, he was President and Chief Executive Officer of Digital Creations
Corp., a company he founded which sold high-end systems, work stations,
peripherals, networking and software products, from 1989 to 2007. Mr.
Muniz attended Pace University in New York and majored in Business
Administration. Mr. Muniz’s extensive entrepreneurial and executive
experience and his in-depth knowledge of our company in his executive capacity
enable him to make critical contributions as a member of our Board.
David Sidransky, M.D., joined
the Board in May 2004, was elected Chairman of the Board in January 2008 and is
the Chairman of our Scientific Advisory Board. Dr. Sidransky is a founder
of several private biotechnology companies and has served on scientific advisory
boards of numerous private and public companies, including Medimmune, Telik,
Roche and Amgen. He was formerly on the board of scientific counselors at
the NIDCR and a member of the Recombinant DNA advisory committee at the National
Institute of Health NIH (RAC). He served on the board of directors of
ImClone Systems, Zila Inc, and Xenomics and is now chairman of the board of
Champions Biotechnology Inc. Dr. Sidransky is on numerous editorial
boards and has served as senior editor of several cancer related journals.
Currently, Dr. Sidransky is the director of the Head and Neck Cancer Research
Division at Johns Hopkins University School of Medicine. In addition, he
is Professor of Oncology, Otolaryngology-Head and Neck Surgery, Cellular &
Molecular Medicine, Urology, Genetics, and Pathology at John Hopkins University
and Hospital. Dr. Sidransky is certified in Internal Medicine and Medical
Oncology by the American Board of Medicine. He has over 400 peer-reviewed
publications, has contributed more than 60 cancer reviews and chapters, and also
has numerous issued biotechnology patents. He has been the recipient of
many awards and honors, including the 1997 Sarstedt International Prize from the
German Society of Clinical Chemistry, the 1998 Alton Ochsner Award Relating
Smoking and Health by the American College of Chest Physicians and the 2004
Hinda Rosenthal Award by the American Association of Cancer Research. Dr.
Sidransky received his B.A. from Brandeis University and his M.D. from the
Baylor College of Medicine. Dr. Sidransky’s extensive knowledge of,
and experience in, scientific research, our business strategy, industry and
R&D programs, experience as a founder of several biotechnology companies and
long-term medical background make him uniquely qualified to serve on our
board.
John P. Brancaccio joined the
Board in January 2004. Since April 2004, Mr. Brancaccio has been the chief
financial officer of Accelerated Technologies, Inc., an incubator for venture
backed medical device companies. He also serves on the boards of Callisto
Pharmaceuticals, Inc., Synergy Pharmaceuticals, Inc. and Xenomics, Inc., all of
which are publicly traded biopharmaceutical companies where he is chairman of
their respective audit committees and a member of their respective compensation
and nominating committees. He was the secretary and treasurer of Memory
Pharmaceuticals Corporation from December 2003 to March 2004 after serving in
the capacity of their acting chief financial officer from May 2002 to December
2003. Prior to Memory Pharmaceuticals, Mr. Brancaccio held the positions of
chief financial officer and chief operating officer of Eline Group, a publicly
traded entertainment and media company, where he oversaw the roll up of several
related companies into the group and completed private equity financing
placements. Prior to joining Eline Group, he held a number of senior executive
positions in public and private companies including Atlantic Pharmaceuticals,
Zambon Corporation, Deven International and Health Learning Systems. During his
tenure with these companies he participated in initial public offerings and
negotiation of licensing and development agreements within both the
pharmaceutical and biotechnology industries. He is a retired Certified Public
Accountant and a graduate of Seton Hall University.
Paul Weiss, Ph.D., joined the
Board in February 2003. Since October 2007, Dr. Weiss has been a
Managing Director at Venture Investors, LLC, a Madison, Wisconsin-based venture
capital group focusing on early-stage life sciences companies. Prior
to joining Venture Investors, LLC, Dr. Weiss was President of the Gala Biotech
business unit of Cardinal Health (now Catalent Pharma Solutions) from February
2002 until October 2007. He had served as a director on Gala’s Board
from 1998 to 2001, when he joined the management team as Senior Vice President
of Business Development. He later became President of Gala and
remained so during the acquisition of Gala by Cardinal Health in 2003 and then
the acquisition of Gala (and other Cardinal Health businesses) by The Blackstone
Group in 2007. Prior to joining Gala, Dr. Weiss was Vice President of
Technology and Product Licensing at 3-Dimensional Pharmaceuticals (3DP) from
1998 to 2001, which went public in 2001 and was later acquired by Johnson &
Johnson. Prior to joining 3DP, Dr. Weiss was director of Licensing
for Wyeth Pharmaceuticals. Dr. Weiss holds a Ph.D. in Biochemistry
and an MBA from the University of Wisconsin-Madison and a B.Sc. in Biochemistry
from the Carleton University Institute of Biochemistry in Ottawa,
Ontario. Dr. Weiss in-depth knowledge of our business strategy and
our industry and his extensive executive experience make him qualified to serve
on our board.
The
Company closed on a private placement of convertible promissory notes and
warrants in which the Company received $3,250,000 in gross proceeds on October
19, 2009. As a condition to such financing, each member of the Board,
other than Dr. Sidransky, Chairman of the Board and Mr. Muniz, agreed to
resign from the Board upon the request of Dr. Sidransky made at any time
following October 19, 2009 and December 31, 2009.
CORPORATE
GOVERNANCE
Family
Relationships
There are
no family relationships among any of the Company’s directors or executive
officers.
Board
Meetings
The Board
met fourteen times during the 2009 fiscal year. Each of our current
directors attended at least 75% of the meetings of the Board and committees on
which he served.
Independent
Directors
The Board
has determined that the following directors are “independent” under Nasdaq
Marketplace Rule 4200(a)(15): John P. Brancaccio, David Sidransky,
M.D. and Paul M. Weiss, Ph.D. The Board has also determined that each
of John Brancaccio and Paul M. Weiss, Ph.D (who are members of the Audit
Committee) is “independent” in accordance with Section 10A(m)(3) of the
Securities Exchange Act of 1934.
Board
Leadership Structure and Risk Oversight
Dr.
Sidransky serves as the Chairman of the Board. Dr. Sidransky has
extensive knowledge of, and experience in, scientific research and our
industry. He also has strong leadership skills as he has been founder
of several biotechnology companies and has long-term medical
background. Dr. Sidransky has been with the Company since 2004 and is
familiar with our business strategy and industry. The Board also
believes that independent oversight of management is an important component of
an effective board of directors. Therefore, the Board believes that
the most effective Board leadership structure for our company at the present
time is for Dr. Sidransky to lead the Board as the Chairman. The
Board retains its authority to modify this structure to best address the
Company’s unique circumstances, and to advance the best interest of
stockholders, as and when appropriate.
Our audit committee is responsible for
overseeing our risk management function. While the audit committee has primary
responsibility for overseeing risk management, our entire Board of Directors is
actively involved in overseeing our risk management. For example, the Board of
Directors engages in periodic discussions with such company officers as the
Board of Directors deems necessary, including our CEO, CFO and COO. We believe
that the leadership structure of our Board of Directors supports effective risk
management oversight.
Board
Committee Membership
The Board
has standing Compensation, Corporate Governance and Nominating, Audit, Research
and Clinical Oversight, and Commercial and Business Development Oversight
Committees. The current membership of the standing committees is set
forth in the following table:
Name
|
|
Compensation
Committee
|
|
Corporate
Governance
and Nominating
Committee
|
|
Audit
Committee
|
|
Research
and
Clinical
Oversight
Committee
|
|
Commercial
and Business
Development
Oversight
Committee
|
Charles
Muniz
|
|
|
|
|
|
|
|
|
|
|
John
P. Brancaccio
|
|
**
|
|
|
|
**
|
|
|
|
|
David
Sidransky, M.D.
|
|
|
|
**
|
|
|
|
**
|
|
*
|
Paul
M. Weiss, Ph.D.
|
|
*
|
|
*
|
|
*
|
|
*
|
|
**
|
Compensation
Committee. All of the members of our Compensation Committee
are considered “independent directors” in accordance with Nasdaq Marketplace
Rule 4200(a)(15). In fiscal year 2009, the Compensation Committee met
twice.
On June
28, 2004, the Board adopted a Compensation Committee Charter, a copy of which is
maintained on our website at www.alfacell.com. According to its
charter, the Compensation Committee shall consist of at least three members,
each of whom shall be a non-employee director who has been determined by the
Board to meet the independence requirements of the Nasdaq Stock
Market. Given the reduction in the size of the Board, the
Compensation Committee currently has only two members.
The
Compensation Committee Charter describes the primary functions of the
Compensation Committee as follows:
|
·
|
Review
and approve executive compensation on an annual basis, including the
corporate goals and objectives to be used in evaluating the performance of
the CEO and determining the CEO’s compensation;
|
|
·
|
Review
trends in management compensation, oversee the development of new
compensation plans and, when necessary, approve the revision of existing
plans;
|
|
·
|
Oversee
management’s decisions concerning compensation and performance for
non-executive officers;
|
|
·
|
Review
our incentive compensation and other stock-based plans and recommend
change to such plans to the Board as
needed;
|
|
·
|
Administer
stock plans and benefit programs and approve any amendments to existing
plans;
|
|
·
|
Recommend
director compensation;
|
|
·
|
Evaluate
compliance with our compensation plans and policies;
and
|
|
·
|
Review
the compensation policy for all of our
employees.
|
Corporate Governance and Nominating
Committee. All of the members of our Corporate Governance and
Nominating Committee are considered “independent directors” in accordance with
Nasdaq Marketplace Rule 4200(a)(15). In fiscal year 2009, the
Corporate Governance and Nominating Committee did not meet.
The
Corporate Governance and Nominating Committee was formed by the Board for the
purpose of considering future nominees to the Board. On November 28,
2007, the Board adopted a Corporate Governance and Nominating Committee Charter,
a copy of which is maintained on our website at
www.alfacell.com. According to its charter, the Corporate Governance
and Nominating Committee shall be comprised of at least three directors, each of
whom shall meet the independence requirements of the Nasdaq Stock
Market. Given the reduction in the size of the Board, the Corporate
Governance and Nominating Committee currently has only two members.
The
Corporate Governance and Nominating Committee Charter describes the primary
functions of the Corporate Governance and Nominating Committee as
follows:
|
·
|
Identify
and evaluate individuals qualified to serve as members of the Board
(including individuals nominated by stockholders in proposals made in
writing to the Company’s Secretary that are timely received and that
contain sufficient background information concerning the nominee to enable
proper judgment to be made as to the nominee’s
qualifications);
|
|
·
|
Recommend
for the Board’s selection nominees for election as directors of the
Company at the next annual or special meeting of stockholders at which
directors are to be elected or to fill any vacancies then existing on the
Board;
|
|
·
|
Cause
to be prepared and recommend to the Board the adoption of corporate
governance guidelines and from time to time, review and assess the
guidelines and recommend changes for approval by the
Board;
|
|
·
|
From
time to time, review and assess the Code of Business Conduct and Ethics
and recommend changes for approval by the
Board;
|
|
·
|
Make
recommendations to the Board regarding issues of management succession;
and
|
|
·
|
Conduct
annual reviews and assessments of the adequacy of the Corporate Governance
and Nominating Committee Charter and recommend any proposed changes to the
Board for approval.
|
Audit
Committee. All of the members of our Audit Committee are
considered “independent directors” in accordance with Nasdaq Marketplace Rule
4200(a)(15) and Section 10A(m)(3) of the Securities Exchange Act. Our
Board has determined that Mr. Brancaccio qualifies as an “audit committee
financial expert” as defined by Item 407 of Regulation S-K. In fiscal
year 2009, the Audit Committee met five times.
On
November 25, 2008, the Board adopted the Amended and Restated Audit Committee
Charter, a copy of which is maintained on our website at
www.alfacell.com. According to its charter, the Audit Committee shall
be comprised of at least three directors, each of whom shall meet the
independence requirements of the Nasdaq Stock Market and Section 10A(m)(3) of
the Exchange Act, and each of whom shall not have participated in the
preparation of the financial statements of the Company at any time during the
past three years. The Audit Committee’s purpose, duties and
responsibilities under its charter include those specified in the listing
standards of the Nasdaq Stock Exchange for audit committees. Given
the reduction in the size of the Board, the Audit Committee currently has only
two members.
The Audit
Committee Charter describes the primary functions of the Audit Committee as
follows:
|
·
|
Appoint,
evaluate and, as the Committee may deem appropriate, terminate and replace
our independent registered public accounting firm;
|
|
·
|
Monitor
the independence of our independent registered public accounting
firm;
|
|
·
|
Determine
the compensation to be paid to our independent registered public
accounting firm;
|
|
·
|
Review
with management and our independent registered public accounting firm the
effect of regulatory and accounting initiatives as well as off-balance
sheet structures on the Company’s financial
statements;
|
|
·
|
Review
the experience and qualifications of the Company’s senior finance
executives as well as senior members of the independent registered public
accounting firm team and the quality control procedures
thereof;
|
|
·
|
Pre-approve
all audit services and permitted non-audit services to be performed by our
independent registered public accounting firm and establish policies and
procedures for the engagement of our independent registered public
accounting firm to provide permitted non-audit
services;
|
|
·
|
Conduct
annual reviews and assessments of the adequacy of the Audit Committee
Charter and the continued independence of the independent registered
public accounting firm and recommend any proposed changes to the Board for
approval;
|
|
·
|
Advise
the Board with respect to the Company’s policies and procedures regarding
compliance with applicable laws and regulations and with the Company’s
Code of Business Conduct and
Ethics;
|
|
·
|
Review
all related-party transactions for potential conflict of interest
situations and approve such related-party transactions;
|
|
·
|
Establish
procedures for the confidential and anonymous receipt, retention and
treatment of complaints regarding the Company’s accounting, internal
controls and auditing matters; and
|
|
·
|
Report
to the Board on all of the foregoing
matters.
|
Research and Clinical Oversight
Committee. The Research and Clinical Oversight Committee, or Research
Committee, was established in February 2007 and is chaired by David Sidransky,
M.D. All of the members of our Research Committee are considered
“independent directors” in accordance with Nasdaq Marketplace Rule
4200(a)(15).
The
primary function of the Research Committee is to work closely with management
and the Scientific Advisory Board to provide support and direction to the
Company’s research and development programs. The Research Committee functions as
an advisory committee and does not hold formal committee meetings or take formal
committee actions.
Commercial and Business Development
Oversight Committee. The Commercial and Business Development
Oversight Committee, or the Development Committee, was established in February
2007 and is chaired by Paul Weiss, Ph.D. All of the members of our
Development Committee are considered “independent directors” in accordance with
Nasdaq Marketplace Rule 4200(a)(15).
The
primary function of the Development Committee is to assist management in
pursuing commercial and business development opportunities for the products
currently in development. The Development Committee functions as an
advisory committee and does not hold formal committee meetings or take formal
committee actions.
Code
of Ethics
We have
adopted a written Code of Business Conduct and Ethics, or Code of Ethics, that
applies to the Company’s principal executive officer, principal financial
officer, principal accounting officer, and controller and to all its other
employees. These standards are a guide to help ensure that all our
employees live up to our high ethical standards. A copy of the Code
of Ethics is maintained on our website at www.alfacell.com.
We intend
to post on our website, any amendment to or waiver from any provision in our
Code of Ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions, and that relates to any element of the standards
enumerated in the rules of the SEC.
EXECUTIVE
COMPENSATION
COMPENSATION
DISCUSSION AND ANALYSIS
Compensation
Philosophy
Our
compensation program is based on the philosophy that the interests of our
employees should be closely aligned with those of our
stockholders. The Company’s compensation program is based on the
following principles:
·
|
Compensation
opportunities should attract the best talent, motivate individuals to
perform at their highest levels, reward outstanding achievement and retain
the leadership and skills necessary for building long-term stockholder
value;
|
·
|
Compensation
should include a bonus potential which is tied directly to operating
objectives; and
|
·
|
Compensation
should include a long-term incentive award generally in the form of stock
option grants to increase ownership in the Company and encourage
executives to manage from the perspective of owners of the
Company.
|
The
Compensation Committee believes that the compensation program for executive
officers should reward the achievement of the short-term and long-term
objectives of the Company, and that compensation should be related to the value
created for its stockholders. However, given the highly volatile
nature of biotechnology company stocks it would be impracticable for the Company
to tie executive compensation solely to stock performance. In making
its compensation decisions, the Compensation Committee generally reviews the
progress made by the individual officer in attaining his or her individual
performance goals and the progress made by the Company in its drug development
programs, while keeping the Company’s stock performance in
mind. Generally, performance tied to the long-term objectives of the
Company or the overall business objectives of the Company are rewarded with
equity compensation, whereas performance tied to short-term goals of the Company
or individual performance. As different elements of the Company’s
compensation have different underlying rationale and policy, determinations the
Compensation Committee made with regard to one compensation element have not
influenced decisions it made with respect to other compensation elements it
contemplated or awarded. For example, the factor that our CEO may
receive a bonus if the performance objectives are satisfied and may receive
additional value through his stock options if the Company’s stock performs well
has not influenced the determination as to the base salary of our
CEO.
The
Company’s compensation philosophy was last reviewed by the Board in May 2007, at
which time two new
compensation programs were approved by the Board, the Incentive Bonus Program
and the Annual Milestones bonus program. These two bonus programs
were approved by the Board because they each met the Company’s desire to reward
and encourage executive officers and employees for not only causing the Company
to meet its primary objectives but also to meet certain short-term objectives
within a timeline prescribed by management. See “Incentive Compensation” below
for details relating to these two programs.
Role
of the Compensation Committee
The
Compensation Committee in our fiscal year 2009 consisted of Messrs. John P.
Brancaccio, Chairman, Donald R. Conklin (resigned subsequently), and Paul M.
Weiss Ph.D. All committee members had been and were non-employee
directors as defined under Rule 16b-3 of the Exchange Act and satisfy the
director independence standards of the Nasdaq Stock Market and the definition of
“outside director” under Section 162(m) of the Internal Revenue
Code. No special expertise in compensation matters is required for
appointment to the Compensation Committee.
The
Compensation Committee is responsible for all components of the Company’s
executive compensation program and for administering all stock option plans
including the 2004 Stock Incentive Plan, under which stock option grants may be
made to executive officers. On an annual basis, the Compensation
Committee reviews and approves the corporate goals and objectives relevant to
the compensation for the CEO and other executive officers, if
any. The Compensation Committee evaluates at least once a year, the
CEO and executive officers’ performance in light of these established goals and
objectives and based upon these evaluations will set the CEO’s and executive
officers’ annual compensation, including salary, bonus, incentive and equity
compensation.
Role
of Consultants and Market Review
The
Compensation Committee possesses the authority under its charter to hire
advisors to provide it with information as needed in making compensation
decisions. The Compensation Committee did not use a compensation
consultant for fiscal year 2009.
Role
of Management
While the
Compensation Committee determines overall compensation philosophy, it relies on
the CEO and other executive officers, if any, to make recommendations in
accordance with such compensation philosophy. The Company’s CEO and
CFO, if any, provide the Board and the Compensation Committee with feedback on
the performance of the Company’s non-executive officers and make compensation
recommendations to the Compensation Committee for its approval. In
2009, the CEO attended the Compensation Committee’s meetings to provide the
CEO’s perspectives on competition in the industry and the needs of the business,
information regarding the Company’s performance and other advice specific to the
CEO’s areas of expertise. However, the CEO did not attend meetings
where the CEO’s compensation and/or performance was discussed. Once a
recommendation has been approved by the Compensation Committee, it is sent to
the Board for ratification. Upon ratification by the Board, the
execution and administration of the recommendation may be delegated by the
Compensation Committee to management as the Compensation Committee deems
appropriate.
On April
3, 2009, Mr. Muniz joined our company and acted as our President, COO and
CFO. With the retirement of Kuslima Shogen as our CEO in March 2009
and the departure of our former CFO, Lawrence Kenyon, in December 2008, Mr.
Muniz has been our only executive officer since he joined the
Company. At the time he joined the Company, the Compensation
Committee agreed to pay him a consulting fee of $3,500 per week plus cost of
travel between his home state of Florida and New Jersey. On October
19, 2009, the Company entered into an Employment Agreement with Mr. Muniz to
serve as the Company’s President, CEO and CFO. Under his Employment
Agreement, Mr. Muniz will receive an annual base salary of $300,000 and is
entitled to receive cash incentive compensation or annual stock option awards as
determined by the
Board or the Compensation Committee of the Board from time to time. In addition,
Mr. Muniz is entitled to participate in any and all employee benefit plans
established and maintained by the Company for executive officers of the Company.
Pursuant to the Employment Agreement, Mr. Muniz received an Option granted under
and in accordance with the Company’s 2004 Stock Incentive Plan, to purchase an
aggregate of 500,000 shares of common stock exercisable for ten years from the
date the Option is granted. The Option shall vest in equal amounts on each of
the first, second and third year anniversary of the grant so long as Mr. Muniz
remains employed by the Company. The exercise price of the Option equals the
fair market value of the common stock on the date of grant.
The
Employment Agreement continues in effect for two years following the date of the
agreement and automatically renews for successive one-year periods, unless Mr.
Muniz’s employment is terminated by him or by the Company. In the event that
Mr. Muniz’s employment is terminated by the Company for any reason, then
Mr. Muniz is entitled to receive his earned but unpaid base salary and
incentive compensation, unpaid expense reimbursements, accrued but unused
vacation and any vested benefits under any employee benefit plan of the Company.
In the event that Mr. Muniz’s employment is terminated by the Company without
“Cause” or by Mr. Muniz for “Good Reason” (as such terms are defined in the
Employment Agreement), and provided Mr. Muniz executes a release in favor of the
Company, then in addition to the above mentioned payments and benefits, Mr.
Muniz is entitled to receive an amount equal to his then current annual base
salary, payable in equal installments over 12 months in accordance with the
Company’s payroll practice, and all medical and health benefits for 18 months
following the termination date. In addition, in the event Mr. Muniz’s
employment is terminated without Cause or for Good Reason within 12 months
following a Change in Control (as defined in the Employment Agreement), and
provided Mr. Muniz executes a release in favor of the Company, in lieu of the
severance described above, Mr. Muniz is entitled to receive a lump cash payment
equal to his then current annual base salary, all medical and health benefits
for 18 months following the termination date and full acceleration of vesting of
all unvested stock options and other stock-based
awards. Mr. Muniz’s Employment Agreement requires him to refrain
from competing with the Company and from hiring our employees and soliciting our
customers for a period of one year following the termination of his employment
with the Company for any reason.
Executive
Compensation Components
Compensation
for the Company’s executive officers includes the following
components:
Base Salary. Fixed
annual compensation that is certain as to payment and provides continuous income
to meet ongoing living costs. This component is intended to ensure
that we are able to retain executives capable of achieving the Company’s
strategic and business objectives. The Compensation Committee reviews
executive officers’ salaries annually and will make adjustments based on its
expectations of that officer’s performance as compared to the officer’s actual
performance and what the Compensation Committee’s expectations are for that
officer’s future performance. Additionally, the Compensation
Committee factors in cost of living adjustments as well as the Company’s overall
performance and stock performance. In 2008, the Compensation
Committee also utilized a study of market compensation levels prepared by an
independent compensation consultant in order to evaluate the executive’s
compensation, including base salaries. Such a study was used by the
Compensation Committee in setting base salaries for the Company’s fiscal year
2008. Such a study was not used in previous years and was not used in
fiscal year 2009.
In the
fiscal year 2009, in light on the Company’s financial difficulties, lack of
executive leadership and inability to conduct a thorough market-based analysis
of executive compensation, the Compensation Committee determined that Mr. Muniz,
the Company’s sole executive officer, should receive the same base compensation
package, in all material respects, as his predecessor, Kuslima
Shogen.
Stock Option
Grants. Long-term incentive plan which offers eligible Company
officers and employees incentives to put forth maximum efforts for the success
of the Company’s business, to afford executive officers an opportunity to
acquire a proprietary interest in the Company and to relate the compensation of
officers to the value they create for the Company’s
stockholders. Currently, all stock-based awards are granted under the
2004 Stock Incentive Plan, which was approved by the Board of Directors and
stockholders of the Company in November 2003 and in January 2004,
respectively. The 2004 Stock Incentive Plan provides for the grant of
stock options and other stock-based awards to employees, officers, consultants,
independent contractors and directors providing services to us and our
subsidiaries as determined by the Board or by the Compensation
Committee. The types of awards that may be granted under the 2004
Stock Incentive Plan are stock options, stock appreciation rights, restricted
stock, restricted stock units, performance awards, dividend equivalents, other
stock grants, other stock-based awards and any combination
thereof. Stock options are granted based on the fair market value of
a share on the date of grant of such option. The terms, time and
method of the options are determined at the sole discretion of the Compensation
Committee.
At the
time he joined in the Company in April 2009, Mr. Muniz did not receive any
stock-based compensation. After completion of the Company’s financing
in October 2009, pursuant to his Employment Agreement, Mr. Muniz received stock
options to purchase a total of 500,000 shares of common stock. The
Compensation Committee determined that this was an appropriate grant in light of
prior grants made to the Company’s former CEO, Mr. Muniz’s success in obtaining
financing for the Company in very difficult market conditions and the need to
provide Mr. Muniz with additional incentive to create further value for the
Company’s stockholders.
Incentive
Compensation. The primary purpose is to align the interests of
the executive officers with those of the stockholders by rewarding executive
officers for creating stockholder value over the long-term. The 2004
Stock Incentive Plan provides for the award of stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, dividend
equivalents, and other stock grants or stock based awards.
Other
Benefits. The CEO is eligible to participate in the Company’s
401(k) plan, health and dental coverage, life insurance, disability insurance,
paid time off and paid holidays on the same terms as are available to all
employees generally. Other benefits available to the CEO are the
payment of reasonable costs of temporary housing, reasonable airfare associated
with relocation and relocation assistance. The CEO’s compensation is
designed to be competitive with overall market practices, and is in place to
attract and retain the personnel needed in the business.
Post-termination
Agreements. Other than severance payments provided for in Mr.
Muniz’s Employment Agreement and Ms. Shogen’s Retirement Agreement, as described
below, the Company does not utilize post-termination agreements. In
addition, under grants awarded pursuant to the 2004 Stock Incentive Plan,
the recipients of such grants have received Stock Option Agreements
which contain provisions that allow for the awarded options to become fully
vested and immediately exercisable or exercisable during the six months
following a change in control but in no event beyond the option period provided
in the Stock Option Agreement; provided, however, that the terms of Mr. Muniz’s
Employment Agreement, as described above, supersede the terms set forth in his
Stock Option Agreement. Per the Company’s standard Stock Option
Agreement, a change in control is deemed to occur if (i) a person, as defined by
Section 13 (d) and 14 (d) of the Exchange Act, becomes the beneficial owner,
directly or indirectly, of securities representing 20% or more of the combined
voting power of the Company’s then outstanding shares (except that ownership by
the McCash Family Limited Partnership must be 50% to qualify as a change in
control); (ii) during any 12 month period, the individuals who were, at the
beginning of such period, a majority of the Board cease to be a majority of the
Board; (iii) the Company’s stockholders approve a merger or consolidation with
another corporation except where the Company remains in control after such
merger or consolidation or where the merger or consolidation was effected to
recapitalize the Company and no one person acquired more than 50% of the
combined voting power of the Company; or (iv) the stockholders of the Company
approve a plan of complete liquidation or enter into an agreement for the sale
or disposition of all or substantially all of the assets of the
Company.
Additionally,
under the terms of the Stock Option Agreements issued under the 2004 Stock
Incentive Plan, if there is a termination of service due to the death, total
disability or retirement of the optionee on or after age 65 after seven years of
service with the Company, then the options become fully exercisable at the time
of death, total disability or retirement, as the case may be, and may be
exercised by the optionee or optionee’s estate during the six months following
the month of optionee’s death, total disability or retirement but in no event
beyond the option period provided in the Stock Option Agreement. If
there is a termination of employment due to voluntary resignation then to the
extent options are exercisable as of the date of the termination, such options
may be exercised within six months of the date of termination of
employment. If there is termination for cause, then to the extent
options are exercisable as of the date of the termination, such options may be
exercised within 30 days of the date of termination. “Cause” is
defined as (i) frequent and unjustifiable absenteeism other than optionee’s
illness or physical or mental disability; (ii) fraud or dishonesty materially
injurious to the Company; (iii) gross or willful misconduct or willful neglect
to act which is committed or omitted by optionee in bad faith; (iv) gross breach
of optionee’s fiduciary duties which has a materially injurious effect on the
Company; (v) optionee’s conviction as a felon; or (vi) optionee’s willful or
continuous neglect or refusal to perform his or her duties. If there
is termination for any reason other than those described above, then to the
extent options are exercisable as of the date of the termination, such options
may be exercised within 12 months of the date of termination of
employment.
Under
grants awarded pursuant to the Company’s 1997 and 1993 Stock Option Plans, prior
to a dissolution or liquidation of the Company or a merger or consolidation
where the Company is not the surviving corporation, the optionee has the right
to exercise all outstanding options. If the optionee terminates
employment, then to the extent options are exercisable as of the date of
termination, such options may be exercised within 190 days of the date of
termination of employment. If the Board determines that the optionee
engaged in activities or employment contrary to the best interest of the
Company, then the Board can cancel the options within 190 days of the
termination of employment. If an optionee dies while still in service
to the Company, then to the extent options are exercisable as of the date of
death, such options may be exercised.
The
rationale for the acceleration of the options under the 2004 Stock Incentive
Plan, and the 1997 and 1993 Stock Option Plans upon a change in control of the
Company is to ensure that officers are motivated to pursue creating or obtaining
the maximum value for stockholders and to encourage officers to remain with the
Company after a change in control has occurred.
Kuslima
Shogen, the Company’s former CEO and scientific founder, retired on March 31,
2009. On April 25, 2008, we entered into a Retirement Agreement with
Ms. Shogen. Under the terms of the Retirement Agreement, during the
two year period commencing April 1, 2008, Ms. Shogen was entitled to receive
periodic payments at the rate of $300,000 per year. The options to
purchase the Company’s common stock held by Ms. Shogen on the date of her
retirement remained exercisable after Ms. Shogen’s retirement in accordance with
their terms. No change was made to the terms of such existing options under the
Retirement Agreement, except the Compensation Committee of the Company’s Board
of Directors amended the Company’s 1993 Stock Option Plan and 1997 Stock Option
Plan to allow such options to be transferred by Ms. Shogen to members of her
family. The Compensation Committee agreed to give Ms. Shogen the ability to
transfer her existing options granted under the 2004 Stock Incentive Plan to
members of her family. If Ms. Shogen elects COBRA continuation
coverage after her retirement date, the Company will pay for Ms. Shogen’s COBRA
insurance continuation premiums until the earliest of the second anniversary of
her retirement date and the date Ms. Shogen is no longer eligible for COBRA
insurance overage under applicable law or the date on which Ms. Shogen becomes
eligible for Medicare. In the event Ms. Shogen becomes ineligible for COBRA
coverage under the Company’s insurance plans for any reason other than her death
prior to the second anniversary of her retirement date, the Company will make a
lump sum cash payment to Ms. Shogen equal to the amount of the premiums the
Company would have had to pay to maintain Ms. Shogen’s coverage under the
Company’s insurance plans had Ms. Shogen remained eligible for coverage under
such plans for the period commencing on the date Ms. Shogen became ineligible
for such coverage and ending on the second anniversary of her retirement
date.
Pursuant
to the terms of the Retirement Agreement, Ms. Shogen also agreed to terminate
the Royalty Agreement dated July 24, 1991, as amended on April 16, 2001 by and
between the Company and Ms. Shogen. In exchange for termination of the Royalty
Agreement, the Company agreed to make the following payments and awards to Ms.
Shogen:
|
·
|
A
lump sum payment of $500,000 made within ten business days of the date of
the Retirement Agreement, from which we were entitled to deduct the amount
of the outstanding principal and accrued interest of $187,410 owed by Ms.
Shogen to us as of the date of the Retirement
Agreement.
|
|
·
|
If
the NDA for ONCONASE®for
the treatment of malignant mesothelioma is approved by the FDA, Ms. Shogen
would receive a one time payment equal to 5% of the initial milestone
payment payable to the Company by Par Pharmaceutical Inc. or Par pursuant
to the License Agreement dated as of January 14, 2008 by and between the
Company and Par, or the License
Agreement.
|
|
·
|
If
the NDA for ONCONASE®
for the treatment of malignant mesothelioma is approved by the FDA, Ms.
Shogen would also receive a payment of $350,000 on each of the first and
second anniversaries of the date of such approval for a total payment of
$700,000.
|
|
·
|
An
option to purchase an aggregate of 1,000,000 shares of the Company’s
common stock under the 2004 Stock Incentive Plan at an exercise price
equal to the fair market value of the common stock as of the date of the
Retirement Agreement as determined under such plan. The option has a term
of ten years and will become exercisable only upon the approval by the FDA
of the NDA for ONCONASE® for the treatment of
malignant mesothelioma. As the result of the option to purchase 250,000
shares of common stock granted under the 2004 Stock Incentive Plan to Ms.
Shogen on March 5, 2008 in connection with the Company’s execution of the
License Agreement and in order to enable the Company to grant this option
to Ms. Shogen, the Board of Directors amended the annual award limitation
for a participant in the 2004 Stock Incentive Plan for 2008 as it relates
to Ms. Shogen from 1,000,000 shares to 1,250,000
shares.
|
|
·
|
Payments
equal to 15% of any royalties payable with respect to net sales which are
received by us pursuant to any and all license agreements entered into by
us for the marketing and distribution of ONCONASE®
and any other products derived from amphibian source extract, produced
either as a natural, synthesized, and/or genetically engineered drug which
are covered by the claims of any issued patent owned or controlled by us
which is issued and valid as of December 31, 2007, or the Licensed
Products, and 5% of net sales of Licensed Products which we book on our
financial statements but only to the extent that the aggregate annual net
sales of Licensed Products upon which such royalty payments are received
by us and annual net sales of Licensed Products booked by us when combined
are in excess of $100 million in a year. In the event either or both of
the aggregate annual net sales of Licensed Products upon which we receive
royalties and the annual net sales of Licensed Products which we book on
our financial statements are less than $100 million, but when combined
such aggregate annual net sales exceed $100 million, the payments to be
received by Ms. Shogen in that year will be paid with respect to the
amount of such aggregate net sales that exceeds $100 million and pro rated
between the 15% Ms. Shogen is entitled to receive on royalties received by
us and the 5% Ms. Shogen is entitled to receive on net sales booked by us
based upon the percentage of the total net sales of the Licensed Products
that year represented by aggregate net sales upon which we receive a
royalty and the net sales booked by us. Ms. Shogen’s rights to receive
these payments shall terminate when all claims under the relevant patents
which cover the Licensed Products have
expired.
|
On
September 14, 2009, the Company entered into an amendment to the Retirement
Agreement amending certain terms. Under the Retirement Agreement, Ms.
Shogen was entitled to receive periodic payments during the two year period
commencing April 1, 2008 at the rate of $300,000 per year. Pursuant
to the amendment, the periodic payments were reduced to $150,000 per
year. Under the Retirement Agreement, Ms. Shogen was entitled
to receive continuing payments equal to 15% of any royalties received by us
pursuant to any and all license agreements entered into by us for the marketing
and distribution of Licensed Products. Under the amendment, the amount of such
royalties related to net sales of Licensed Products to be received by Ms. Shogen
has been reduced to 5%. Under the Retirement Agreement, Ms. Shogen
was entitled to receive continuing payments equal to 5% of net sales of Licensed
Products booked by us on our financial statements. Under the
amendment, the amount of such net sales booked by us has been reduced to 2% of
net sales. Under the amendment, in the event we obtain marketing approval for
ONCONASE® from
the FDA or the European Medicines Agency, Ms. Shogen will be entitled to receive
an additional payment equal to the difference between the continuing payments
actually paid to Ms. Shogen during the two year period commencing April 1, 2008
and $600,000, the original aggregate amount of continuing payments to which Ms.
Shogen was entitled under the Retirement Agreement. Such additional
payment may be made by us, at our option, in cash, common stock or a combination
of both. Except as specifically amended in the Amendment, all
terms and conditions of the Retirement Agreement remain in full force and
effect.
The
following table summarizes the estimated value of the stock options for each
named executive officer derived from the terms of the 2004 Stock Incentive Plan,
the 1997 Stock Option Plan and the 1993 Stock Option Plan assuming that a
triggering event took place on the last business day of our most recently
completed fiscal year, July 31, 2009 and that the price per share of our common
stock is the closing market price as of that date.
Name
|
Death
or Total
Disability(1)
|
Voluntary
Termination or
Termination
for Cause(1)
|
Change
in
Control(1)
|
Charles
Muniz
|
$0
|
$0
|
$0
|
Kuslima
Shogen(2)
|
$1,380
|
$1,380
|
$1,380
|
Lawrence
Kenyon(3)
|
$0
|
$0
|
$0
|
(1)
|
These
amounts represent the aggregate in-the-money value of stock options which
would become vested as a direct result of the termination event or change
in control before the applicable stated vesting date. The stated vesting
date is the date at which an award would have vested absent such
termination event or change in control. This calculation of
value does not attribute any additional value to stock options based on
their remaining terms and does not discount the value of awards based on
the portion of the vesting period elapsed at the date of the termination
event or change in control. These amounts represent the
intrinsic value of stock options, based on a closing stock price of $0.28
on July 31, 2009.
|
(2)
|
Kuslima
Shogen retired from the Company in March 31, 2009 and resigned from the
Board on January 29, 2010.
|
(3)
|
Lawrence
Kenyon resigned as the Company’s President and CFO on December 12, 2008
and as Corporate Secretary and member of the Board on April 2,
2009.
|
Pension Plans. The Company
does not have pension plans for its employees, executive officers or
directors.
Non-Qualified Deferred Compensation
Plans. The Company does not have non-qualified deferred
compensation plans for its employees, executive officers or
directors.
Tax
and Accounting Considerations
Deductibility of Executive
Compensation. In making compensation decisions affecting the
executive officers, the Compensation Committee considers the Company’s ability
to deduct under applicable federal corporate income tax law compensation
payments made to executives. Specifically, the Compensation Committee
considers the requirements and impact of Section 162(m) of the Internal Revenue
Code, which generally disallows a tax deduction for annual compensation in
excess of $1 million paid to our named executive officers. Certain
compensation that qualifies under applicable tax regulations as
“performance-based” compensation is specifically exempted from this deduction
rule. The Compensation Committee cannot assure that it will be able
to fully deduct all amounts of compensation paid to persons who are named
executive officers in the future. Further, because the Compensation
Committee believes it is important to preserve flexibility in designing its
compensation programs, it has not adopted a policy that all compensation must
qualify as deductible under Section 162(m). The cash compensation
that the Company paid to each of its named executive officers during 2009 was
below $1 million. We believe that stock options granted to named
executive officers under the 1997 Stock Option Plan and the 2004 Stock Incentive
Program would qualify as “performance-based compensation” and therefore are
Section 162(m) qualified.
Accounting for Stock Based
Compensation. On August 1, 2005, the Company adopted the fair
value recognition provisions of the amended guidance on ASC Stock Compensation
to account for all stock grants under all of its stock plans.
COMPENSATION
OF EXECUTIVE OFFICERS
Summary
Compensation Table
The
following table provides a summary of cash and non-cash compensation for each of
the last three fiscal years ended July 31, 2009, 2008 and 2007 with respect to
the one person who served as our CEO and the two other people who served as our
only other executive officers during the year ended July 31, 2009, collectively
referred to as the Named Executive Officers.
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Stock
Awards
($)
|
|
Option
Awards
($)(1)
|
|
Non-Equity
Incentive Plan Compensation
|
|
Non-Qualified
Deferred
Compensation
Earnings
($)
|
|
All
Other
Compensation
($)(2)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charles
Muniz
President,
CEO and CFO (3)
|
|
2009
|
|
87,500
(4)
|
|
-
|
|
|
|
-
|
|
-
|
|
-
|
|
11,041(5)
|
|
98,541
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kuslima
Shogen
Former
CEO (6)
|
|
2009
|
|
207,692
|
|
-
|
|
|
|
-
|
|
-
|
|
-
|
|
139,241(7)
|
|
346,933
|
|
2008
|
|
278,877
|
|
-
|
|
|
|
2,305,000
|
|
-
|
|
-
|
|
525,514(8)
(9)
|
|
3,109,391
|
|
2007
|
|
233,688
|
|
-
|
|
|
|
565,460
|
|
-
|
|
-
|
|
24,026(10)
|
|
823,174
|
Lawrence
A. Kenyon
Former
President, CFO and Corporate Secretary (11)
|
|
2009
|
|
109,615
|
|
|
|
|
|
|
|
|
|
|
|
|
|
109,615
|
|
2008
|
|
215,231
|
|
42,000
|
|
|
|
-
|
|
-
|
|
-
|
|
6,990(12)
|
|
264,221
|
|
2007
|
|
104,192(13)
|
|
-
|
|
|
|
666,875
|
|
-
|
|
-
|
|
38,157(14)
|
|
809,224
|
(1)
|
These
amounts represent the dollar amount recognized for financial statement
reporting purposes the grant date fair value of stock options granted to
the named executive officers in accordance with ASC Stock
Compensation. The grant date fair value was estimated using the
Black-Scholes stock option pricing model in accordance with ASC Stock
Compensation. Pursuant to the SEC rules, the amounts exclude
the impact of estimated forfeitures related to service-based vesting
conditions. Valuation assumptions used in the calculation are
as disclosed in Note 7 to the financial statements for the year ended July
31, 2009 filed with this prospectus.
|
(2)
|
Excludes
perquisites and other personal benefits that in the aggregate do not
exceed $10,000. These amounts consist of our annual
contributions to a 401(k) plan unless otherwise noted.
|
(3)
|
Mr.
Muniz was appointed as the Company’s President, COO and CFO and director
to the Board on April 3, 2009.
|
(4)
|
Mr.
Muniz initially began consulting with the Company on February 9,
2009. On April 3, 2009, Mr. Muniz was appointed as the
Company’s President, COO and CFO. Given the Company’s difficult
financial condition, Mr. Muniz continued to receive consulting payments
from the date he first began consulting with the Company continuing
through October 19, 2009. This amount represents consulting
fees from his first day of employment through July 31,
2009.
|
(5)
|
This
amount consists of travel cost between Mr. Muniz’ home state of Florida
and New Jersey for a period of six months totaling $5,218 and health
insurance reimbursement of $5,823 for fiscal year 2009.
|
(6)
|
Ms.
Shogen retired from the Company on March 31, 2009 and resigned from the
Board on January 29, 2010.
|
(7)
|
This
amount consists of post-retirement payments of $126,923, our annual
contribution to a 401(k) plan totaling $3,461 and a monthly auto allowance
totaling $8,857 for fiscal year
2009.
|
(8)
|
$500,000
of this amount a lump sum payment as part of Ms. Shogen’s Retirement
Agreement in exchange for the termination of the Royalty
Agreement.
|
(9)
|
$25,514
of this amount consists of our annual contribution to a 401(k) plan
totaling $9,999, a monthly auto allowance totaling $12,997 for fiscal year
2008 and premiums paid by the Company on a life insurance policy on Ms.
Shogen totaling $2,518. The Company is not the beneficiary of
the life insurance policy.
|
(10)
|
This
amount consists of our annual contribution to a 401(k) plan totaling
$6,738, a monthly auto allowance totaling $13,000 for fiscal year 2007 and
premiums paid by the Company on a life insurance policy on Ms. Shogen
totaling $4,288. The Company is not the beneficiary of the life
insurance policy.
|
(11)
|
Mr. Kenyon
resigned as the Company’s President and CFO on December 12, 2008 and as
Corporate Secretary and director on the Board on April 2,
2009.
|
(12)
|
This
amount consists of our annual contribution to a 401(k) plan.
|
(13)
|
Represents
salary for period commencing on January 16, 2007, Mr. Kenyon’s first
day of employment with the Company, through July 31,
2007.
|
(14)
|
As
part of Mr. Kenyon’s employment arrangements approved by the Board, the
Company provided for moving expenses totaling $9,146 and cost
of travel between his home state of Illinois and New Jersey for a period
of 12 months totaling $29,011. We made no contributions to Mr.
Kenyon’s 401(k) plan during the fiscal year ended July 31,
2007.
|
Grants
of Plan-Based Awards in Fiscal Year 2009
There
were no grant of stock options under equity and non-equity incentive plans to
the Named Executive Officers during the fiscal year ended July 31,
2009.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth the information with respect to the Named Executive
Officers concerning the exercisable and unexercisable stock option awards held
as of July 31, 2009
Name (1)
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Kuslima
Shogen(2)
|
23,000(3)
|
-
|
-
|
$0.85
|
8/21/09
|
|
23,000(3)
|
-
|
-
|
$0.49
|
10/4/09
|
|
23,000(3)
|
-
|
-
|
$0.49
|
10/7/09
|
|
69,000(3)
|
-
|
-
|
$0.26
|
10/7/09
|
|
30,000(3)
|
-
|
-
|
$1.58
|
9/19/09
|
|
90,000(3)
|
-
|
-
|
$1.58
|
10/7/09
|
|
150,000(3)
|
-
|
-
|
$6.73
|
10/7/09
|
|
100,000(3)
|
-
|
-
|
$6.73
|
3/31/10
|
|
100,000(3)
|
-
|
-
|
$1.61
|
10/7/09
|
|
72,000(3)
|
-
|
-
|
$1.29
|
10/7/09
|
|
250,000(3)
|
-
|
|
$2.18
|
3/31/10
|
|
|
|
1,000,000(4)
|
$2.00
|
4/25/18
|
Lawrence
A. Kenyon(5)
|
225,000(3)
|
-
|
-
|
$1.55
|
8/17/09
|
(1)
|
The
Company does not have stock awards as part of its compensation program,
therefore the columns entitled “Stock Awards” have been omitted from this
table.
|
(2)
|
Ms.
Shogen retired from the Company on March 31,
2009.
|
(3)
|
These
options expired on their respective expiration dates.
|
(4)
|
These
performance options are only exercisable upon the meeting of the
conditions set out in Ms. Shogen’s Retirement Agreement as described
above.
|
(5)
|
Mr.
Kenyon resigned as the Company’s President and CFO on December 12, 2008
and as Corporate Secretary and director on April 2,
2009.
|
Option
Exercises and Stocks Vested
The Named
Executive Officers did not exercise options during fiscal year 2009 and the
Company did not grant stock awards as part of its compensation
program.
NON-EMPLOYEE
DIRECTORS’ COMPENSATION
In
February 2007, the Board adopted a non-employee director compensation policy
whereby each member of the Board who was not an employee of our company will
receive $15,000 per year in consideration of the member’s serving on the Board,
payable in four equal quarterly installments. In addition, each
non-employee director will be granted an annual retainer of 20,000 options on
the last trading day of December for each year under the 2004 Stock Incentive
Plan. The Chairman of the Board will receive an option bonus equal to
the number of options received by the Chairman for his board and committee
memberships. Committee chairpersons receive 10,000 options for each
committee chaired while each committee member receives 5,000 options for each
committee on which he serves. The exercise price of the options will
be equal to the closing price of the common stock on the date of the
grant. The options will vest on the first anniversary of the date of
the grant provided that the option holder remains a director as of such
anniversary date and the options will terminate on the sixth anniversary of the
date of the grant.
On
October 20, 2009, the Company closed on a private placement of convertible
promissory notes and warrants in which the Company received $3,250,000 in gross
proceeds on October 19, 2009. As a condition to the closing of such
financing, each member of the Board other than David Sidransky, Chairman of the
Board, and Mr. Muniz agreed to resign from the Board upon the request of Dr.
Sidransky made at any time following the closing and December 31,
2009. In connection with such condition, the Board amended the
vesting of the options granted on December 31, 2008 to non-employee directors,
except for Dr. Sidransky, to be accelerated in full upon their resignation as
requested by the Chairman of the Board. Additionally, with the
exception of Dr. Sidransky, the terms of the options granted to non-employee
directors on February 8, 2007, December 31, 2007 and December 31, 2008 were
amended to provide that if the non-employee director leaves the Board, the
option will be exercisable for two years, instead of one year, from the date
such non-employee director leaves the Board any time between October 19, 2009
and December 31, 2009.
In
January 2009, the Board ceased the non-employee director compensation; however,
on April 27, 2010, the Board made the following option grants to our
non-employee directors as compensation for their service on the Board: (i)
options to purchase 180,000 shares of common stock to Dr. Sidransky, (ii)
options to purchase 125,000 shares of common stock to Mr. Brancaccio, and (iii)
options to purchase 125,000 shares of common stock to Dr. Weiss, each at an
exercise price of $0.26 per share and with a vesting date of December 31,
2010.
Under our
director compensation policies, directors who also serve as executive officers
do not receive additional compensation for their service on our
Board.
The
exercise price and vesting schedules for the regular and discretionary option
grants described above are set forth in the table titled “Directors’ Stock Options”
below. The total compensation paid to independent directors for their
service as directors of the Company for fiscal year 2009 is set forth in the
table titled “Directors’
Compensation” below.
Name
|
|
Fees
Earned or Paid in Cash(1)
($)
|
|
Stock
Awards
($)
|
|
Option
Awards(2)
($)
|
|
Non-Equity
Incentive Plan Compensa-tion
($)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings
($)
|
|
All
Other Compen-sation
($)
|
|
Total
($)
|
|
John
P. Brancaccio
|
|
|
$7,500
|
|
|
-
|
|
|
$5,600
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$13,100
|
|
Stephen
K. Carter, M.D. (3)
|
|
|
$7,500
|
|
|
-
|
|
|
$4,000
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$11,500
|
|
Donald
R. Conklin (4)
|
|
|
$7,500
|
|
|
-
|
|
|
$4,800
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$12,300
|
|
James
J. Loughlin(5)
|
|
|
$7,500
|
|
|
-
|
|
|
$5,600
|
(5)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$13,100
|
|
David
Sidransky, M.D.
|
|
|
$7,500
|
|
|
-
|
|
|
$14,400
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$21,900
|
|
Paul
Weiss, Ph.D.
|
|
|
$7,500
|
|
|
-
|
|
|
$8,000
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
$15,500
|
|
During
the fiscal year ended July 31, 2009, the following independent or non-employee
directors were compensated as follows for their service as directors of the
Company:
|
(1)
|
These
amounts represent the retainer paid for services as
director.
|
(2)
|
These
amounts represent the dollar amount recognized for financial statement
reporting purposes for the fair value of stock options granted to
non-employee directors for fiscal year 2009. The grant date
fair value of the options was estimated using the Black-Scholes stock
option pricing model in accordance with ASC Stock
Compensation. Valuation assumptions used in the calculation are
as disclosed in Note 7 to the financial statements for the year ended July
31, 2009 filed with this prospectus.
|
(3)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(4)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(5)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009. The stock options granted to him in December 2008 were
forfeited.
|
Directors’
Stock Options
During
the fiscal year ended July 31, 2009, the following independent or non-employee
directors were granted options under our 2004 Stock Incentive Plan as described
above:
Name
|
Number
of
Options
Granted(1)
|
Exercise
Price of
Options
Granted
|
John
P. Brancaccio
|
35,000(2)
|
$0.24
|
Stephen
K. Carter, M.D. (3)
|
25,000(4)
|
$0.24
|
Donald
R. Conklin (5)
|
30,000(6)
|
$0.24
|
James
J. Loughlin(7)
|
35,000(8)
|
$0.24
|
David
Sidransky, M.D.
|
90,000(9)
|
$0.24
|
Paul
M. Weiss, Ph.D.
|
50,000(10)
|
$0.24
|
|
(1)
|
All
the options listed here were granted on December 31, 2008, vest on
December 31, 2009, provided that the option holder continuously remains a
director until such time, and expire on December 31, 2014. The
exercise price of these options was the closing price of the Company’s
common stock on the date of the grant. As described above,
these options will be accelerated in full upon the resignation of the
non-employee director, except Dr. Sidransky, as requested by the Chairman
of the Board any time between October 19, 2009 and December 31,
2009.
|
(2)
|
Mr.
Brancaccio’s options are the result of his serving on the Audit Committee
and as Chairman of the Compensation Committee.
|
(3)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(4)
|
Dr.
Carter’s’ options are the result of his serving on the Research and
Clinical Oversight Committee.
|
(5)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(6)
|
Mr.
Conklin’s options are the result of his serving on the Compensation
Committee and Commercial and Business Development Oversight
Committee.
|
(7)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009.
|
(8)
|
Mr.
Loughlin’s options are the result of his serving on the Corporate
Governance and Nominating Committee and as Chairman of the Audit
Committee. Mr. Loughlin resigned as a member of the Board
on March 5, 2009 and these options were forfeited as a result of his
resignation.
|
(9)
|
Dr.
Sidransky’s options are the result of his serving as Chairman of the
Board, Chairman of the Corporate Governance and Nominating Committee,
Chairman of the Research and Clinical Oversight Committee and a member of
the Commercial and Business Development Oversight
Committee.
|
(10)
|
Dr.
Weiss’ options are the result of his serving on the Compensation
Committee, the Corporate Governance and Nominating Committee, the Audit
Committee, the Research and Clinical Oversight Committee and as Chairman
of the Commercial and Business Development Oversight
Committee.
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth the information with respect to the independent or
non-employee directors concerning exercisable and unexercisable stock options
held as of July 31, 2009:
Name
(1)
|
Number
of Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number
of Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
John
P. Brancaccio
|
13,750(2)
|
-
|
$3.74
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
15,000
|
-
|
$1.49
|
02/08/13
|
|
35,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
35,000(3)
|
$0.24
|
12/31/14
|
Stephen
K. Carter, M.D. (4)
|
15,000(5)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
5,000
|
-
|
$1.49
|
02/08/13
|
|
25,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
25,000(3)
|
$0.24
|
12/31/14
|
Donald
R. Conklin (5)
|
15,000(2)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
10,000
|
-
|
$1.49
|
02/08/13
|
|
30,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
30,000(3)
|
$0.24
|
12/31/14
|
James
J. Loughlin(6)
|
13,750(2)
|
-
|
$3.74
|
9/11/09
|
|
20,000(2)
|
-
|
$4.38
|
9/11/09
|
|
20,000(2)
|
-
|
$1.89
|
9/11/09
|
|
20,000(2)
|
-
|
$1.60
|
9/11/09
|
|
15,000(2)
|
-
|
$1.49
|
9/05/09
|
|
35,000(2)
|
-
|
$1.72
|
9/05/09
|
|
-
|
35,000(3)(7)
|
$0.24
|
12/31/14
|
David
Sidransky, M.D.
|
8,750(2)
|
-
|
$8.18
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
70,000
|
-
|
$1.49
|
02/08/13
|
|
90,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
90,000(3)
|
$0.24
|
12/31/14
|
Paul
M. Weiss, Ph.D.
|
15,000(2)
|
-
|
$3.78
|
12/30/09
|
|
20,000
|
-
|
$4.38
|
12/30/10
|
|
20,000
|
-
|
$1.89
|
12/30/11
|
|
20,000
|
-
|
$1.60
|
12/30/12
|
|
30,000
|
-
|
$1.49
|
02/08/13
|
|
50,000
|
-
|
$1.72
|
12/31/13
|
|
-
|
50,000(3)
|
$0.24
|
12/31/14
|
(1)
|
The
Company does not have stock awards as part of its compensation program,
therefore the columns entitled “Stock Awards” have been omitted from this
table.
|
(2)
|
These
options expired on their respective expiration dates.
|
(3)
|
These
options vested on December 31, 2009, provided that the option holder
continuously remained a director as of December 31,
2009.
|
(4)
|
Mr.
Carter did not stand for reelection on our April 27, 2010 Annual
Stockholders Meeting and is currently no longer on our Board of
Directors.
|
(5)
|
Mr.
Conklin resigned as a member of the Board on January 29,
2010.
|
(6)
|
Mr.
Loughlin resigned as a member of the Board on March 5,
2009.
|
(7)
|
These
options were forfeited as a result of Mr. Loughlin’s
resignation.
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During
the fiscal year ended July 31, 2009, the members of the Board who served on the
Compensation Committee were Messrs. John P. Brancaccio, Donald R. Conklin
(resigned subsequently) and Paul M. Weiss, Ph.D. All such directors
were independent directors and have never been our officers. During the
fiscal year ended July 31, 2009, no executive officer of us served on the
compensation committee or board of directors of any other entity which had any
executive officer who also served on the Compensation Committee or
Board.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
The
Company recognizes that related party transactions can create the appearance
that Company decisions are made based on factors other than the Company’s best
interest or the best interest of the Company’s stockholders. Related
party transactions can also create potential or actual conflicts of interest
between the Company and the related party. For purposes of Item 404
of Regulation S-K, related person transactions are transactions which exceed
$120,000 in the aggregate or 1% of the average of the Company’s total assets at
year end for the last three completed fiscal years, to which the Company and a
related party with a direct or indirect material interest,
participated. The Company’s Code of Business Conduct and Ethics
requires that any such related party transactions be specifically approved by
the Audit Committee. In addition directors, officers and employees
must notify the Ethics Officer or the Chair of the Audit Committee of the
existence of any actual or potential conflicts of interest. The Audit
Committee performs a review of related party transactions as part of its review
of our Annual Reports on Form 10-K.
The
Company was a party to the following transactions in which the amount involved
exceeded $120,000 and in which any executive officers, directors, holders of
more than 5% of our capital stock and members of such person’s immediate
families had or will have a direct or indirect material interest.
Fiscal
Year 2007
At fiscal
year ended July 31, 2007, $180,397 were due to the Company from Kuslima
Shogen, the Company's former CEO, from which the Company earned 8% interest in
the amount of approximately $9,500 on the unpaid principal balance for fiscal
year 2007. This loan was made prior to July 30, 2002 and has not since been
materially modified, thus it is not in violation of the Sarbanes-Oxley Act of
2002.
On
July 23, 1991, the Board agreed to pay Ms. Shogen an amount equal to 15% of
any gross royalties which the Company may receive from any license(s) with
respect to the Company's lead drug product candidate, ONCONASE®, or any other
products derived from amphibian source extract, produced either as a natural,
synthesized, and/or genetically engineered drug for which the Company is the
owner or co-owner of the patents, or acquires such rights in the future, for a
period not to exceed the life of the patents. If the Company manufactures and
markets any of these drugs, then Ms. Shogen will receive an amount equal to
5% of gross sales from any products sold during the term of the patents. On
April 16, 2001, this agreement was amended and clarified to provide that
Ms. Shogen would receive the 15% royalty payment relating to licenses or 5%
of net sales relating to sales but not both, unless both the Company and the
licensee market the licensed product.
Fiscal
Year 2008
Amounts
due from a loan to Ms. Shogen totaling $180,397 were repaid in full plus
interest in April 2008. The Company earned 8% interest on the unpaid principal
balance in the amount of approximately $7,000 for fiscal year ended July 31,
2008. This loan was made prior to July 30, 2002 and has not since been
materially modified.
In
addition, see the discussion of the Retirement Agreement and arrangements
related thereto by and between the Company and the Company’s former CEO, Kuslima
Shogen, set forth above in the Post-Termination Agreement
subsection of the “Compensation and Discussion Analysis”.
In fiscal
year 2009, March 2008 and September 2008, the Company engaged Champions
Biotechnology, Inc. to provide certain services for approximately $12,300
and $81,200, respectively. The Company’s non-executive Chairman of
the Board of Directors, Dr. David Sidransky, is also the Chairman of the Board
of Directors as well as a principal stockholder of Champions Biotechnology,
Inc. As of July 31, 2009, the agreed amount was paid in
full.
On
October 20, 2009, the Company announced that it completed a sale of 65 Units in
a private placement to certain investors pursuant to a securities purchase
agreement entered into on October 19, 2009. Each Unit consists
of (i) $50,000 principal amount of 5% Senior Secured Convertible Notes
convertible into shares of the Company’s common stock, (ii) Series A
Warrants to purchase in the aggregate that number of shares of common stock
initially issuable upon conversion of the aggregate amount of Notes issued as
part of the Unit, at an exercise price of $0.15 per share with a three year term
and (iii) Series B Warrants to purchase in the aggregate that number of
shares of common stock initially issuable upon conversion of the aggregate
amount of Notes issued as part of the Unit, at an exercise price of $0.25 per
share with a five year term. The closing of the Offering occurred on
October 19, 2009 and the Company received an aggregate of $3,250,000 in
gross proceeds. Charles Muniz, the Company’s President, CEO, CFO and
a director, subscribed for 20 Units, certain trusts and individuals related to
James O. McCash, a beneficial owner of more than five percent of the Company’s
voting securities, subscribed for an aggregate of 20 Units, Europa International
Inc., an affiliate of Knoll Capital Management LP, a beneficial owner of more
than five percent of the Company’s voting securities, subscribed for 15
Units. The Company’s entry into an employment agreement with Mr.
Muniz upon terms reasonably acceptable to the investors in the Offering was a
condition to the Closing.
In
addition, see the discussion of the Retirement Agreement and arrangements
related thereto by and between the Company and the Company’s CEO, Kuslima
Shogen, set forth above in the Post-Termination Agreement
subsection of the “Compensation and Discussion
Analysis”.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information as of March 12, 2010 concerning
stock ownership of all persons known by the Company to own beneficially 5% or
more of the outstanding shares of the Company's common stock.
Security
Ownership of Certain Beneficial Owners
Name
and address of beneficial
owner
or identity of group
|
|
Amount
and Nature of Beneficial Ownership
|
|
|
Percent
of shares
outstanding(1)
|
|
|
|
|
|
|
|
|
Charles
Muniz(2)
c/o
Tamir Biotechnology, Inc.
300
Atrium Drive
Somerset,
NJ 08873
|
|
|
21,609,999(3)
|
|
|
|
31.63%
|
|
|
|
|
|
|
|
|
|
|
Knoll
Capital Management LP, Fred Knoll and Europa International, Inc. (4)
666
Fifth Avenue, Suite 3702
New
York, NY 10103
|
|
|
19,030,520(5)
|
|
|
|
29.97%
|
|
|
|
|
|
|
|
|
|
|
McCash
Family Limited Partnership
N3810
S. Grand Oak Drive
Iron
Mountain, MI 49801
|
|
|
4,821,452(6)
|
|
|
|
9.9%
|
|
|
|
|
|
|
|
|
|
|
James
O. McCash, and the James O. McCash Trust
N3820
S. Grand Oak Drive
Iron
Mountain, MI 49801
|
|
|
2,910,820(7)
|
|
|
|
6.1%
|
|
|
|
|
|
|
|
|
|
|
Unilab
LP
966
Hungerford Drive, Ste 3B
Rockville,
MD 20850
|
|
|
5,195,038(8)
|
|
|
|
9.99%
|
|
(1)
|
The
percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of the date of the calculation by (ii) the sum of (A) the
number of shares of common stock outstanding as of the date of the
calculation, plus (B) the number of shares issuable upon conversion of
securities convertible into shares of common stock and upon exercise of
options or warrants held by such stockholder which were convertible or
exercisable as of the date of the calculation or which will become
exercisable within 60 days after the date of the calculation, taken into
consideration certain provisions in the warrants which limit the amount of
shares that the warrant holders can exercise for.
|
(2)
|
Mr.
Muniz is the Company’s President, CEO, CFO and a
director.
|
(3)
|
Includes
(i) 310,000 shares of common stock owned by Mr. Muniz, (ii) 300,000 shares
of common stock owned by Mr. Muniz’ wife and (iii) 20,999,999 shares
subject to a convertible note and warrants which are currently convertible
or exercisable or which will become convertible or exercisable within 60
days after March 12, 2010.
|
(4)
|
Knoll
Capital Management LP, Fred Knoll and Europa International, Inc., or
Europa, filed a Schedule 13D on December 7, 2009 with the SEC as
joint filers.
|
(5)
|
Includes
(i) 2,010,985 shares of common stock owned by Europa. (ii) 840,963 shares
held by Knoll Special Opportunities Fund Master Fund Ltd, or Knoll Fund,
(iii) 15,750,000 shares of common stock subject to a convertible note and
warrants which are currently convertible or exercisable or will become
convertible or exercisable within 60 days of March 12, 2010 held by Europa
and (iv) 428,572 shares subject to warrants which are currently
exercisable or will become exercisable within 60 days of March 12, 2010
held by Europa and Knoll Fund. This information concerning the
stock ownership of Knoll Capital Management LP, Fred Knoll and Europa. was
obtained from the Schedule 13D filed by them with the SEC on December 7,
2009 and other information known to the Company.
|
(6)
|
Includes
1,399,890 shares of common stock subject to warrants which are currently
exercisable or will become exercisable within 60 days of March 12,
2010. This information concerning the stock ownership of the
McCash Family Limited Partnership was obtained from the Schedule 13D/A
filed with the SEC on January 8, 2007 and other information known to the
Company.
|
(7)
|
This
information concerning the stock ownership of the James O. McCash, and the
James O. McCash Trust was obtained from the Schedule 13G/A filed with the
SEC on February 5, 2008 and other information known to the
Company.
|
(8)
|
Includes
(i) 4,641,678 shares of common stock subject to notes and warrants which
are currently exercisable or will become exercisable within 60 days of
March 12, 2010, and (ii) 553,360 shares of common
stock.
|
The table
below shows the amount of our common stock beneficially owned (unless otherwise
indicated) by our directors and the Named Executive Officers listed in the
Summary Compensation Table individually, and our directors and Named Executive
Officers as a group. All information is as of March 12, 2010.
Security
Ownership of Management
Name
and address of beneficial
owner
or identity of group(1)
|
|
Position
|
|
Amount
and Nature of Beneficial Ownership(2)
|
|
|
Percent
of shares
outstanding(3)
|
|
Charles
Muniz
|
|
President,
CEO, CFO and Director
|
|
|
21,609,999(4)
|
|
|
|
31.63%
|
|
John
P. Brancaccio
|
|
Director
|
|
|
151,300(5)
|
|
|
|
*
|
|
David
Sidransky, M.D.
|
|
Chairman
of the Board
|
|
|
355,000(6)
|
|
|
|
*
|
|
Paul
M. Weiss, Ph.D.
|
|
Director
|
|
|
230,090(7)
|
|
|
|
*
|
|
All
Named Executive Officers and directors as a group (4
persons)
|
|
|
|
|
22,346,389(8)
|
|
|
|
33.23%
|
|
*
|
Represents
less than 1% of our outstanding common stock.
|
(1)
|
Unless
otherwise indicated below, the persons in the above table have sole voting
and investment power with respect to all shares beneficially owned by
them. The address of all Named Executive Officers and directors
is c/o Tamir Biotechnology, Inc., 300 Atrium Drive, Somerset, New Jersey,
08873.
|
(2)
|
All
shares listed are common stock. Except as discussed below, none
of these shares are subject to rights to acquire beneficial ownership, as
specified in Rule 13d-3(1) under the Exchange Act, and the beneficial
owner has sole voting and investment power, subject to community property
law where applicable.
|
(3)
|
The
percentage of stock outstanding for each stockholder is calculated by
dividing (i) the number of shares deemed to be beneficially held by such
stockholder as of March 12, 2010 by (ii) the sum of (A) the number of
shares of common stock outstanding as of March 12, 2010 plus (B) the
number of shares issuable upon exercise of options or warrants held by
such stockholder which were exercisable as of March 12, 2010 or which will
become exercisable within 60 days after December March 12,
2010.
|
(4)
|
Includes
310,000 shares of common stock owned by Mr. Muniz, 300,000 shares of
common stock owned by Mr. Muniz’ wife and 20,999,999 shares subject to a
convertible note and warrants which are currently convertible or
exercisable or which will become convertible or exercisable within 60 days
after March 12, 2010.
|
(5)
|
Includes
145,000 shares underlying options which are currently exercisable or which
will become exercisable within 60 days after March 12,
2010.
|
(6)
|
Includes
310,000 shares underlying options which are currently exercisable or which
will become exercisable within 60 days after March 12,
2010.
|
(7)
|
Includes
6,535 shares of common stock owned by Mr. Weiss’ wife and 190,000 shares
underlying options which are currently exercisable or which will become
exercisable within 60 days after March 12, 2010.
|
(8)
|
Includes
all shares owned beneficially by the directors and the executive officers
named in the table.
|
We are
registering the shares of common stock issuable upon the conversion of the Notes
and exercise of the Warrants, including: (a) 24,916,667 shares of common stock
that will be issued upon conversion of the Notes in the aggregate principal
amount of $3,250,000, referred to as Note Shares, (b) 21,666,664 shares of
common stock that will be issued upon the exercise of the Series A Warrants at
$0.15 per share, referred to as Series A Warrant Shares, and (c) 21,666,664 shares of common stock
that will be issued upon the exercise of the Series B Warrants at $0.25 per
share, referred to as Series B Warrant Shares. The Notes and the Warrants were
issued to the Selling Security Holders in a private placement which closed in
October 2009. The Notes and the Warrants were issued in transactions exempt from
the registration requirements of the 1933 Act under Section 4(2) of the 1933 Act
to persons reasonably believed to be “accredited investors” as defined in
Regulation D under the 1933 Act. Pursuant to the terms of the Securities
Purchase Agreement under which the Notes and Warrants were issued, we agreed to
file the Registration Statement of which this prospectus forms a part in order
to permit those investors to sell the shares underlying the notes and warrants.
Pursuant to Rule 416 under the Securities Act, the Registration Statement also
purports to register such indeterminate number of shares of common stock as may
become issuable by reason of stock splits, stock dividends, recapitalization and
similar capital adjustments in accordance with the provisions of the notes and
warrants.
SELLING
SECURITY HOLDER TABLE
The table
below lists the Selling Security Holders and other information regarding the
beneficial ownership of the shares of common stock by each of the Selling
Security Holders. The first column lists the number of Note Shares
being offered pursuant to this prospectus by each of the Selling Security
Holders. The second column lists the number of Series A Warrant
Shares being offered pursuant to this prospectus by each of the Selling Security
Holders. The third column lists the number of Series B Warrant Shares being
offered pursuant to this prospectus by each of the Selling Security Holders. The
fourth column lists total number of common stock held by each Selling Security
Holder before any offering pursuant to this prospectus. The fifth column lists
the shares of common stock being offered pursuant to this prospectus by each of
the Selling Security Holders. The six column lists the number of
shares that will be beneficially owned by the Selling Security Holders assuming
all of the shares offered pursuant to this prospectus are sold and that shares
beneficially owned by them, but not offered hereby are not sold. The
Selling Security Holder Table and the footnotes to the table are prepared based
on the Company’s records as of April 26, 2010 and the completed selling
stockholder questionnaires the Company has received.
The
inclusion of any securities in the following table does not constitute an
admission of beneficial ownership by the persons named below. Except as
indicated in the footnotes to the table, no Selling Security Holder has had any
material relationship with us or our predecessors or affiliates during the last
three years.
Name
|
Note
Shares
|
Series
A
Warrant
Shares
|
Series
B
Warrant
Shares
|
Total
Shares
|
Shares
being
Offered
|
Shares
Owned
after
Offering (1)
|
Europa
International, Inc. (Knoll Capital Management LP)(2), (3)
|
5,750,000
|
5,000,000
|
5,000,000
|
19,030,520(4)
|
15,750,000
|
3,280,520
|
Charles
Muniz (5)
|
7,666,667
|
6,666,666
|
6,666,666
|
21,609,999
(6)
|
20,999,999
|
610,000
|
Unilab
LP (Francis Patrick Ostronic(2)), (7)
|
3,833,333
|
3,333,333
|
3,333,333
|
11,053,359
(8)
|
10,499,999
|
553,360
|
Mary
M. McCash Trust Declaration Declared October 20, 2008 (Mary M. McCash(2)),
(9)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
The
Michael J. McCash Living Trust (Michael J. McCash(2)),
(10)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
Coleen
A. Lowe (11)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,999
|
4,199,999
|
0
|
Corinne
M. Poquette (12)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,199
|
4,199,999
|
0
|
David
J. McCash (13)
|
1,533,333
|
1,333,333
|
1,333,333
|
4,199,199
|
4,199,999
|
0
|
Total
|
24,916,667
|
21,666,664
|
21,666,664
|
72,693,875
|
68,249,995
|
4,443,880
|
(1)
|
Assumes
that all of the shares offered hereby are sold and that shares owned
before the offering but not offered hereby are not
sold.
|
(2)
|
Person
who has voting and the power to vote, sell, transfer or otherwise dispose
of the common stock.
|
(3)
|
Address:
c/o Knoll Capital Management, 1114 Avenue of Americans, 45th
Floor, New York, NY 10036. Europa International, Inc., together
with Knoll Capital Management LP and Fred Knoll, with whom it filed a
Schedule 13D on December 7, 2009 with the SEC as joint filers, is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company.
|
(4)
|
Includes
(i) 2,010,985 shares of Common Stock owned by Europa, (ii) 840,963 shares
held by Knoll Fund, (iii) 15,750,000 shares of common stock issuable upon
conversion of the Notes and exercise of the Warrants held by Europa and
(iv) 428,572 shares subject to warrants which are currently exercisable or
will become exercisable within 60 days of March 12, 2010 held by Europa
and Knoll Fund.
|
(5)
|
Address:
c/o Tamir Biotechnology, Inc., 300 Atrium Drive,
Somerset,
NJ 08873. Mr. Muniz is the Company’s President, CEO, CFO and a
director.
|
(6)
|
Includes
(i) 20,999,999 shares of common stock issuable upon conversion of the
Notes and exercise of the Warrants, (ii) 310,000 shares of common stock
owned by Mr. Muniz, and (iii) 300,000 shares of common stock owned by Mr.
Muniz’ wife.
|
(7)
|
Address:
966 Hungerford Drive, Ste 3B, Rockville, MD 20850. In July
2007, in connection with a Distribution and Marketing Agreement with USP
Pharma Spolka Z.O.O., an affiliate of US Pharmacia, we entered into a
Securities Purchase Agreement with Unilab LP, an affiliate of US
Pharmacia, pursuant to which we issued a total of 553,360 shares of
restricted common stock Unilab LP for approximately $1.4 million, or
$2.53 per share.
|
(8)
|
Includes
(i) 10,499,999 shares of common stock issuable upon conversion of the
Notes and exercise of the Warrants, and (ii) 553,360 shares of common
stock.
|
(9)
|
Address:
5660 Rush Road, Conover, Wisconsin 54519. Mary M. McCash is a
partner of McCash Family Limited Partnership, which is a significant
shareholder of the Company that owns more than 5% of the total outstanding
shares of common stock of the Company. Mary M. McCash does not
have the power to vote
or dispose of the shares of the Company owned by McCash Family Limited
Partnership.
|
(10)
|
Address:
N 3810 South Grand Oak Road, Iron Mountain, Michigan 49801. Michael J.
McCash is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. Michael J.
McCash does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited Partnership.
|
(11)
|
Address:
13639 Bridle Trail Road, Draper, Utah 84020. Coleen A. Lowe is
a partner of McCash Family Limited Partnership, which is a significant
shareholder of the Company that owns more than 5% of the total outstanding
shares of common stock of the Company. Coleen A. Lowe does not
have the power to vote or dispose of the shares of the Company owned by
McCash Family Limited Partnership.
|
(12)
|
Address:
W 4454 County Road 573, Kulcan, Michigan 49892. Corinne M.
Poquette is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. Corinne M.
Poquette does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited Partnership.
|
(13)
|
Address:
716 Hillcrest Drive, Iron Mountain, Michigan 49801. David J.
McCash is a partner of McCash Family Limited Partnership, which is a
significant shareholder of the Company that owns more than 5% of the total
outstanding shares of common stock of the Company. David J.
McCash does not have the power to vote or dispose of the shares of the
Company owned by McCash Family Limited
Partnership.
|
DESCRIPTION
OF SECURITIES TO BE REGISTERED
The
following description of our common stock, together with the additional
information included in any applicable prospectus supplements, summarizes the
material terms and provisions of these types of securities but is not
complete. For the complete terms of our common stock, please refer to
our certificate of incorporation, as amended, and bylaws that are incorporated
by reference into the Registration Statement which includes this
prospectus.
As of March 12, 2010, our authorized
capital stock consists of 250,000,000 shares of common stock, par value $0.001
per share, and 1,000,000 shares of preferred stock, par value $0.001 per
share. No share of preferred stock is outstanding as of the date of
this prospectus.
Common
Stock
Under our
certificate of incorporation, as amended, we may issue up to 250,000,000 shares
of common stock, par value $0.001 per share. As of March 12, 2010, we
have 47,313,880 shares of common stock issued and outstanding. The
holders of our common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the
stockholders. Subject to preferences that may be applicable to any
outstanding preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by our Board of Directors out of funds
legally available for that purpose. In the event of liquidation,
dissolution or winding up of our company, the holders of common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to the prior distribution rights of any outstanding preferred
stock. The common stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund
provisions applicable to the common stock. The outstanding shares of
common stock are fully paid and non-assessable.
Our
common stock is listed on the Pink Sheets under the symbol
“ACEL”. The transfer agent and registrar for our common stock is
American Stock Transfer and Trust Company.
PLAN
OF DISTRIBUTION
We are
registering shares of common stock to permit the resale of such common stock by
the holders from time to time after the date of this prospectus. We will not
receive any of the proceeds from the sale by the Selling Security Holders of the
securities. We will bear all fees and expenses incident to our obligation to
register the shares of common stock.
The
Selling Security Holders may sell all or a portion of the securities
beneficially owned by them and offered hereby from time to time directly or
through one or more underwriters, broker-dealers or agents. If the securities
are sold through underwriters or broker-dealers, the Selling Security Holders
will be responsible for underwriting discounts or commissions or agent’s
commissions. The securities may be sold in one or more transactions at
prevailing market prices at the time of the sale on the over-the-counter
bulletin board or at privately negotiated prices determined at the time of sale.
These sales may be effected in transactions, which may involve crosses or block
transactions,
·
|
on
any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of
sale;
|
·
|
in
the over-the-counter market;
|
·
|
in
transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
|
·
|
through
the writing of options, whether such options are listed on an options
exchange or otherwise;
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|