Table of Contents
$1,115,452. The primary reasons for the difference are adjustments for non-cash
charges such as interest and repayment premium accruals of $1,136,832 related to our senior convertible notes and related party notes,
amortization of deferred financing costs and debt discount of $272,798, partially offset by a decrease in accounts payable and accrued
expenses of $291,231.
Net cash used in operating
activities was $2,643,803 for the year ended December 31, 2010. The net loss for the year ended December 31, 2010 was higher than net cash used
in operating activities by $6,320,391. The primary reasons for the difference are adjustments for non-cash charges such as interest and
repayment premium accruals of $3,526,277 related to our senior convertible notes and related party notes, warrants issued in connection
with a related party note conversion of $505,694, and amortization of deferred financing costs and debt discount of $1,179,514, as well as an
increase in accounts payable and accrued expenses of $1, 131, 600, which was primarily attributable to deferred
payments to suppliers.
Net cash used in operating activities
was $3,851,415 for the year ended December 31, 2009. The net loss for the year ended December 31, 2009 was higher than net cash used in operating
activities by $ 697,192. The primary reasons for the difference are adjustments for non-cash charges such as interest and repayment
premium accruals of $ 1,158,768 related to our senior convertible notes and related party notes, amortization of deferred financing
costs and debt discount of $235,464 and amortization of stock-based compensation of $49,247, as well as a net increase in deferred revenue of $653,714
relating to payments we received under a sublicense agreement, which were substantially offset by a decrease in accounts payable and accrued expenses
of $1,418,979, which was primarily attributable to license fees and milestone payments to Dong Wha that were accrued in 2008 but were paid in January
2009.
Net Cash Used in Investing
Activities
No cash was used in investing
activities for the three months ended March 31, 2011 and 2010, and for the year ended December 31, 2009. Cash of
$4,591 was used in investing activities for the year ended December 31, 2010 for the purchase of
computer equipment.
Net Cash Provided by (Used in) Financing
Activities
Net cash used in financing
activities for the three months ended March 31, 2011 was $134,258, which consisted of an advance from a related party through which we received
proceeds of $200,000 and a payment for deferred financing costs of $342,403.
Net cash provided by financing
activities for the three months ended March 31, 2010 was $3,071,564, which consisted of a private placement of our 2010 Notes
through which we received gross proceeds of $3,343,000 and proceeds from our related party notes of $215,000, which were partially offset by
cash paid for deferred financing costs of $486,436.
Net cash provided by financing
activities for the year ended December 31, 2010 was $2,752,831, which consisted of a private placement of our 2010 Notes through
which we received gross proceeds of $3,343,000, proceeds from our related party notes of $251,000, and proceeds from the utilization of our line
of credit of $175,000, which were partially offset by cash paid for deferred financing costs of $1,016,169.
Net cash provided by financing
activities for the year ended December 31, 2009 was $3,812,500, which consisted of private placements of our PCP Notes from which we received gross
proceeds of $2,875,000, proceeds from our related party notes of $1,000,000 and proceeds from the utilization of our line of credit of $100,000, which
were offset by cash paid for financing costs of $62,500 and repayment of amounts owed under our related party notes of
$100,000.
Funding Requirements
We expect to incur losses from
operations for the foreseeable future. We expect to incur increasing research and development expenses, including expenses related to the hiring of
personnel and additional clinical trials. We expect that our general and administrative expenses will also increase as we expand our finance and
administrative staff, add infrastructure, and incur additional costs related to being a public company, including directors and officers
insurance, investor relations programs, and increased professional fees. Our future capital requirements will depend on a number of factors, including
the timing and outcome of clinical trials and regulatory approvals, the costs involved in preparing, filing, prosecuting, maintaining, defending, and
enforcing
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Table of Contents
patent claims and other
intellectual property rights, the acquisition of licenses to new products or compounds, the status of competitive products, the availability of
financing, and our success in developing markets for our product candidates.
We believe that the net proceeds from
this offering, together with our existing cash, will be sufficient to enable us to fund our operating expenses and capital expenditure requirements for
at least 18 months. We believe that if we sell shares of common stock in this
offering at an initial public offering price of $ per share ($1.00 lower than the mid-point of the price range
set forth on the cover page of this prospectus), or if we sell a fewer number of shares in this offering than anticipated, the resultant reduction in
proceeds we receive from the offering would cause us to require additional capital earlier. We have based this estimate on assumptions that may prove
to be wrong, and we could use our available capital resources sooner than we currently expect. Because of the numerous risks and uncertainties
associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and
operating expenditures associated with our current and anticipated clinical trials.
We do not anticipate that we will
generate product revenue for at least the next several years. In the absence of additional funding, we expect our continuing operating losses to result
in increases in our cash used in operating activities over the next several quarters and years.
We may need to finance our future cash
needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. We do not currently have any
commitments for future external funding. We may need to raise additional funds more quickly if one or more of our assumptions prove to be incorrect or
if we choose to expand our product development efforts more rapidly than we presently anticipate, and we may decide to raise additional funds even
before we need them if the conditions for raising capital are favorable. We may seek to sell additional equity or debt securities or obtain a bank
credit facility. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders. The incurrence of
indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations.
Additional equity or debt financing,
grants, or corporate collaboration and licensing arrangements may not be available on acceptable terms, if at all. If adequate funds are not available,
we may be required to delay, reduce the scope of or eliminate our research and development programs, reduce our planned commercialization efforts or
obtain funds through arrangements with collaborators or others that may require us to relinquish rights to certain product candidates that we might
otherwise seek to develop or commercialize independently.
Financial Uncertainties Related to Potential Future
Milestone Payments
We have acquired rights to develop and
commercialize our product candidates through licenses granted by various parties. Certain of these licensing arrangements contain cash milestone
payments and royalties.
Dong Wha License Agreement
On June 12, 2007, we entered into an
exclusive, multinational license agreement with Dong Wha for PB-101, which we amended on April 22, 2008, on November 4,
2010, and on March 23, 2011. Specifically, we in-licensed a quinolone compound (PB-101) for the treatment of various bacterial
infections, and the corresponding United States and foreign patents and applications for all therapeutic uses. Under the terms of the license
agreement, we are permitted to develop and commercialize PB-101 in all of the countries of the world other than Australia, New Zealand, India, Japan,
Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As consideration in part for the aforementioned rights to
PB-101, we paid to Dong Wha an upfront license fee of $1,500,000, as well as additional license fees totaling $1,750,000 and a milestone payment of
$500,000 and are required to make substantial payments, up to an additional $53,000,000 in total, to Dong Wha upon the achievement of certain net
sales, clinical and regulatory-based milestones. In the event that PB-101 is commercialized, we are obligated to pay to Dong Wha annual royalties equal
to 10% of net sales. In the event that we sublicense PB-101 to a third party, we are obligated to pay to Dong Wha a portion of the royalties,
sublicensing fees or other lump sum payments we receive from the sublicensee. Pursuant to the terms of the license agreement, we were required to
initiate a Phase 2 clinical trial for an oral formulation of PB-101 within nine months of execution of the license agreement. In accordance with the
license agreement, we previously purchased certain extension periods from Dong Wha, which extended the deadline before which we were
required to initiate the Phase 2 clinical trial, in return for certain cash payments. During 2009 and 2008, we
44
Table of Contents
paid a total of $400,000 and
$50,000, respectively, in purchasing these extensions and we extended such deadline until March 2010.
Although we commenced a Phase 2
clinical trial in the United States for the CAP indication in March 2010, we did not dose the first patient until May 2010. Following discussions with
Dong Wha regarding such delay between initiation and patient dosing in the Phase 2 trial, on November 4, 2010, we entered into an amendment to the
license agreement, pursuant to which we agreed to pay Dong Wha $200,000 by February 28, 2011 to compensate Dong Wha for such delay. In connection with
such amendment, we also agreed to two additional milestones: a financing milestone requiring that we conduct an equity offering yielding
at least $10 million in net proceeds by February 28, 2011 and an additional development milestone requiring that we complete patient enrollment in the
Phase 2 CAP trial by April 30, 2012 and deliver a draft clinical study report to Dong Wha by July 31, 2012. Dong Wha had the right
to terminate the license agreement at anytime within 90 days of our failure to achieve either of these new
milestones .
On March 23, 2011, we entered into
an amendment to the Dong Wha License Agreement, pursuant to which (i) the deadline for our obligation to pay $200,000 to Dong Wha was extended
from February 28, 2011 to March 28, 2011, which payment was made on such date, (ii) the deadline for our obligation
to consummate an equity offering yielding at least $10 million in net proceeds was extended from February 28, 2011 to June 30, 2011 and
(iii) we were required to obtain by April 6, 2011 a financing commitment for $3 million to fund our operations and clinical trials pending the
consummation of the proposed equity offering, which requirement was satisfied by the Backstop Agreement discussed above, and we
were required to diligently continue our Phase 2 CAP trial without interruption or delay until the completion of the proposed
equity offering. If we fail to comply with these provisions, Dong Wha will have the right to terminate the license agreement at anytime within
90 days of such failure. We do not expect to complete this offering by June 30, 2011 and we are in the process of negotiating with
Dong Wha for an extension of such deadline. If we fail to obtain an extension of such deadline, Dong Wha will have the right to terminate the
license agreement at anytime within 90 days of our failure to meet such deadline.
The Dong Wha license agreement contains
other customary clauses and terms as are common in similar agreements in the industry. Paramount Biosciences, LLC has guaranteed the payment in full of
all amounts owed by us under the license to Dong Wha until such time as we have certifiable net tangible assets of at least $10,000,000. The license
agreement terminates on the expiration of our obligation to make payments to Dong Wha, unless earlier terminated in accordance with the terms of the
license agreement. The license agreement may be terminated by us, in our sole discretion, upon 30 days prior written notice to Dong Wha. The
license agreement may be terminated by Dong Wha upon or after our breach of any material provision of the agreement if we have not cured such breach
within 90 days after receipt of express written notice thereof by Dong Wha. However, if any default is not capable of being cured within such 90 day
period and we are diligently undertaking to cure such default as soon as commercially feasible thereafter under the circumstances, Dong Wha shall not
have the right to terminate the license agreement. In addition, Dong Wha may terminate the license agreement upon not less than 60 days prior
written notice if we fail to meet a development milestone, subject to our right to extend such development milestone as set forth in the
agreement.
UCB License Agreement
On June 12, 2007, we entered into an
exclusive, worldwide license agreement with UCB Celltech, a United Kingdom corporation and a registered branch of UCB Pharma S.A., referred to herein
as UCB, for a platform of aniline derivative compounds including PB-200a. Specifically, we in-licensed a series of compounds for the treatment of
various fungal conditions, and the corresponding United States and foreign patents and applications for all therapeutic uses. As consideration in part
for the aforementioned rights, we paid to UCB an upfront license fee of $100,000. In addition, we are required to make substantial payments, up to an
additional $12,000,000 in total, to UCB upon the achievement of certain clinical and regulatory-based milestones. In the event that PB-200a or another
covered compound is commercialized, we and our sublicensees are obligated to pay to UCB annual royalties equal to a percentage of net sales in the
single-digit range. We are also obligated to pay to UCB an annual license maintenance fee of $100,000, which is creditable against royalties otherwise
due to the licensor. The license agreement terminates on the expiration of our obligation to pay royalties to UCB, unless earlier terminated in
accordance with the terms of the license agreement. The license agreement may be terminated by us, in our sole discretion, upon 30 days prior
written notice to UCB. The license agreement may
45
Table of Contents
be terminated by UCB immediately
upon any material breach and/or any breach capable of remedy by us if we have not cured such remediable breach within 90 days after notice thereof by
UCB requiring its remedy or any breach of any representation or warranty given by us to UCB.
Santee Sublicense Agreement
On July 10, 2007, we entered into an
exclusive, multinational sublicense agreement with Santee Biosciences, Inc., a Delaware corporation, referred to herein as Santee, for PB-201, a
formulation technology. Specifically, we in-licensed this technology from Santee for use in the development of azole-based antifungal drug
formulations, including without limitation an itraconazole formulation, and the corresponding United States and foreign patents and applications. Under
the terms of the sublicense agreement, we are permitted to develop and commercialize azole-based antifungal drugs we formulate using the PB-201
technology throughout North America and Europe. As consideration in part for the aforementioned rights, we paid to Santee an upfront license fee of
$50,000. In addition, we are required to make substantial payments, up to an additional $10,000,000 in total, to Santee upon the achievement of certain
clinical and regulatory-based milestones. In the event that any drug we formulate using the PB-201 technology is commercialized, we and our
sublicensees are obligated to pay to Santee annual royalties equal to 6% of net sales of less than $100,000,000 in any calendar year and 4% of net
sales equal to or in excess of $100,000,000 in any calendar year. In the event that we sublicense PB-201 to a third party, we are obligated to pay
Santee 20% of the royalties we receive from the sublicensee. The license agreement terminates on the date of expiration of the last to expire valid
claim contained in the patent rights covering a licensed product in any country in North America and Europe, unless earlier terminated in accordance
with the license agreement. The license agreement may be terminated by us, for any reason or no reason, by giving 30 days prior written notice to
Santee. The license agreement will automatically terminate if we become insolvent. Santee has the right to terminate the license agreement (i) within
90 days after giving written notice of termination if we fail to make payment to Santee of royalties or other payments due in accordance with the terms
of the agreement which are not the subject of a bona fide dispute between Santee and us unless we pay Santee, within the 90-day period, all such
royalties and other payments due and payable and (ii) by giving 90 days prior written notice to us upon any material breach or default of the
agreement by us, subject to our right to cure such breach or default during such 90-day period, unless the nature of the breach is such that additional
time is reasonably needed to cure it, and we have commenced with good faith efforts to cure such breach, then Santee shall provide us with additional
time to cure it.
We believe the PB-201 technology could
potentially be utilized to reformulate the antifungal drug itraconazole, which is one of the standard therapies for the treatment of onychomycosis
(nail fungus). However, we do not intend to use the net proceeds of this offering for the development of any drug candidate using the PB-201
technology.
Potential milestone payments for
licensed technologies may or may not be triggered and may vary in size, depending on a number of variables, almost all of which are currently
uncertain. Additionally, we believe we will not begin selling any products that would require us to make any such royalty payments until at least 2015.
Whether we will be obligated to make milestone or royalty payments in the future is subject to the success of our product development efforts and,
accordingly, is inherently uncertain.
Critical Accounting Policies
Our managements discussion and
analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate these estimates and judgments,
including those described below. We base our estimates on our historical experience and on various other assumptions that we believe to be reasonable
under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results may differ materially from these estimates.
While our significant accounting
policies are more fully described in Note 2 to our financial statements included at the end of this prospectus, we believe that the following
accounting policies are the most critical to
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aid you in fully understanding and
evaluating our reported financial results and affect the more significant judgments and estimates that we use in the preparation of our financial
statements.
Stock-Based Compensation
We account for stock options granted to
employees according to the Financial Accounting Standards Board Accounting Standards Codification No. 718 (ASC 718), Compensation
Stock Compensation. Under ASC 718, share-based compensation cost is measured at grant date, based on the estimated fair value of the
award, and is recognized as expense over the employees requisite service period on a straight-line basis. We account for stock options and
warrants granted to non-employees on a fair value basis in accordance with ASC 718 using the Black-Scholes option pricing model. The initial non-cash
charge to operations for non-employee options and warrants with vesting are revalued at the end of each reporting period based upon the change in the
fair value of the options and recognized as consulting expense over the related vesting period.
For the purpose of valuing options and
warrants granted to employees and non-employees, we use the Black-Scholes option pricing model utilizing the assumptions noted in the following table.
To determine the risk-free interest rate, we utilized the U.S. Treasury yield curve in effect at the time of grant with a term consistent with the
expected term of our awards. We estimated the expected life of the options granted based on anticipated exercises in the future periods assuming the
success of our business model as currently forecasted. For warrants and non-employee options, we used the contractual term of the warrant or option as
the expected term. The expected dividend yield reflects our current and expected future policy for dividends on our common stock. The expected stock
price volatility for our stock options was calculated by examining historical volatilities for publicly traded industry peers as we do not have any
trading history for our common stock. We will continue to analyze the expected stock price volatility and expected term assumptions as more historical
data for our common stock becomes available. Given the limited service period for our current employees and non-employees and the senior nature of the
roles of those employees, we currently estimate that we will experience no forfeitures for those options currently outstanding. No options or
warrants were granted during the three months ended March 31, 2011.
|
|
|
|
2010
|
|
2009
|
Risk-free
interest rate |
|
|
|
|
2.28 2.32 |
% |
|
|
3.39 |
|
Expected
volatility |
|
|
|
|
100.0 110.0 |
% |
|
|
110.0 |
% |
Expected term
of options and warrants |
|
|
|
|
5 |
|
|
|
5 |
|
Expected dividend yield |
|
|
|
|
0 |
% |
|
|
0 |
% |
The following table summarizes all
equity instruments issued or granted us from inception through the date of this prospectus and sets forth for each issuance/grant date, the number of
options, warrants or shares issued or granted, the exercise price, the estimated fair value of the common stock, the estimated fair value of the option
or warrant, the intrinsic value, if any, per equity instrument:
Issuance/Grant Date
|
|
|
|
No. of Shares/ Shares Underlying
Options/Warrants
|
|
Sales Price/ Exercise Price
|
|
Estimated Fair Value Per Share of Common Stock
at Issuance/Grant Date(1)
|
|
Estimated Fair Value Per Option/ Warrant
at Issuance/ Grant Date
|
|
Intrinsic Value at Issuance/Grant
Date(2)
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/21/2007
|
|
|
|
|
93 |
(3) |
|
$ |
48.00 |
|
|
$ |
48.00 |
|
|
$ |
|
|
|
$ |
|
|
4/16/2007
|
|
|
|
|
|
(3) |
|
|
48.00 |
|
|
|
48.00 |
|
|
|
|
|
|
|
|
|
6/10/2011
|
|
|
|
|
950,000 |
(4) |
|
|
|
(4) |
|
|
|
(4) |
|
|
|
(4) |
|
|
N/A |
|
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Table of Contents
Issuance/Grant Date
|
|
|
|
No. of Shares/ Shares Underlying
Options/Warrants
|
|
Sales Price/ Exercise Price
|
|
Estimated Fair Value Per Share of Common Stock
at Issuance/Grant Date(1)
|
|
Estimated Fair Value Per Option/ Warrant
at Issuance/ Grant Date
|
|
Intrinsic Value at Issuance/Grant
Date(2)
|
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
2 |
( 5 ) |
|
|
45,600.00 |
|
|
|
56,640.00 |
|
|
|
42,430.00 |
( 5 ) |
|
|
11,040.00 |
|
2/21/2008
|
|
|
|
|
1 |
( 6 ) |
|
|
45,600.00 |
|
|
|
34,080.00 |
|
|
|
22,560.00 |
( 6 ) |
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
6 |
( 7 ) |
|
|
45,600.00 |
|
|
|
56,640.00 |
|
|
|
42,430.00 |
( 7 ) |
|
|
11,040.00 |
|
12/14/2007
|
|
|
|
|
9 |
( 8 ) |
|
|
48,000.00 |
|
|
|
43,680.00 |
|
|
|
32,110.00 |
( 8 ) |
|
|
|
|
1/15/2009
|
|
|
|
|
23 |
( 9 ) |
|
|
48,000.00 |
|
|
|
45,120.00 |
|
|
|
35,620.00 |
( 9 ) |
|
|
N/A |
|
6/24/2009
|
|
|
|
|
1 |
( 10 ) |
|
|
48,000.00 |
|
|
|
44,640.00 |
|
|
|
35,230.00 |
( 10 ) |
|
|
N/A |
|
2/09/2010
|
|
|
|
|
|
(1 1 ) |
|
|
|
(1 1 ) |
|
|
25,920.00 |
|
|
|
18,720.00 |
|
|
|
N/A |
|
3/01/2010
|
|
|
|
|
|
(1 1 ) |
|
|
|
(1 1 ) |
|
|
25,920.00 |
|
|
|
19,250.00 |
(10) |
|
|
N/A |
|
5/26/2010 |
|
|
|
|
2 |
(1 2 ) |
|
|
|
(1 2 ) |
|
|
|
(1 2 ) |
|
|
|
(1 2 ) |
|
|
N/A |
|
(1) |
|
Except as described in the footnotes below, a ll
determinations of estimated fair value of our common stock were made by us, retrospectively, utilizing the market approach which uses direct
comparisons to other enterprises and their equity securities to estimate the fair value of the common shares of privately issued securities, as
described in more detail below. |
(2) |
|
Intrinsic value reflects the amount by which the estimated fair
value of the common stock (as of the issuance/grant date) exceeds the exercise price of the stock option or warrant. Items in this column marked
N/A represent equity instruments for which the intrinsic value was not determinable as of the issuance/grant date because the exercise
price of such instrument was not known at the issuance/grant date. |
(3) |
|
Represents founder shares of common stock issued for
cash. Our estimated fair value per share for these share issuances was equal to par value since this was the Companys initial
capitalization. |
(4) |
|
Represents the restricted shares of common stock we issued to
our Executive Chairman-elect. We have not yet determined the estimated fair value per share for this stock grant. |
(5) |
|
Represents options granted to Mark Lotz, our Vice
President of Regulatory Affairs. These options were forfeited by Mr. Lotz on April 27, 2011 in connection with our recapitalization. We
estimated the fair value of the these options as of the date of grant using the Black-Scholes option pricing model and the following assumptions: (i) a
risk-free interest rate of 4.22%; (ii) an expected volatility of 90.0%; (iii) an expected term of five years; and (iv) an expected dividend yield of
0%. We recorded the fair value of these options to compensation expense, which was amortized over the vesting period of the options. |
( 6 ) |
|
Represents options granted to former employees in February 2008.
These options were forfeited in accordance with their terms upon the termination of these employees during 2008. We estimated the fair value of these
options as of the date of grant using the Black-Scholes option pricing model and the following assumptions: (i) a risk-free interest rate of 2.80%;
(ii) an expected volatility of 90.0%; (iii) an expected term (contractual term) of five years; and (iv) an expected dividend yield of 0%. We recorded
the fair value of these options to compensation expense, which was amortized over the vesting period of these options. |
( 7 ) |
|
Represents the Feldman Consultant Warrant issued to Robert
Feldman, a former employee of Paramount BioCapital, Inc., as described under Description of Capital Stock Currently Outstanding Warrants
Consultant Warrants. We estimated the fair value of the Feldman Consultant Warrant using the Black-Scholes option pricing model and the
following assumptions: (i) a risk-free interest rate of 4.22%; (ii) an expected volatility of 90.0%; (iii) an expected term (contractual term) of five
years; and (iv) an expected dividend yield of 0%. We recorded the fair value of the Feldman Consultant Warrant as compensation expense to a
non-employee, and because the Feldman Consultant Warrant was issued to Mr. Feldman as compensation for consulting services he provided in connection
with the in-licensing of certain product |
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Table of Contents
|
|
candidates, such compensation expense was included in research
and development expense for the relevant periods. |
( 8 ) |
|
Represents the Placement Agent Warrant issued to Paramount
BioCapital, Inc. as partial compensation for its services as lead placement agent in connection with the offering of the 2007 Notes, as
described under Description of Capital Stock Currently Outstanding Warrants Placement Agent Warrant. Because a Qualified
Financing did not take place by December 14, 2009, the Placement Agent Warrant became exercisable on such date into 9 shares of common
stock at a per share exercise price of $ 48,000.00 ; however, due to the contingent exercisability of the Placement Agent Warrant at the
time it was issued, the number of shares issuable upon exercise and the exercise price of this warrant could not be determined as of the issuance date.
We estimated the fair value of the Placement Agent Warrant at $290,310 using the Black-Scholes option pricing model, assuming that the Placement Agent
Warrant was presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 10% of the aggregate purchase
price of the 10% Notes (or $434,000), divided by $ 48,000.00 , at an exercise price of $ 48,000.00 , and the following
additional assumptions: (i) a risk-free interest rate of 3.88%; (ii) an expected volatility of 80.0%; (iii) an expected term (contractual term) of
seven years; and (iv) an expected dividend yield of 0%. We recorded the value of the Placement Agent Warrant as deferred financing costs, which was
amortized to interest expense over the term of the 2007 Notes. |
( 9 ) |
|
Represents the PCP Warrants issued on January 15, 2009 to PCP,
an affiliate of Paramount BioCapital, Inc., as described above under Liquidity and Capital Resources Sources of Liquidity PCP
Notes. Because a Qualified Financing did not take place by January 15, 2011, this PCP Warrant became exercisable on such date into
23 shares of common stock at a per share exercise price of $ 48,000.00 ; however, due to the contingent exercisability of
this PCP Warrant at the time it was issued, the number of shares issuable upon exercise and the exercise price of this PCP Warrant could not be
determined as of the issuance date. We estimated the fair value of this PCP Warrant at $868,024 using the Black-Scholes option pricing model, assuming
that this PCP Warrant was presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 40% of the
principal amount of the PCP Note issued on January 15, 2009 (or $1,100,000), divided by $ 48,000.00 , at an exercise price of
$ 48,000.00 , and the following additional assumptions: (i) a risk-free interest rate of 3.39%; (ii) an expected volatility of 110.0%;
(iii) an expected term (contractual term) of five years; and (iv) an expected dividend yield of 0%. We recorded the fair value of this PCP Warrant as
debt discount, which is amortized to interest expense over the term of the PCP Note issued on January 15, 2009. |
( 10 ) |
|
Represents the PCP Warrants issued on June 24, 2009 to PCP, as
described above under Liquidity and Capital Resources Sources of Liquidity PCP Notes. Because a Qualified Financing
did not take place by June 24, 2011, this PCP Warrant became exercisable on such date into 1 share of common stock at a per share
exercise price of $48,000.00; however, d ue to the contingent exercisability of this PCP Warrant at the time it was issued, the number
of shares issuable upon exercise and the exercise price of this PCP Warrant could not be determined as of the issuance
date . We estimated the fair value of this PCP Warrant as of the date of issuance at $39,456 using the Black-Scholes option pricing model, assuming
that this PCP Warrant was presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 40% of the
principal amount of the PCP Note issued on June 24, 2009 (or $50,000), divided by $ 48,000.00 , at an exercise price of
$ 48,000.00 , and the following additional assumptions: (i) a risk-free interest rate of 3.39%; (ii) an expected volatility of 110.0%;
(iii) an expected term (contractual term) of five years; and (iv) an expected dividend yield of 0%. We recorded the fair value of this PCP Warrant as
debt discount, which is amortized to interest expense over the term of the PCP Note issued on June 24, 2009. |
(1 1 ) |
|
Represents the five-year warrants we
issued to the purchasers of the 2010 Notes, which warrants were terminated upon the consummation of the Rights Offering on April 29,
2011, as described above under Liquidity and Capital Resources Sources of Liquidity 2010 Notes. Due
to the contingent exercisability of the 2010 Noteholder Warrants at the time they were issued , the number of shares
issuable upon exercise, the exercise price per share and the intrinsic value, if any, of the 2010 Noteholder Warrants could not be
determined at the time they were issued . We estimated the fair value of the 2010 Noteholder Warrants issued on February 9, 2010 at
$1,810,386 and the 2010 Noteholder Warrants issued on March 1, 2010 at $362,599 using the Black-Scholes option pricing model, assuming
that the warrants were |
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Table of Contents
|
|
presently exercisable in the aggregate for that number of shares
of the Companys common stock equal to 70% of the principal amount of the 2010 Notes (or $3,040,100), divided by
$ 48,000.00 , at an exercise price of $ 48,000.00 , and the following additional assumptions: (i) a risk-free interest rate of
2.32% (2.28% for the warrants issued on March 1, 2010); (ii) an expected volatility of 110.0% (100.0% for warrants issued on March 1, 2010); (iii) an
expected term (contractual term) of five years; and (iv) an expected dividend yield of 0%. The Company recorded the fair value of the
2010 Noteholder Warrants as debt discount, which are amortized to interest expense over the term of the 2010
Notes. |
(1 2 ) |
|
Represents the Hofer Consultant Warrant issued to Timothy Hofer,
our former Corporate Secretary, as described under Description of Capital Stock Currently
Outstanding Warrants Consultant Warrants. Due to the contingent exercisability of the Hofer Consultant Warrant, the number of shares
issuable upon exercise, the exercise price per share and the intrinsic value, if any, of the Hofer Consultant Warrant could not be determined. In
addition, because the Hofer Consultant Warrant does not provide for a specific exercise price in the event a Qualified Financing is not consummated, we
could not estimate the fair value of the Hofer Consultant Warrant. Upon the consummation of this offering, we will estimate the fair value of the Hofer
Consultant Warrant and we will record such amount as compensation expense. |
The fair values of our common stock set
forth in the table above and used in the Black-Scholes pricing model for valuing our options and warrants were estimated using a market based approach,
a guideline transaction analysis, and a binomial lattice model using a Qualified Financing as the exit event scenario. The fair values of the common
stock were estimated based on enterprise values either implied by capital raises (i.e., financing transactions) as of their respective dates of
issuances, or the trended enterprise values (using a guideline company analysis) from those enterprise values implied by the capital raises to the
respective valuation dates.
The trended enterprise value represents
the estimated enterprise value as of a particular date based on the changes in value from a date on which an enterprise value was otherwise determined,
which changes in value are estimated using a guideline company analysis. For this guideline company analysis we used publicly traded comparable
companies (which we refer to as guideline companies) that were selected because they were in similar stages of product development within
the pharmaceutical industry and therefore shared similar business and financial risks. This guideline company analysis involved an analysis of the
percentage changes of the guideline companies enterprise values from valuation dates on which we had capital raises to the valuation dates on
which we did not have a capital raise. Based on the guideline companies percentage changes in enterprise value, together with company specific
and various market factors (i.e., achievement of product milestones for guideline companies and us), we estimated a percentage change in enterprise
value. This estimated percentage change was then applied to our enterprise value as of the most current valuation date on which there was a capital
raise to estimate our fair value on the next valuation date when there was not a capital raise. Considering the limited passage of time between
valuation dates and the nature of our operations, we believe that the trended enterprise value using the guideline company analysis, as described
above, is the most reasonable and reliable indicator of changes in our enterprise value, as it provides a market proxy for changes in investor
expectations and perception.
The following table summarizes the
derivation of our enterprise value as of each of the valuation dates set forth below.
Valuation Date
|
|
|
|
Method for Derivation of Enterprise Value
|
|
Transaction
|
|
Trended From
|
9/27/2007 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
12/14/07 |
12/14/2007 |
|
|
|
Transaction |
|
10%
Notes |
|
|
2/21/2008 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
12/14/07 |
1/15/2009 |
|
|
|
Transaction |
|
PCP Notes &
Warrants |
|
|
6/24/2009 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
1/15/09 |
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Table of Contents
Valuation Date
|
|
|
|
Method for Derivation of Enterprise Value
|
|
Transaction
|
|
Trended From
|
2/9/2010 |
|
|
|
Transaction |
|
8% Notes &
Warrants |
|
|
3/1/2010 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
2/9/10 |
After arriving at an enterprise value
using the valuation methodologies described above, the enterprise values were then allocated, adjusting for cash and debt, to our different equity
securities using the binomial lattice model. The binomial lattice model provides a quantitative method to estimate the relative values of securities in
a companys capital structure, including its common stock, based on the implied enterprise value from a financing transaction undertaken by
us.
The prices that were paid by the
investors for the respective transactions identified in the above table were utilized in the binomial lattice model to imply our enterprise values as
of those respective valuation dates. As described above, for those valuation dates that utilized a trended enterprise value from the issuance of debt
(and in some cases warrants), the implied enterprise values from the capital raises were trended to the applicable valuation dates based on
consideration of the changes in enterprise values of guideline companies between those same dates using the guideline company analysis described
above.
Using the binomial lattice model, the
concluded enterprise values were allocated among the securities given our capital structure to derive an estimate for the values of our common stock as
of the respective valuation dates. An incremental lack of marketability discount of 20%25% was then applied to the values of our common stock to
estimate the fair values of our common stock at the respective valuation dates.
The concluded enterprise values were
then used to solve for the internal rates of return (IRR), or discount rates, based on the cash flow projections provided by management as
of each of the respective valuation dates. The resulting implied IRRs of 32%34% were then compared to certain market benchmarks, including
venture capital rates of return, to assess the reasonableness thereof from a market based perspective.
As described above, the guideline
transaction method was utilized as additional evidence for the reasonableness of the enterprise values implied by our capital raises. First, the
guideline transactions were identified, using publicly traded guideline companies in similar stages of product development within the pharmaceutical
industry. Then, the implied enterprise values of the guideline transactions were compared with our derived enterprise values as of the respective
valuation dates to assess the reasonableness thereof from a market perspective.
Accounting for Convertible Debt, Debt Issued with Stock
Purchase Warrants and Debt Modifications
In accordance with ASC Topic 470-20,
Debt with Conversion and Other Options, the proceeds from any debt financing in which we issue warrants to purchase our common stock are
allocated to the warrants and the debt based upon their estimated relative fair values as of the closing date. The portion of the proceeds allocated to
the warrants is accounted for as additional paid-in capital and a reduction in the carrying value of the related debt. This debt discount is amortized
to interest expense from the issuance date through the maturity date of the debt using the straight-line method.
When the convertible feature of
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and
any detachable free-standing instruments that are included, such as common stock warrants. The Existing Convertible Notes had BCFs,
however, the number of shares to be issued upon conversion of such notes would only have been determined if a Qualified
Financing (as defined in such notes) was completed. Accordingly, pursuant to ASC Topic 470-20-25, at the time the
Existing Convertible Notes were issued the conversion of such notes and, therefore, the recording of the related BCFs,
was contingent upon the completion of a Qualified Financing.
As a result of the conversion
of the Existing Convertible Notes into the right to receive Milestone Payments upon the consummation of the Rights Offering on
April 29, 2011 , as described above under Liquidity and Capital Resources Sources of Liquidity, the BCFs associated with
such notes were eliminated and we did not record any beneficial conversion charge to interest expense
in connection with the conversion of such notes.
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Modifications to convertible debt are
recorded in accordance with ASC Topic 470-50, Modifications and Extinguishments of Convertible Debt. A modification of a debt instrument in
a non-troubled situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The modifications to our convertible notes through September 30, 2010 have either been contingent upon the occurrence of
certain events or have not resulted in a change in excess of 10 percent in the present value of the aggregate cash flows associated with the applicable
notes. Accordingly, no charge has been recognized for debt modifications.
As a result of the restructuring of
the Companys convertible notes pursuant to amendment agreements dated March 30, 2011 with the holders of the Existing
Convertible Notes, the holders agreed to amend the Existing Convertible Notes so that all principal and accrued interest on the Existing
Convertible Notes automatically converted upon the consummation of the Rights Offering on April 29, 2011 into the right to receive a pro
rata share (based on the aggregate original principal amount of the Existing Convertible Notes) of the Milestone Payments. The amendment
agreement with the holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would
terminate and be of no further force and effect upon the consummation of the Rights Offering.
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The restructuring of the Existing
Convertible Notes into the right to receive Milestone Payment will be recorded in accordance with ASC 470-60-15, Troubled Debt
Restructurings by Debtors. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal
reasons related to the debtors financial difficulties grants a concession to the debtor that it would not otherwise consider. We will
record the Milestone Payments, if any, when they occur first as a reduction of the carrying amount of the debt until the liability is
extinguished, and subsequently as interest expense until the total Milestone Payments have been recognized.
Recent Accounting Pronouncements
In March 2010, the Financial Accounting
Standards Board ratified the consensus of the Emerging Issues Task Force included in EITF Issue No. 08-9, Milestone Method of Revenue
Recognition (ASC Topic 605-28; ASU No. 2010-17). The milestone method is optional by arrangement and generally provides that upon achievement of
a substantially uncertain milestone, the related milestone payment may be recognized in income in its entirety. The update is effective for
revenue arrangements entered into or modified in fiscal years beginning on or after June 15, 2010. The adoption of this
update did not have a material impact on our financial statements.
Off-Balance Sheet Arrangements
Since our inception, we have not
engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest
entities.
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Table of Contents
Overview
We are a biopharmaceutical company
focused on acquiring, developing and commercializing drugs for the treatment and prevention of infectious diseases and other serious
illnesses . To date, we have obtained exclusive rights in the United States, the European Union and certain other territories to develop and commercialize candidates for the treatment of bacterial and fungal infections
and all our assets have been licensed from other companies.
Our product candidates address large
market opportunities in the antibiotic and antifungal markets, including our lead product candidate, PB-101 (zabofloxacin). PB-101 is a fluoroquinolone
antibiotic which we initially plan to develop for the treatment of community-acquired pneumonia, or CAP, a common infection associated with significant
morbidity and mortality. In the antifungal market, we have in-licensed PB-200a, which we believe
may target two of the most common fungus strains, Candida and Aspergillus.
We completed a Phase 1 QT trial for
PB-101 in December 2009, and initiated a Phase 2 clinical trial in the United States for the CAP indication in March 2010. With the proceeds of this
offering, we expect to complete this trial in the second quarter of 2012 . We will require
additional funds following the completion of this offering in order to continue development of PB-101 through Phase 3 clinical trials.
We have conducted pre-clinical studies of PB-200a and we will explore its further development. We may use a portion of the
proceeds to conduct additional pre-clinical work on PB-200a, including completing chemical optimization. We will require additional funds
following the completion of this offering in order to continue further development of PB-200 a.
Products
The following table summarizes our
product candidates:
Product
|
|
|
|
Intended Indication
|
|
Status of Programs
|
|
Commercial Rights
|
PB-101
(zabofloxacin) |
|
|
|
Treatment of Community Acquired Bacterial Respiratory Infections (Pneumonia, Bronchitis, Sinusitis) |
|
Three
Phase 1 trials completed, including thorough QT study. Phase 2 trial for CAP initiated in March 2010 |
|
All
countries of the world other than Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and
Hong Kong |
|
PB-200a |
|
|
|
Treatment of Systemic Infections Caused by Candida and Aspergillus |
|
Currently in chemical optimization |
|
Worldwide |
PB-101 (zabofloxacin)
Our lead product, PB-101, is a
fluoroquinolone antibiotic that in preclinical studies exhibited enhanced in vitro microbiological activity against Streptococcus
pneumoniae (including strains resistant to other antibiotics) and those pathogens responsible for most community acquired respiratory tract
infections, as well as community-acquired strains of methicillin resistant Staphylococcus aureus, also known as MRSA. We plan to develop PB-101
for the treatment of community-acquired respiratory tract infections, including CAP. PB-101 is licensed from Dong Wha. Our licensing agreement allows
us to develop and commercialize PB-101 in all countries of the world other than Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore,
Indonesia, Thailand, Malaysia, Vietnam and Hong Kong.
Significant progress has been made in
the development of PB-101, including the following:
|
|
Two Phase 1 studies conducted in healthy volunteers |
|
|
Phase 1 QT study completed in December 2009 |
|
|
Phase 2 clinical trial for the CAP indication initiated in March
2010 |
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Table of Contents
PB-200a
PB-200a is one of several potential
products in our PB-200 antifungal platform that is thought to work by inhibiting the biosynthesis of glucan synthase, an enzyme integral to the cell
wall of fungi. Preclinical studies indicate that PB-200a shows in vitro activity against the two most common fungus strains, Candida and
Aspergillus, that cause systemic infections. In contrast to other marketed glucan synthase inhibitors, evidence from an animal study suggests
PB-200a will be orally bioavailable. This is a result of the chemical structure and solubility profile of this compound. PB-200a is licensed from UCB
Celltech, a United Kingdom corporation and registered branch of UCB Pharma S.A. (referred to herein as UCB) Under our license agreement with UCB, we
hold worldwide development and commercialization rights for a platform for aniline derivative compounds, including PB-200a, for all fields of
use.
Other Products/Technologies
We licensed PB-201, which is a
formulation technology, from Santee Biosciences, Inc., a Delaware corporation (referred to herein as Santee). Under our sublicense agreement with
Santee, we hold development and commercialization rights in North America and Europe for the use of the PB-201 technology in azole-based antifungal
drug formulations. This technology could potentially be utilized to reformulate the antifungal drug itraconazole, which is one of the standard
therapies for the treatment of onychomycosis (nail fungus). However, we do not intend to use the net proceeds of this offering for the development of
any drug candidate using the PB-201 technology. In addition, we licensed from UCB a platform of eight other antifungal drug targets in several classes
(including glucan synthesis inhibitors). We do not currently plan to independently develop the UCB platform products and we may seek to out-license or
co-develop some or all of these products.
Clinical Development Plan
Our development plan for PB-101
(zabobfloxacin) over the next 12 to 18 months is to:
|
|
Complete the current Phase 2 clinical trial for
the treatment of CAP ; and |
|
|
Complete one Phase 1 study of an intravenous formulation of
PB-101 . |
Phase 3 trials for PB-101 will be required to obtain regulatory approvals for the treatment in the United
States and European Union , as well as in certain emerging markets .
The proceeds from this offering will
allow us to complete our Phase 2 CAP study and the Phase 1 study of an intravenous formulation of PB-101 within the above timelines . We will
require additional funds following the completion of this offering in order to continue development of PB-101 through Phase 3 clinical
trials for CAP and other indications.
We are in the process of exploring
the further development of PB-200a. We may use a portion of the proceeds to conduct additional pre-clinical work on PB-200a, including
completing chemical optimization. We will require additional funds following the completion of this offering in order to continue further
development of PB-200 a.
Business Strategy
Our strategy is to in-license and
develop promising innovative compounds and technologies to meet the challenges inherent in the treatment and prevention of infectious diseases. We will
seek to license other therapeutic product candidates for the treatment and prevention of infectious diseases while simultaneously developing our
existing product pipeline. Our strategy reduces risk by licensing product candidates or technologies that already have been tested for safety and
biological activity in animals and/or humans by third party drug discovery research companies and academic institutions, providing an initial
indication of the drugs safety and biological activity before committing capital to the drugs development. We do not conduct any drug
discovery activities.
We use third parties to conduct a large
portion of our preclinical and clinical studies and we intend to continue to do so in the near term given our limited resources, employees and
infrastructure. We use contract research organizations and research institutions to conduct most of our preclinical research and studies and we use
medical institutions, clinical investigators and clinical research organizations to assist us in conducting our
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Table of Contents
clinical trials. We use these third
parties to assist us with such tasks as data management, statistical analysis and evaluation. However, our study design work and regulatory filing
preparation is performed primarily by our internal personnel although we engage consultants to ensure that our studies are compatible with expected
regulatory requirements and our filings are made in accordance with applicable regulations. In addition, we intend to carry out clinical trial
supervision on our own, as is the case with our Phase 2 CAP trial, but we may engage clinical research organizations to act as an intermediary between
us and certain trial sites under certain circumstances, particularly for foreign trial sites.
Our strategy includes
opportunistically entering into collaborations with larger pharmaceutical companies. While we believe we can successfully develop a product
candidate to commercialization, we may selectively enter into development collaborations for certain of our product candidates depending on the
estimated cost , timeline of development and attractiveness of the collaboration to us . We may also enter into
marketing or commercialization collaborations for any product candidates which may receive regulatory
approval.
In addition to our development
strategy described above, in order to enhance our future growth we expect to be opportunistic and pursue complementary, or strategic
acquisitions, licenses and investments. Our management team has significant experience in identifying, executing and integrating these
transactions. We expect to use selected acquisitions, licenses and investments to continue to drive our growth,
including:
|
|
Products and technologies. We intend to pursue product
and technology acquisitions and licenses that will complement our existing business and provide new product and market opportunities,
improve our growth, leverage our existing assets, and contribute to our own organic growth; |
|
|
Investments. We may make investments in
biopharmaceutical companies that we perceive to have valuable proprietary technology and significant potential to create value for
IASO as a shareholder. |
We will require substantial
additional funds following the completion of this offering in order to successfully carry out our business
strategy .
Background on the Antimicrobial Market
Antimicrobials are compounds that
either kill or inhibit the growth of microorganisms, which includes bacteria and fungi, as well as others such as viruses. According to the National
Center for Health Statistics, infectious diseases are the fifth leading cause of death in the United States and the second leading cause of death
globally, as reported by the World Health Organization. Infectious diseases also contribute to compromised health, disability, and loss of
productivity. The National Center for Health Statistics reports that in the United States, there were an estimated 22.2 million visits to office-based
physicians for infectious and parasitic diseases in 2006. The use of antimicrobials varies based upon numerous factors, such as age and other
underlying conditions, community of residence (i.e., are there resistant strains of bacteria or fungi seen in the community), and the setting where the
patient is being cared for (e.g. outpatient, skilled nursing facility, hospital). Antimicrobial use is frequently divided into uses in the outpatient
setting where they are generally prescribed by family physicians, internists and pediatricians, and the inpatient setting where they are generally
prescribed by internists, pulmonologists and infectious diseases physicians. In the outpatient setting, the physician rarely obtains data that identify
the specific infecting organism; therefore, the treatment of such infections is generally directed at selecting an antimicrobial that is likely to be
effective against those organisms most likely to be causing the infection, and likely to be safe and well-tolerated by the patient. In the inpatient or
hospital setting, the physician frequently has some knowledge of the causative organism and the antimicrobials that are likely to be effective. As a
result, antimicrobial prescribing in the inpatient setting can frequently be more organism-focused, whereas in the outpatient setting, broader
antimicrobial coverage may be utilized to maximize the likelihood of therapeutic success.
Antimicrobials tend to be
differentiated by certain critical characteristics. These characteristics, which we believe will result in products that have clear advantages over
currently available therapies, were carefully considered in selecting the compounds being developed by IASO Pharma.
|
|
Potency: The potency of an antimicrobial is measured by
determining how much of the antimicrobial is required to inhibit the growth or kill the microorganism of interest. This amount can be determined either
by in vitro testing, which is conducted in a controlled |
55
Table of Contents
|
|
environment, or by in vivo testing, which is conducted in
living animals. The less of an antimicrobial that is required to inhibit the growth or kill the microorganism, the more potent the
antimicrobial. |
|
|
Ability to Kill Versus Inhibit Bacterial Growth: Through
both in vitro and in vivo testing, one can determine whether an antimicrobial will kill the microorganism or just inhibit the growth of
the organism. Generally, physicians prefer antimicrobials that kill the organism. These drugs are called cidal drugs. In addition, it is
also known that some cidal antimicrobials work more quickly in causing death of the microorganism. |
|
|
Development of Resistance: Much of the resistance
problems of today are the result of the over-utilization of drugs that may stimulate resistance, and the inappropriate dosing of an antimicrobial. It
is possible to experimentally determine the likelihood of the development of resistance when an antimicrobial is used, and to potentially optimize
dosing to minimize the development of resistance. |
|
|
Pharmacokinetic/Pharmacodynamic (PK/PD) Profile: For most
classes of currently available antimicrobials, much is known about what drug concentration profiles are predictive of a successful outcome. For
example, for some classes of antimicrobials, if the drug concentrations remain above the minimum inhibitory concentration required to inhibit the
growth of the microorganism being treated for a target percent of the dosing interval, then there is a very high likelihood of a successful result. By
understanding the relevant PK/PD target required for the antimicrobial being developed, utilizing data from animal studies, and utilizing human data on
blood/tissue concentrations obtained, one can determine the required dose and frequency likely to result in successful outcomes. |
|
|
Dosing Convenience Factors: Dosing convenience factors
include the frequency of dosing, duration of treatment, and mode of administration of the antimicrobial. Generally, the less frequently an
antimicrobial needs to be administered or taken, the better, as less frequent dosing improves patient compliance in the outpatient setting, and
decreases the amount of nursing time and time that an intravenous line is utilized for inpatients. Less frequent dosing also lessens the opportunity
for potential missed doses. In the outpatient setting, having an oral formulation is critically important, including liquid formulations, dissolvable
sachets, and/or chewable tablets for the treatment of children. Ideally, an antimicrobial that can provide similar drug levels when administered by
either an oral or intravenous route is preferable. An antibiotic with this profile allows a patient that requires hospitalization and initial treatment
with an intravenous antimicrobial to be easily transitioned to an equivalent oral drug and discharged from the hospital sooner. The required duration
of therapy is also an important consideration. Some classes of antimicrobials are known to kill organisms quickly, compared to other classes. If one
can more quickly kill these organisms and reduce their numbers, a shorter course of therapy could be possible. |
|
|
Safety and Tolerability: The safety of an antimicrobial
is determined through the evaluation of any changes in laboratory tests and physical signs and symptoms than can be possibly attributed to the use of
the antimicrobial. Much of this information is gathered during the clinical development of a drug, as well as during post-marketing surveillance of
safety. Tolerability factors tend to be noted by the patient, such as nausea, vomiting, headache, or other discomfort. For an antimicrobial to be
accepted by the physician, the safety and tolerability profile must be appropriate relative to the seriousness of the infection being treated and other
effective alternatives. |
PB-101 (zabofloxacin)
Market Opportunity
We believe there is a need for new
antibiotic therapies for the treatment of community acquired respiratory infections. The most frequent use of antibiotics is in the community/outpatient
setting for respiratory tract infections, which include CAP, ABECB and ABS. Treatment of these respiratory infections has been
56
Table of Contents
hindered
by the increasing prevalence of
drug-resistant and multi-drug resistant bacterial strains, particularly S. pneumoniae, the most common cause of such
infections.
According to the Infectious Diseases
Society of America, S. pneumoniae is the most common identifiable etiologic cause of pneumonia, is responsible for approximately two-thirds of
all bacteremic pneumonias, and is the most frequent cause of death from CAP. Over the years, the incidence of strains of S. pneumoniae resistant
to β-lactam antibiotics (e.g. penicillin, ampicillin, cephalosporins) and macrolide antibiotics (e.g. azithromycin) have increased. In addition,
strains resistant to currently available quinolone antibiotics (e.g. levofloxacin) have emerged. These resistant strains have been encountered in the
community setting, and are therefore, not a problem which is unique to hospitalized patients.
Our product candidate, PB-101
(zabofloxacin), is a quinolone antibiotic. Due to the organisms responsible for respiratory infections, the convenience of use, ability to easily
transition from intravenous to oral therapy, and the safety profile of currently marketed quinolones, these drugs are commonly used by physicians for
the treatment of such infections. We believe that PB-101 will have the characteristics of the currently used quinolones but with the advantage of being
able to handle many of the strains of S. pneumoniae that are resistant to the currently marketed products.
The t wo leading
respiratory quinolones that are approved for marketing in the U.S. and elsewhere in the world are levofloxacin
(Levaquin®, Ortho-McNeil-Janssen) and moxifloxacin (Avelox®, Bayer). According to IMS Health, combined worldwide sales in 2009 of
Levaquin® and Avelox® were over $4.6 billion (Levaquin® sales of approximately $3.4 billion; Avelox® sales of approximately $1.2
billion). Safety concerns regarding Avelox® have caused the European Medicines Agency (EMA) to issue a statement in July 2008 stating that oral
moxifloxacin should only be prescribed for the treatment of respiratory tract infections when other antibiotics cannot be used or have failed. We
believe that Avelox® continues to have relatively strong sales despite the safety warning because it has demonstrated better activity against
S.pneumoniae than Levaquin®. While Levaquin® has a good safety profile, it has not proven to be effective against some strains of
S.pneumoniae and its patent protection recently expired . As described below, in our pre-clinical studies PB-101 has demonstrated better
activity against strains of S.pneumoniae than both Levaquin® and Avelox®.
Community Acquired Pneumonia (CAP)
CAP is a common infection associated
with significant morbidity and mortality. According to a January 2002 article published in the Journal of Respiratory Diseases, it is estimated that
approximately 5.6 million persons develop CAP annually in the United States and according to the Centers for Disease Control, CAP results in 1.2 million
hospitalizations and over 55,000 deaths per year. The National Center for Health Statistics reports that influenza and pneumonia is the
eighth most common cause of death in the U.S., and the seventh most common cause of death in those over the age of 65. The bacterial strains most
commonly causing CAP are S. pneumoniae, Mycoplasma pneumoniae, Haemophilus influenzae, Chlamydia pneumoniae, and Moraxella catarrhalis.
The practice guidelines of the American Thoracic Society and the Infectious Diseases Society of American recommend the use of respiratory quinolone
antibiotics as empiric drugs of choice for outpatients with co-morbidities and hospitalized patients outside of the intensive care
unit.
Acute Bacterial Exacerbation of Chronic Bronchitis
(ABECB)
Bronchitis, an inflammatory condition
of the airways in the lungs is generally considered chronic when a patient experiences a cough and sputum production on most days during three
consecutive months for over two successive years. Acute exacerbation of chronic bronchitis (AECB) as a result of bacterial infection is termed an acute
bacterial exacerbation of chronic bronchitis (ABECB).
In 2009, the U.S. National Institutes
of Health reported that there are between 12 and 24 million people in the U.S. with Chronic Obstructive Pulmonary Disease (COPD) and data published in
the Canadian Guidelines for the management of AECB (2003), showed that the average patient with COPD averages two to three cases of AECB per year.
Based upon these data, we estimate that episodes of AECB occur over 30 million times per year in the U.S. The most common bacteria isolated from the
sputum of ABECB patients are similar to those isolated from patients with CAP, namely S. pneumoniae, H. influenzae and M. catarrhalis.
Additionally, the increasing resistance of these bacterial strains to antibiotics has complicated treatment of ABECB.
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Acute Bacterial Sinusitis (ABS)
Acute bacterial sinusitis is an
infection in one or more of the paranasal sinuses. It is one of the most common health conditions in the United States. As reported in the Journal of
Allergy and Clinical Immunology (2004), there are an estimated 18 million cases of sinusitis, resulting in 30 million courses of antibiotics per year
in the U.S. Studies have indicated that S. pneumoniae, H. influenzae, and M. catarrhalis are the most common bacterial pathogens
encountered in ABS. As with CAP and ABECB, the increasing resistance of these bacterial strains to commonly used antibiotics can make the treatment of
these infections difficult.
Our Product (PB-101)
PB-101 (zabofloxacin) is being
developed for the treatment of community acquired respiratory infections (CAP, ABECB, ABS). There are over 20 years of clinical experience with the
quinolone class, and PB-101 shares many of the characteristics that have made this class of antibiotics so popular:
|
|
Demonstrates good microbiologic spectrum |
|
|
Allows for once daily dosing |
|
|
Kills bacteria and does so quickly |
|
|
Has a well characterized PK/PD profile, allowing for selection
of efficacious dosage |
|
|
Has well characterized chemical properties which aid in
development, allowing us to mitigate toxicity risks |
As is the case with most classes of
antibiotics, some resistance has developed over the years to the currently used members of the quinolone class. As a result, there is the need for a
new quinolone antibiotic that will effectively treat those organisms that have developed resistance.
Based upon the currently available
non-clinical and clinical data, we believe that PB-101 offers advantages over the currently available antibiotics for the treatment of community
acquired respiratory tract infections.
|
|
Currently available quinolones (e.g. levofloxacin,
moxifloxacin): As discussed below, in preclinical studies, PB-101 has exhibited more potency against S. pneumoniae than these currently
available respiratory quinolone antibiotics. |
|
|
Macrolides (e.g. azithromycin, clarithromycin): Preclinical data
indicates that PB-101 is more potent against both S. pneumoniae and H. influenzae than macrolides. There is a high incidence of S.
pneumoniae strains that are resistant to the macrolides, and in many parts of the country these rates are so high as to make these drugs poor
choices for the treatment of these infections. |
|
|
Beta-Lactams (e.g. penicillin, ampicillin, cephalosporins):
Preclinical studies also have shown that PB-101 is more potent against S. pneumoniae, including those strains that are resistant to this class
of drugs. In addition, due to the pharmacokinetic properties of beta-lactams and their chemical structures, they generally need to be taken numerous
times per day, and there are not equivalent intravenous and oral formulations which would allow for convenient transition for hospitalized patients.
This class of drugs is also not active against the so-called atypical bacteria (i.e. M. pneumoniae, C. pneumoniae, L. pneumophila)
which frequently cause respiratory infections. |
Development
Preclinical In Vitro Studies
PB-101 exhibits bactericidal activity
against the bacteria responsible for most community acquired respiratory tract infections. In vitro studies suggest that PB-101 is two to eight
times more active against common respiratory tract bacteria compared to currently marketed quinolone antibiotics. In addition, no antibiotic currently
marketed for the treatment of community acquired respiratory tract infections is more potent than
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PB-101 against penicillin
non-susceptible strains of S. pneumoniae. PB-101 is also very active against the so-called atypical pathogens that cause pneumonia,
C. pneumoniae, M. pneumoniae, and L. pneumophila.
Preclinical In Vivo Studies
The in vivo efficacy of PB-101
was examined in a standard mouse model of systemic infection. In these mice, PB-101 displayed substantial bactericidal activity against systemic
infections caused by three types of Gram-positive bacteria, based on a standard measure of viable bacteria post-administration. The in vivo
efficacy of PB-101 appeared consistent with its in vitro potency. The median effective dose (ED50) of PB-101
was significantly lower than those of ciprofloxacin, moxifloxacin and gemifloxacin, meaning that less zabofloxacin is required for a successful outcome
relative to the other quinolone antibiotics.
Preclinical Toxicology Studies
Preclinical oral toxicity studies in
rats, mice and dogs were completed, as required in order to submit an IND to support the advancement of PB-101 into clinical studies. To put these
studies into perspective, the dose of PB-101 which will be utilized in the treatment of infections in humans will be in the range of 5.5 to 7.5
mg/kg/day, generally for up to five days. There were no findings of concern in these studies to indicate that there are likely to be toxicity issues
for PB-101.
The bacterial reverse mutation assay
(using bacteria cells) and the micronucleus test (using the bone marrow cells of ICR mice) were employed to evaluate the genetic toxicity of PB-101.
Neither test revealed that the compound was mutagenic in the cells tested. The chromosome aberration test was employed to evaluate whether PB-101
causes structural chromosome aberrations in cultured mammalian cells, in this case from the Chinese hamster lung cell line. PB-101 was found to cause
structural aberrations in these cells only at concentrations that are significantly higher than the anticipated therapeutic
concentration.
Single dose studies in rats and mice
showed that PB-101 did not display detectable toxicity in mice orally administered 1000 mg/kg of the compound. Additionally, to establish the toxicity
profile of this drug, standard, two- and four-week repeat-dose toxicity studies were performed in rats and beagle dogs.
The potential of PB-101 to affect
cardiac repolarization was assessed in a study of its effects on hERG (human ether-a-go-go gene) channel currents expressed in Chinese hamster
ovary cells. In this experiment, PB-101 was found to have little interaction with the hERG channel: The concentration of PB-101 necessary for
inhibition (IC50 = 218 µM) was approximately 4- to 10- fold higher than that of sparfloxacin (IC50 = 18 µM) and grepafloxacin (IC50 = 50 µM), and approximately 2- fold
higher than that of the marketed antibiotic moxifloxacin (IC50 = 129 µM).
In accordance with the Note for
Guidance on Non-Clinical Safety Studies for the Conduct of Human Clinical Trials for Pharmaceuticals (CPMP/ICH/286/95, modification), the likely
duration of therapy with PB-101 will be between three and seven days; therefore, we believe the duration of these toxicology studies (up to four weeks)
is sufficient to allow a clinical trial in humans based on the guidelines.
Clinical Studies in Humans
Two Phase 1, escalating-dose studies
with PB-101 were completed by Dong Wha in the United Kingdom in healthy male volunteers, and one Phase 1 thorough QT trial was conducted by us in the
United States.
A Randomized, Double-Blind,
Placebo-Controlled Study in Healthy Male Subjects to Investigate the Safety, Tolerability and Pharmacokinetics of Ascending Single Oral Doses of PB-101
Incorporating a Comparison of Fed/Fasted Pharmacokinetics
The objective of this Phase 1 study was
to assess the safety and tolerability of single oral doses of PB-101 at five dose levels. The secondary objectives were to assess the pharmacokinetics
of a single oral dose of PB-101 and to assess the effect of food on the pharmacokinetics of PB-101. This study was a first-in-man, single-center,
randomized, double-blind, placebo-controlled, ascending, single-dose study. In addition to subjects receiving a placebo, doses of 10, 50, 100, 400 and
800 mg of PB-101 were studied.
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Safety was evaluated by monitoring
adverse events and vital signs (heart rate, blood pressure, temperature and respiratory rate), and by performing physical examinations,
electrocardiograms (ECGs) and clinical laboratory tests. Thirty male adult subjects were enrolled and completed the clinical phase of the study. All 30
subjects were included in the safety assessment. Pharmacokinetic assessments were performed on the 25 subjects who received PB-101.
No severe or serious adverse events
occurred during this study, and no subject was withdrawn due to an adverse event. Seven subjects (23%) had one treatment-emergent adverse event during
this study. This percentage of subjects with adverse events is standard for a Phase 1 study of this nature. All adverse events were mild and all were
classified as either unrelated or unlikely related to the study treatments, with one exception. One episode of headache (PB-101 10 mg group) was
considered to be possibly related to study treatment.
An Ascending Dose Study to Assess
the Safety and Tolerability of PB-101 When Given in Multiple Doses to Healthy Male Volunteers
The objective of this Phase 1 study was
to assess the safety and tolerability of multiple oral doses of PB-101 at three dose levels. The secondary objectives of this study were to assess the
pharmacokinetic linearity, dose proportionality and accumulation after repeated once daily oral doses for seven days.
This was a single-center, randomized,
double-blind, placebo-controlled, ascending multiple-dose study. In addition to subjects receiving a placebo, doses of 200, 400 and 800 mg of PB-101
were studied in 24 subjects.
Safety was evaluated by monitoring
adverse events, physical examination findings, vital signs (heart rate, blood pressure, temperature and respiratory rate), ECGs and clinical laboratory
test results. Twenty-four male adult subjects ranging in age from 19 to 45 years were enrolled and completed the clinical phase of the study. All 24
subjects were included in the safety assessment. Pharmacokinetic assessments were performed on the 18 subjects who received
zabofloxacin.
No severe or serious adverse events
occurred during this study, and no subject was withdrawn due to an adverse event. Fifteen subjects (62.5%) presented with 34 treatment-emergent adverse
events during this study. This percentage of subjects with adverse events is standard for a Phase 1 study of this nature. Two adverse events were
moderate and the remaining adverse events were mild. Three subjects (12.5%) had mild elevations of their liver enzymes, which were judged mild adverse
events and likely treatment-related. One subject (4.2%) experienced mild tachycardia judged unlikely related to the study treatment. Two subjects
(8.3%), both in the highest dose (800 mg) group, developed a rash, one rash of mild intensity and the other of moderate intensity. The mild rash
resolved without therapy, and the moderate rash resolved with therapy. No ECG abnormalities were seen that were considered to be an adverse
event.
The study researchers concluded that
multiple oral doses of 200 and 400 mg of PB-101 appear to be safe and well tolerated when administered to healthy male subjects. Multiple doses of 800
mg appear to be less well tolerated due to the two rashes seen. The pharmacokinetic profile of these doses was well characterized. Dose proportionality
between the 200 to 800 mg dose levels was confirmed. These results indicate that rate and extent of absorption of PB-101 on Day 1 and Day 7 increased
in a dose-proportional manner over the dose range studied. In addition, no significant accumulation of PB-101 was observed.
A Single-Center, Triple-Blind,
Triple-Dummy, Randomized, Single-Dose, Four-Way Crossover Trial to Define the ECG Effects of PB-101 Using a Clinical and a Supratherapeutic Dose
Compared to Placebo and Moxifloxacin (a Positive Control) in Healthy Men and Women: A Thorough ECG Trial
This study is required by regulatory
authorities in early stages of a drugs development to examine if a new drug has the potential to cause cardiac effects which would be seen in the
ECG. This study was conducted following established standards as required by regulatory authorities, and was reviewed prior to being conducted by the
FDA. Enrollment in this trial concluded in December 2009, and 30 male and 30 female healthy volunteers were enrolled in the trial. Each subject
received a single dose of zabofloxacin 400 mg (clinical dose), zabofloxacin 1500 mg (supratherapeutic dose), moxifloxacin 400 mg (positive control) and
matched placebo on four separate occasions separated by a minimum of three days.
The ECG data was analyzed by a group
with expertise in conducting such evaluations. The conclusions of the report from these experts are as follows, in conclusion, this well
conducted and valid (assay sensitivity being reached and placebo group showing control of background QTc variability) thorough ECG
Trial
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demonstrated that PB-101 had no
effects on heart rate, PR and QRS interval duration or clear important changes in cardiac morphology. The effects on cardiac repolarization by the
preponderance of data including a careful pharmacodynamic-pharmacokinetic analysis also show that PB-101 does not have any clear signal affecting
cardiac repolarization.
Although some changes in laboratory
values were observed, these changes were observed in both the zabofloxacin and placebo groups. Consequently, we do not believe any of these changes
indicate a safety concern with zabofloxacin. There were no reports of serious adverse events at any dose level. At the supratherapeutic 1500 mg dose (a
dose more than three times the therapeutic dose being used in our U.S. Phase 2 CAP study), two subjects suffered severe adverse events, one of which
was considered unrelated to the study drug. The second subject experienced nausea, emesis, and dehydration, which were thought to be drug-related. The
supratherapeutic dose was also associated with the adverse events of increased upper GI intolerance when administered under fasting conditions. The
most common adverse events across all study groups included nausea, vomiting, headache, dizziness, and contact dermatitis.
Hollow Fiber Models
The Hollow Fiber infection model allows
an in vitro system to mimic the pharmacokinetic profile of a drug seen in man, and the manner in which the drug will kill a strain of bacteria.
This model overcomes many of the limitations of animal models. Hollow Fiber Models have become a very powerful tool in the evaluation of antibiotics.
This model has been utilized to allow various dose regimens of PB-101 to be tested against pathogenic strains of S. pneumoniae.
Dose ranging studies were conducted
using the hollow fiber model to determine the amount of PB-101 needed to kill these organisms and to prevent the emergence of resistant strains during
therapy. PB-101 was administered once daily in the Hollow Fiber System to simulate the pharmacokinetic profile seen in humans, based upon the results
of the Phase 1 single-escalation dose study in healthy male volunteers.
Against a strain of S.
pneumoniae resistant to levofloxacin, doses of PB-101 of 300 mg and greater every 24 hours were successful in killing the total bacterial
population within 48 hours, without the emergence of resistant strains.
Utilizing this hollow fiber model data,
along with all of the pre-clinical and clinical data from the Phase 1 studies, we were able to select dosage regimens for our Phase 2 trial which are
likely to be successful in treating community acquired respiratory infections and to be safe.
Our Phase 2 Clinical Trial for PB-101
In March 2010, we started our Phase 2
trial of PB-101 for the treatment of Community Acquired Pneumonia (CAP). This study was rigorously designed taking into consideration FDA guidance for
such studies. The study design was also reviewed by the FDA. This is a three arm, randomized, double-blinded, double-dummy study to examine two dosing
regimens of PB-101 compared to levofloxacin, a standard currently approved quinolone antibiotic. The dosing regimens of PB-101 to be studied in the
Phase 2 study were determined based upon the microbiologic activity, animal studies and hollow fiber modeling which utilized pharmacologic data from
the Phase 1 trials, and the safety results from the three Phase 1 trials.
We expect to enroll approximately 400
to 450 patients in order to enroll 180 bacteriologically confirmed cases of CAP into this study. The study is planned to be conducted in the U.S.,
Europe, and South Africa. Patients with clinical signs and symptoms as well as a chest radiography documentation of CAP that meet the selection
criteria for the trial will be eligible to participate. A respiratory tract specimen will be obtained for Gram stain and culture to determine if the
pneumonia is caused by a bacterial pathogen. Participants will be randomized into one of the three arms, and study drug therapy will begin before
pretreatment culture results are known. Patients will return to the investigators office for periodic clinical assessments, and repeat
bacteriological studies if clinically indicated. The primary endpoint in the trial will be clinical response rate as assessed by the physician on day
21. Secondary endpoints will be clinical response rate at day 35, bacteriological response rate (where assessable), clinical cure rate, and time to
decrease in baseline symptoms. In addition to the standard clinical and microbiologic endpoints, evaluations will be conducted to determine the impact
of PB-101 on patient reported factors, and the speed at which improvement and resolution of signs and symptoms of pneumonia occur. Pharmacokinetic
samples will also be obtained to get a more thorough understanding of the pharmacokinetic
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profile of PB-101 in patients.
Routine evaluation of safety will be accomplished through laboratory tests, electrocardiograms, vital signs, and physical signs and symptoms. It is
anticipated that the results of this study will allow us to move into Phase 3 clinical trials for CAP, Acute Bacterial Exacerbations of Chronic
Bronchitis (ABECB), and Acute Bacterial Sinusitis (ABS), which are required for regulatory approvals.
Development Leading to Regulatory
Approval
We expect that the following additional
clinical studies will be required to be conducted in order to obtain regulatory approval for the marketing of PB-101 for the treatment of Community
Acquired Pneumonia, Acute Bacterial Exacerbation of Chronic Bronchitis and Acute Bacterial Sinusitis:
|
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One Phase 1 study of an intravenous formulation; |
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|
One Phase 1 study to determine dosing in renally impaired
subjects; |
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Two Phase 3 trials of Community Acquired Pneumonia; |
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|
One Phase 3 trial of Acute Bacterial Exacerbation of Chronic
Bronchitis; and |
|
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Two Phase 3 trials of Acute Bacterial Sinusitis. |
Except for the Phase 1 study for an
intravenous formulation of PB-101, we will require additional funds to conduct all of the above studies and trials.
Product Commercialization
We anticipate that we would
commercialize PB-101 through a commercialization partnership with a pharmaceutical company with a large sales force. To successfully commercialize such
a product, a sales force of significant size would be required as the target physician prescribers are family physicians, internists, emergency room
physicians, pulmonologists and infectious diseases physicians.
PB-200a
Market Opportunity
Systemic fungal infections are
increasing as a result of the increasing numbers of immunocompromised patients, primarily cancer patients who become neutropenic due to chemotherapy,
and transplant recipients who receive immunosuppressive therapy. According to a January 2007 review article published by the American Society of
Microbiology, Candida species are the fourth leading cause of hospital acquired blood stream infections, and account for 8-10% of all such
infections. According to a December 2009 review article on eMedicine, invasive Aspergillosis is estimated to occur in 10-20% of leukemia patients
receiving chemotherapy, 5-25% of patients who have had lung and/or heart transplants, and 5-13% of patients who have had bone marrow transplants.
Despite the available treatment options, mortality following fungal infection remains high. For example, according to a January 2007 review article
published by the American Society of Microbiology, mortality rates are 40% for candidemia, an infection of the blood stream caused by Candida,
and, according to a December 2009 review article on eMedicine, mortality rates range from 30-95% for aspergillosis, an infection caused by the
Aspergillus fungus that usually affects the lungs. Although there are numerous antifungal therapies available, there is still no ideal drug. As
a result, we believe there is a need for new antifungal therapies for the treatment of systemic fungal infections.
There are currently three classes of
antifungal therapies available, the polyenes (e.g. amphotericin B), azoles (e.g. voriconazole, posaconazole), and the echinocandins (e.g. caspofungin,
micafungin). Amphotericin B has been utilized for over 40 years, however the use of this drug is complicated by both infusion related reactions and
nephrotoxicity. In addition, an increasing percentage of strains of Candida have become resistant to amphotericin B.
The azoles have also been available
commercially for quite awhile, and although an improvement from a safety perspective compared to amphotericin B, they are also not ideal drugs. These
agents have been associated with hepatic toxicity and drug interactions. In addition, these drugs have limited fungicidal activity, and do not appear
to be as effective against systemic infections caused by Aspergillus.
The newest class of antifungal drugs,
known as the echinocandins were first introduced approximately eight years ago. The echinocandins, which are glucan synthase inhibitors (GSIs), work by
inhibiting the synthesis
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of β (1,3)-D-glucan, a
component of the fungal cell wall. Glucan synthase is required for the fungal cell wall to maintain itself and to maintain internal osmotic pressure
within the organism; therefore, inhibition of glucan synthase results in the death of the organism. Glucan synthase plays no role in mammalian (i.e.,
human) cells and, as a result, the marketed GSIs do not demonstrate the toxicities of other systemic antifungal drugs. These drugs represented an
advance in that they are quite effective, with few drug interactions, and a good safety profile. As a result of their effectiveness, good safety
profile, and lack of significant drug interactions, the echinocandins have been well accepted by physicians. The major drawback for this class of drugs
is that they are not available in oral formulations.
An agent that is safe and efficacious
and provides flexibility in methods of administration likely would capture a significant share of the antifungal market.
Our Product (PB-200a)
PB-200a is a glucan synthase inhibitor
(GSI).We anticipate that because PB-200a is a GSI, it will maintain the positive characteristics of the class, namely, a good safety profile and few
drug interactions. However, although PB-200a utilizes the same mechanism of action (GSI) as the currently marketed echinocandins, it binds to a
different receptor on the fungal cell wall. As a result, we have developed drug candidates with chemical structures that are different than those of
currently available GSIs in that they have a high level of solubility. We have demonstrated that this product can be orally absorbed in mice. We
believe, therefore, that PB-200a has the potential to be a systemic antifungal, which will have the favorable characteristics of the currently marketed
GSIs (i.e. echinocandins), but will be available both intravenously and orally. If we are successful in developing an approved oral dosage form of
PB-200a, it would allow physicians to prescribe this class of drugs for both intravenous and oral use for the first time.
We have obtained the rights to
compounds that have been screened against glucan synthase to identify lead fragments that inhibit the glucan synthase enzyme purified from Candida
albicans and Aspergillus fumigatus. These compounds inhibit proliferation of not only C. albicans and A. fumigatus, but also a
wide range of other pathogenic fungi in a concentration-dependent manner. In addition, these compounds have been shown to be synthetically very
accessible and amenable to medicinal chemistry optimization.
Based upon the data we have obtained
from studies conducted to date, we believe that PB-200a will share many of the characteristics that have made the echinocandin antifungals so popular:
fungicidal and good activity against both Candida and Aspergillus, good safety profile, and few if any drug
interactions.
Development
Preclinical In Vitro Studies
Preclinical studies have shown that
PB-200a exhibits the potential to inhibit glucan synthesis in C. albicans and A. fumigatus, and may do so to a greater extent than
caspofungin. PB-200a has also been demonstrated to be orally bioavailable in mice, which could potentially lead to a broad-spectrum anti-fungal drug
that can be administered both intravenously and orally.
Development Leading to IND Submission
We expect that the following activities
will be required for us to submit an IND in order to proceed with the first Phase 1 study for PB-200a.
|
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Medicinal chemistry work to optimize the compound for fungicidal
activity and solubility; |
|
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In vitro studies to characterize the activity of the
compound against a large number of clinically relevant fungal isolates; |
|
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In vivo animal studies to better define the antifungal
activity of the compound; and |
|
|
Pre-clinical toxicology studies (in vitro and in
vivo). |
We may use a portion of the
proceeds of this offering to conduct the medicinal chemistry work to optimize the compound for fungicidal activity and solubility .
However, we will require additional funds to conduct the other pre-clinical activities listed above .
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Product Development Process
We manage the execution and conduct of
our preclinical and clinical studies and utilize many service providers to perform certain elements, primarily the laboratory-based elements, of our
preclinical and clinical studies. Study design for our preclinical and clinical studies is principally performed in-house, although we engage
consultants to ensure that our studies are compatible with expected regulatory requirements and our scientific objectives. During the preclinical and
clinical study design process, our internal personnel may also obtain input with respect to study design from third parties engaged to perform the
respective preclinical and clinical studies.
In preclinical studies, we engage
contract research organizations and research institutions to perform chemical optimization work and to conduct in vitro and in vivo
testing of our product candidates. We also engage contract research organizations to assist us with such tasks as data management, statistical analysis
and evaluation of the data obtained from our preclinical studies. Once enough data with respect to a product candidate has been collected and analyzed,
our team will prepare an IND and, if we are conducting clinical trials in certain foreign jurisdictions, a clinical trial application, or CTA, for such
product candidate. We engage consultants to ensure that our INDs and CTAs are prepared in accordance with applicable regulations. Once complete, we
submit the IND to the FDA and/or the CTA to the applicable foreign regulatory agency for approval.
In the clinical trial stage, we
contract with medical institutions to serve as clinical trial sites and we engage a principal investigator for each clinical trial site. We also engage
contractors both individually and through consulting firms to assist us with quality assurance and clinical site monitoring of our clinical trials. We
carry out clinical trial supervision on our own, as is the case with our Phase 2 CAP trial for PB-101. Depending on the circumstances, however, we may
engage clinical research organizations to act as an intermediary between us and certain trial sites, particularly for foreign trial sites. In addition,
we engage contract research organizations to assist us with such tasks as data management, statistical analysis and evaluation of the data obtained
from our clinical trials.
Manufacturing
All of our manufacturing processes
currently are outsourced to third parties. We rely on third-party manufacturers to produce sufficient quantities of drug product for use in clinical
trials. With the exception of PB-101, we intend to continue this practice for any future clinical trials and commercialization of our
products.
We anticipate that PB-101 will be
manufactured and supplied by our partner, Dong Wha.
We are confident that there exist a
sufficient number of potential sources for the drug substances required to produce our products, as well as third-party manufacturers, that we will be
able to find alternate suppliers and third-party manufacturers in the event that our relationship with any supplier or third-party manufacturer
deteriorates.
Competitive Landscape for Our Products
PB-101 (zabofloxacin)
PB-101 is a quinolone antibiotic that
we intend to develop initially for the treatment of community acquired respiratory infections (CAP, ABECB, ABS). There are only three quinolone
antibiotics that are currently approved for marketing in the United States and are considered appropriate for the treatment of respiratory infections
although only one ( moxifloxacin) is currently actively marketed. These drugs are listed below along with their
manufacturers:
Product (Brand Name)
|
|
|
|
Manufacturer
|
Levofloxacin
(Levaquin®) |
|
|
|
Ortho-McNeil-Janssen |
Moxifloxacin
(Avelox®) |
|
|
|
Bayer |
Gemifloxacin
(Factive®) |
|
|
|
Cornerstone Therapeutics |
Levofloxacin has a much larger market
share than the other drugs listed above; however, its patent protection recently expired , while patent protection for moxifloxacin
will likely expire sometime between 2014 and 2016. Safety concerns regarding Avelox® have caused the European Medicines Agency (EMA) to issue a
statement in July 2008 stating that oral moxifloxacin should only be prescribed for the treatment of respiratory
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tract infections when other
antibiotics cannot be used or have failed. We believe that Avelox® continues to have relatively strong sales despite the safety warning because it
has demonstrated better activity against S. pneumoniae than Levaquin®. While Levaquin® has a good safety profile, its activity against
S. pneumoniae is weaker, and resistant strains have now been seen in many parts of the world, including the U.S. and Europe. Resistance rates of
S. pneumoniae to Levaquin® vary by geography, and range from approximately 2% to 10%, as reported at the 2010 Interscience Conference on
Antimicrobial Agents and Chemotherapy, in the Journal of Antimicrobial Chemotherapy, and in the journal, Diagnostic Microbiology and Infectious
Diseases. In addition, as reported in the New England Journal of Medicine, there have been reports of Levaquin® clinical treatment failures due to
strains of S. pneumoniae that were either resistant at initiation of therapy or developed resistance while on therapy. We believe that
gemifloxacin has not done well in the market primarily due to perceived safety issues, a lack of an available intravenous formulation, and limited
marketing efforts.
As we develop PB-101, we have monitored
and will continue to monitor for any of the shortcomings noted for Levaquin® and Avelox®. Specifically, we have conducted a thorough clinical
QT study, as per FDA/EMA guidelines that utilize Avelox® as the positive control, to demonstrate that PB-101 does not have the QT prolongation
safety concerns seen with Avelox®. In addition, we have conducted pre-clinical studies and have monitored markers of hepatic disease in our Phase
1 trials, and we have not seen any evidence indicating that use of PB-101 will produce severe hepatic effects, which was the primary reason for the EMA
restriction regarding Avelox®. We will continue to monitor for hepatic adverse events in all of our clinical studies for PB-101. At the time
Levaquin® was developed, pharmacodynamic models for the selection of efficacious doses were not as well defined or sophisticated as they are
today. Current pharmacodynamic models, having the benefit of 15 years of experience working with this class of antibiotics, are very highly predictive
in determining dosing regimens that will result in a successful clinical outcome and decrease the likelihood of development of resistant strains. We
have conducted numerous pharmacodynamic studies, and based upon these studies believe that the dosing regimens selected for our Phase 2 study have a
high probability of resulting in positive clinical outcomes.
PB-200a
PB-200a is a GSI antifungal drug that
we intend to develop for the treatment of systemic infections caused by Candida and Aspergillus. There are three GSI antifungal drugs
currently approved for marketing in the United States. These drugs, which are known as echinocandins, are listed below along with their
manufacturers:
Product (Brand Name)
|
|
|
|
Manufacturer
|
Caspofungin
(Cancidas®) |
|
|
|
Merck Sharp & Dohme |
Micafungin
(Mycamine®) |
|
|
|
Astellas Pharma |
Anidulafungin
(Eraxis®) |
|
|
|
Roerig |
The patent protection for caspofungin
is likely to expire within the next five years, while the other compounds are likely to maintain exclusivity for between five and 10 years. All three
of these antifungal drugs are considered to be efficacious and safe; however, none of them are currently available orally.
Government Regulation
General
The production, distribution, and
marketing of products employing our technology, and our development activities, are subject to extensive governmental regulation in the United States
and in other countries. In the United States, our products are regulated as drugs and are subject to the Federal Food, Drug, and Cosmetic Act, as
amended, and the regulations of the FDA, as well as to other federal, state, and local statutes and regulations. These laws, and similar laws outside
the United States, govern the clinical and pre-clinical testing, manufacture, safety, effectiveness, approval, labeling, distribution, sale, import,
export, storage, record-keeping, reporting, advertising, and promotion of our products. Product development and approval within this regulatory
framework, if successful, will take many years and involve the expenditure of substantial resources. Violations of regulatory requirements at any stage
may result in various adverse consequences, including the FDAs and other health authorities delay in approving or refusal to approve a
product. Violations of regulatory requirements also may result in enforcement actions.
The following paragraphs provide
further information on certain legal and regulatory issues with a particular potential to affect our operations or future marketing of products
employing its technology.
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Research, Development, and Product Approval
Process
The research, development, and approval
process in the United States and elsewhere is intensive and rigorous and generally takes many years to complete. The typical process required by the
FDA before a therapeutic drug may be marketed in the United States includes:
|
|
pre-clinical laboratory and animal tests performed under the
FDAs Good Laboratory Practices regulations, referred to herein as GLP; |
|
|
submission to the FDA of an IND, which must become effective
before human clinical trials may commence; |
|
|
human clinical studies performed under the FDAs Good
Clinical Practices regulations, to evaluate the drugs safety and effectiveness for its intended uses; |
|
|
FDA review of whether the facility in which the drug is
manufactured, processed, packed, or held meets standards designed to assure the products continued quality; and |
|
|
submission of a marketing application to the FDA, and approval
of the application by the FDA. |
During pre-clinical testing, studies
are performed with respect to the chemical and physical properties of candidate formulations. These studies are subject to GLP requirements. Biological
testing is typically done in animal models to demonstrate the activity of the compound against the targeted disease or condition and to assess the
apparent effects of the new product candidate on various organ systems, as well as its relative therapeutic effectiveness and safety. An IND must be
submitted to the FDA and become effective before studies in humans may commence.
Clinical trial programs in humans
generally follow a three-phase process. Typically, Phase 1 studies are conducted in small numbers of healthy volunteers or, on occasion, in patients
afflicted with the target disease. Phase 1 studies are conducted to determine the metabolic and pharmacological action of the product candidate in
humans and the side effects associated with increasing doses, and, if possible, to gain early evidence of effectiveness. In Phase 2, studies are
generally conducted in larger groups of patients having the target disease or condition in order to validate clinical endpoints, and to obtain
preliminary data on the effectiveness of the product candidate and optimal dosing. This phase also helps determine further the safety profile of the
product candidate. In Phase 3, large-scale clinical trials are generally conducted in patients having the target disease or condition to provide
sufficient data for the statistical proof of effectiveness and safety of the product candidate as required by United States regulatory
agencies.
In the case of products for certain
serious or life-threatening diseases, the initial human testing may be done in patients with the disease rather than in healthy volunteers. Because
these patients are already afflicted with the target disease or condition, it is possible that such studies will also provide results traditionally
obtained in Phase 2 studies. These studies are often referred to as Phase 1/2 studies. However, even if patients participate in initial
human testing and a Phase 1/2 study carried out, the sponsor is still responsible for obtaining all the data usually obtained in both Phase 1 and Phase
2 studies.
Before proceeding with a study,
sponsors may seek a written agreement from the FDA regarding the design, size, and conduct of a clinical trial. This is known as a Special Protocol
Assessment (SPA). Among other things, SPAs can cover clinical studies for pivotal trials whose data will form the primary basis to
establish a products efficacy. SPAs help establish upfront agreement with the FDA about the adequacy of a clinical trial design to support a
regulatory approval, but the agreement is not binding if new circumstances arise. There is no guarantee that a study will ultimately be adequate to
support an approval even if the study is subject to an SPA.
United States law requires that studies
conducted to support approval for product marketing be adequate and well controlled. In general, this means that either a placebo or a
product already approved for the treatment of the disease or condition under study must be used as a reference control. Studies must also be conducted
in compliance with good clinical practice requirements, and informed consent must be obtained from all study subjects.
The clinical trial process for a new
compound can take ten years or more to complete. The FDA may prevent clinical trials from beginning or may place clinical trials on hold at any point
in this process if, among other reasons, it concludes that study subjects are being exposed to an unacceptable health risk. Trials may
also
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be prevented from beginning or may
be terminated by institutional review boards, who must review and approve all research involving human subjects. Side effects or adverse events that
are reported during clinical trials can delay, impede, or prevent marketing authorization. Similarly, adverse events that are reported after marketing
authorization can result in additional limitations being placed on a products use and, potentially, withdrawal of the product from the
market.
Following the completion of clinical
trials, the data are analyzed to determine whether the trials successfully demonstrated safety and effectiveness and whether a product approval
application may be submitted. In the United States, if the product is regulated as a drug, an NDA must be submitted and approved before commercial
marketing may begin. The NDA must include a substantial amount of data and other information concerning the safety and effectiveness of the compound
from laboratory, animal, and human clinical testing, as well as data and information on manufacturing, product quality and stability, and proposed
product labeling.
Each domestic and foreign manufacturing
establishment, including any contract manufacturers we may decide to use, must be listed in the NDA and must be registered with the FDA. The
application generally will not be approved until the FDA conducts a manufacturing inspection, approves the applicable manufacturing process and
determines that the facility is in compliance with cGMP requirements.
Under the Prescription Drug User Fee
Act, as amended, the FDA receives fees for reviewing an NDA and supplements thereto, as well as annual fees for commercial manufacturing establishments
and for approved products. These fees can be significant. For fiscal year 2010, the NDA review fee alone is $1,405,500, although certain limited
deferral, waivers, and reductions may be available.
Each NDA submitted for FDA approval is
usually reviewed for administrative completeness and reviewability within 45 to 60 days following submission of the application. If deemed complete,
the FDA will file the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDA that it deems
incomplete or not properly reviewable. The FDA has established performance goals for the review of NDAs six months for priority applications and
10 months for standard applications. However, the FDA is not legally required to complete its review within these periods and these performance goals
may change over time.
Moreover, the outcome of the review,
even if generally favorable, typically is not an actual approval but an action letter that describes additional work that must be done
before the application can be approved. The FDAs review of an application may involve review and recommendations by an independent FDA advisory
committee. Even if the FDA approves a product, it may limit the approved therapeutic uses for the product as described in the product labeling, require
that warning statements be included in the product labeling, require that additional studies be conducted following approval as a condition of the
approval, impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise
limit the scope of any approval.
Significant legal and regulatory
requirements also apply after FDA approval to market under an NDA. These include, among other things, requirements related to adverse event and other
reporting, product advertising and promotion and ongoing adherence to cGMPs, as well as the need to submit appropriate new or supplemental applications
and obtain FDA approval for certain changes to the approved product labeling, or manufacturing process. The FDA also enforces the requirements of the
Prescription Drug Marketing Act which, among other things, imposes various requirements in connection with the distribution of product samples to
physicians.
The regulatory framework applicable to
the production, distribution, marketing, and/or sale, of our products may change significantly from the current descriptions provided herein in the
time that it may take for any of its products to reach a point at which an NDA is approved.
Overall research, development, and
approval times depend on a number of factors, including the period of review at FDA, the number of questions posed by the FDA during review, how long
it takes to respond to the FDAs questions, the severity or life-threatening nature of the disease in question, the availability of alternative
treatments, the availability of clinical investigators and eligible patients, the rate of enrollment of patients in clinical trials, and the risks and
benefits demonstrated in the clinical trials.
Other United States Regulatory
Requirements
In the United States, the research,
manufacturing, distribution, sale, and promotion of drug and biological products are potentially subject to regulation by various federal, state, and
local authorities in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Heath Care Financing
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Administration), other divisions of
the United States Department of Health and Human Services (e.g., the Office of Inspector General), the United States Department of Justice and
individual United States Attorney offices within the Department of Justice, and state and local governments. For example, sales, marketing, and
scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social Security Act, the False Claims Act, the
privacy provision of the Health Insurance Portability and Accountability Act, and similar state laws, each as amended. Pricing and rebate programs must
comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans Health Care Act of 1992, each as
amended. If products are made available to authorized users of the Federal Supply Schedule of the General Services Administration, additional laws and
requirements apply. All of these activities are also potentially subject to federal and state consumer protection, unfair competition, and other
laws.
Moreover, we are now, and may become
subject to, additional federal, state, and local laws, regulations, and policies relating to safe working conditions, laboratory practices, the
experimental use of animals, and/or the use, storage, handling, transportation, and disposal of human tissue, waste, and hazardous substances,
including radioactive and toxic materials and infectious disease agents used in conjunction with our research work.
Foreign Regulatory Requirements
We and our collaborative partners may
be subject to widely varying foreign regulations, which may be quite different from those of the FDA, governing clinical trials, manufacture, product
registration and approval, and pharmaceutical sales. Whether or not FDA approval has been obtained, we or our collaboration partners must obtain a
separate approval for a product by the comparable regulatory authorities of foreign countries prior to the commencement of product marketing in these
countries. In certain countries, regulatory authorities also establish pricing and reimbursement criteria. The approval process varies from country to
country, and the time may be longer or shorter than that required for FDA approval. In addition, under current United States law, there are
restrictions on the export of products not approved by the FDA, depending on the country involved and the status of the product in that
country.
Reimbursement and Pricing Controls
In many of the markets
where we or our collaborative partners would commercialize a product following regulatory approval, the prices of pharmaceutical products are subject
to direct price controls (by law) and to drug reimbursement programs with varying price control mechanisms. Public and private health care payors
control costs and influence drug pricing through a variety of mechanisms, including through negotiating discounts with the manufacturers and through
the use of tiered formularies and other mechanisms that provide preferential access to certain drugs over others within a therapeutic class. Payors
also set other criteria to govern the uses of a drug that will be deemed medically appropriate and therefore reimbursed or otherwise covered. In
particular, many public and private health care payors limit reimbursement and coverage to the uses of a drug that are either approved by the FDA or
that are supported by other appropriate evidence (for example, published medical literature) and appear in a recognized drug compendium. Drug compendia
are publications that summarize the available medical evidence for particular drug products and identify which uses of a drug are supported or not
supported by the available evidence, whether or not such uses have been approved by the FDA. For example, in the case of Medicare coverage for
physician-administered oncology drugs, the Omnibus Budget Reconciliation Act of 1993, with certain exceptions, prohibits Medicare carriers from
refusing to cover unapproved uses of an FDA-approved drug if the unapproved use is supported by one or more citations in the American Hospital
Formulary Service Drug Information the American Medical Association Drug Evaluations, or the United States Pharmacopoeia Drug Information. Another
commonly cited compendium, for example under Medicaid, is the DRUGDEX Information System.
License Agreements and Intellectual
Property
The following summary
table lists the outstanding patents most material to our business with respect to which we have licensed rights, as well as their jurisdiction,
duration and related product candidate. Such patents are discussed in more detail in the context of our product candidates related to them
below.
Jurisdiction
|
|
|
|
Patent Number/ Registration Number
|
|
Expiration Date
|
|
Related Product Candidate
|
U.S. |
|
|
|
6,313,299 |
|
June 26, 2018 |
|
PB-101 |
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Jurisdiction
|
|
|
|
Patent Number/ Registration Number
|
|
Expiration Date
|
|
Related Product Candidate
|
U.S. |
|
|
|
6,552,196 |
|
June 26, 2018 |
|
PB-101 |
Europe |
|
|
|
0994878 |
|
June 26, 2018 |
|
PB-101 |
U.S. |
|
|
|
7,678,785 |
|
July 24, 2027 |
|
PB-200a |
U.S. |
|
|
|
7,105,554 |
|
July 1, 2022 |
|
PB-200a |
Europe |
|
|
|
1313471 |
|
August 30, 2021 |
|
PB- 200a |
European patent 0994878, issued by the
European Patent Office, has been validated in the United Kingdom. European patent 1313471, issued by the European Patent Office, has been validated in
the following countries: Spain, Italy, Germany, France, Switzerland and the United Kingdom.
PB-101
On June 12, 2007, we entered into an
exclusive, multinational license agreement with Dong Wha for PB-101, which we amended on April 22, 2008, on November 4, 2010,
and on March 23, 2011 . Specifically, we in-licensed a quinolone compound (PB-101) for the treatment of various bacterial infections, and the
corresponding United States and foreign patents and applications for all therapeutic uses. Under the terms of the license agreement, we are permitted
to develop and commercialize PB-101 in all of the countries of the world other than Australia, New Zealand, India, Japan, Korea, China, Taiwan,
Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As consideration in part for the aforementioned rights to PB-101, we paid to Dong Wha
an upfront license fee of $1,500,000, as well as additional license fees totaling $ 1,750,000 and a milestone payment of $500,000
and are required to make substantial payments, up to an additional $ 53,000,000 in total, to Dong Wha upon the achievement of
certain net sales, clinical and regulatory-based milestones. In the event that PB-101 is commercialized, we are obligated to pay to Dong Wha annual
royalties equal to 10% of net sales. In the event that we sublicense PB-101 to a third party, we are obligated to pay to Dong Wha a portion of the
royalties, sublicensing fees or other lump sum payments we receive from the sublicensee. Pursuant to the terms of the license agreement, we were
required to initiate a Phase 2 clinical trial for an oral formulation of PB-101 within nine months of execution of the license agreement. In accordance
with the license agreement, we previously purchased certain extension periods from Dong Wha, which extend ed the deadline before
which we were required to initiate the Phase 2 clinical trial, in return for certain cash payments. We purchased extension periods for the extension of
such deadline until March 2010.
Although we commenced a Phase 2
clinical trial in the United States for the CAP indication in March 2010, we did not dose the first patient until May 2010. Following discussions with
Dong Wha regarding such delay between initiation and patient dosing in the Phase 2 trial, on November 4, 2010, we entered into an amendment to the
license agreement, pursuant to which we agreed to pay Dong Wha $200,000 by February 28, 2011 to compensate Dong Wha for such delay. In connection with
such amendment, we also agreed to two additional milestones: A financing milestone requiring that we conduct an equity offering yielding at least $10
million in net proceeds by February 28, 2011 and an additional development milestone requiring that we complete patient enrollment in the Phase 2 CAP
trial by April 30, 2012 and deliver a draft clinical study report to Dong Wha by July 31, 2012. Dong Wha had the right to terminate the
license agreement at anytime within 90 days of our failure to achieve either of these new milestones.
On March 23, 2011, we entered into
an amendment to the Dong Wha License Agreement, pursuant to which (i) the deadline for our obligation to pay $200,000 to Dong Wha was extended
from February 28, 2011 to March 28, 2011 and such payment was made on such date, (ii) the deadline for our obligation to consummate an
equity offering yielding at least $10 million in net proceeds was extended from February 28, 2011 to June 30, 2011 and (iii) we were required
to obtain by April 6, 2011 a financing commitment for $3 million to fund our operations and clinical trials pending the consummation of the
proposed equity offering, which requirement was satisfied by the Backstop Agreement discussed above, and we were required to
diligently continue our Phase 2 CAP trial without interruption or delay until the completion of the proposed equity offering. If we fail to
comply with these provisions , Dong Wha will have the right to terminate the license agreement at anytime within 90 days of such failure.
We do not expect to complete this offering by June 30, 2011 and we are in the process of negotiating with Dong Wha for an extension of such
deadline. If we fail to obtain an extension of such deadline, Dong Wha will have the right to terminate the license agreement at anytime within
90 days of our failure to meet such deadline.
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The license agreement contains other
customary clauses and terms as are common in similar agreements in the industry. Paramount Biosciences, LLC has guaranteed the payment in full of all
amounts owed by us under the license to Dong Wha until such time as we have certifiable net tangible assets of at least $10,000,000. The license
agreement terminates on the expiration of our obligation to make payments to Dong Wha, unless earlier terminated in accordance with the terms of the
license agreement. The license agreement may be terminated by us, in our sole discretion, upon 30 days prior written notice to Dong Wha. The
license agreement may be terminated by Dong Wha upon or after our breach of any material provision of the agreement if we have not cured such breach
within 90 days after receipt of express written notice thereof by Dong Wha. However, if any default is not capable of being cured within such 90 day
period and we are diligently undertaking to cure such default as soon as commercially feasible thereafter under the circumstances, Dong Wha shall not
have the right to terminate the license agreement. In addition Dong Wha may terminate the license agreement upon not less than 60 days prior
written notice if we fail to meet a development milestone, subject to our right to extend such development milestone as set forth in the
agreement.
PB-101 and certain analogs thereof are
protected by a first family of patents and patent applications consisting of two issued patents in the United States and one validated European patent.
The patents relate to compositions comprising PB-101 and methods of making compositions comprising PB-101. In April 2007, an additional provisional
patent application directed to salt compositions comprising PB-101 (including aspartic acid salts) was filed and a corresponding international patent
application was filed in 2008. National and regional stage applications of the international patent application are pending in certain jurisdictions in
the world, including Europe and the United States.
PB-200a
On June 12, 2007, we entered into an
exclusive, worldwide license agreement with UCB Celltech, a United Kingdom corporation and a registered branch of UCB Pharma S.A., referred to herein
as UCB, for a platform of aniline derivative compounds including PB-200a. Specifically, we in-licensed a series of compounds for the treatment of
various fungal conditions, and the corresponding United States and foreign patents and applications for all therapeutic uses. As consideration in part
for the aforementioned rights, we paid to UCB an upfront license fee of $100,000. In addition, we are required to make substantial payments, up to an
additional $12,000,000 in total, to UCB upon the achievement of certain clinical and regulatory-based milestones. In the event that PB-200a or another
covered compound is commercialized, we and our sublicensees are obligated to pay to UCB annual royalties equal to a percentage of net sales in the
single-digit range. We are also obligated to pay to UCB an annual license maintenance fee of $100,000, which is creditable against royalties otherwise
due to the licensor. The license agreement contains other customary clauses and terms as are common in similar agreements in the industry. The license
agreement terminates on the expiration of our obligation to pay royalties to UCB, unless earlier terminated in accordance with the terms of the license
agreement. The license agreement may be terminated by us, in our sole discretion, upon 30 days prior written notice to UCB. The license agreement
may be terminated by UCB immediately upon any material breach and/or any breach capable of remedy by us if we have not cured such remediable breach
within 90 days after notice thereof by UCB requiring its remedy or any breach of any representation or warranty given by us to UCB.
PB-200a and the other compounds
licensed to us by UCB are protected by several families of patents and patent applications in the United States and in certain foreign countries.
Specifically, we have acquired rights to patents or patent applications in certain countries relating to the following:
|
|
Substituted aniline compounds; |
|
|
CCA1 targeted inhibitors and assays; |
|
|
SEC14 targeted inhibitors and assays; |
|
|
Benzylidine thiazolidine derivatives; |
|
|
Thiazolidine derivatives; |
|
|
TRL1 targeted inhibitors and assays; and |
|
|
MSS4 targeted inhibitors and assays. |
Effective as of November 4, 2009, we
entered into a non-exclusive patent sublicense agreement with Merck. Pursuant to the sublicense agreement, we granted a non-exclusive worldwide license
to Merck for the use
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of a compound, which is covered by
one of the European patents licensed to us by UCB related to benzylidine thiazolidine derivatives. The sublicense agreement provides for the payment to
us of an upfront license fee of $480,000. Merck paid us a milestone fee of $180,000 related to the initiation of a Phase II trial related to this
product. The sublicense agreement provides for additional payments totaling up to $540,000 upon the achievement of certain milestones. Under the terms
of the original license agreement with UCB, $132,000 became due to UCB in connection with the sublicense agreement with Merck. The sublicense agreement
may be terminated by Merck at any time in its sole discretion by giving us 30 days advance written notice.
PB-201
On July 10, 2007, we entered into an
exclusive, multinational sublicense agreement with Santee Biosciences, Inc., a Delaware corporation, referred to herein as Santee, for PB-201, a
formulation technology. Specifically, we in-licensed this technology from Santee for use in the development of azole-based antifungal drug
formulations, including without limitation an itraconazole formulation, and the corresponding United States and foreign patents and applications. Under
the terms of the sublicense agreement, we are permitted to develop and commercialize azole-based antifungal drugs we formulate using the PB-201
technology throughout North America and Europe. As consideration in part for the aforementioned rights, we paid to Santee an upfront license fee of
$50,000. In addition, we are required to make substantial payments, up to an additional $10,000,000 in total, to Santee upon the achievement of certain
clinical and regulatory-based milestones. In the event that any drug we formulate using the PB-201 technology is commercialized, we and our
sublicensees are obligated to pay to Santee annual royalties equal to 6% of net sales of less than $100,000,000 in any calendar year and 4% of net
sales to or in excess of $100,000,000 in any calendar year. In the event that we sublicense PB-201 to a third party, we are obligated to pay Santee 20%
of the royalties we receive from the sublicensee. The sublicense agreement contains other customary clauses and terms as are common in similar
agreements in the industry. The license agreement terminates on the date of expiration of the last to expire valid claim contained in the patent rights
covering a licensed product in any country in North America and Europe, unless earlier terminated in accordance with the license agreement. The license
agreement may be terminated by us, for any reason or no reason, by giving 30 days prior written notice to Santee. The license agreement will
automatically terminate if we become insolvent. Santee has the right to terminate the license agreement (i) within 90 days after giving written notice
of termination if we fail to make payment to Santee of royalties or other payments due in accordance with the terms of the agreement which are not the
subject of a bona fide dispute between Santee and us unless we pay Santee, within the 90-day period, all such royalties and other payments due and
payable and (ii) by giving 90 days prior written notice to us upon any material breach or default of the agreement by us, subject to our right to
cure such breach or default during such 90-day period, unless the nature of the breach is such that additional time is reasonably needed to cure it,
and we have commenced with good faith efforts to cure such breach, then Santee shall provide us with additional time to cure
it.
PB-201 is protected by three families
of patent applications pending in certain jurisdictions in the world. Two such families broadly cover a novel system for nano-scale pharmaceutical
transport comprising micelles and vesicles that combine with a therapeutic agent to form a complex. These patent applications include claims directed
to formulations of such systems and methods of preparing such formulations. The international patent applications underlying these two families have
entered the national phase in the United States and Europe.
We believe the PB-201 technology could
potentially be utilized to reformulate the antifungal drug itraconazole, which is one of the standard therapies for the treatment of onychomycosis
(nail fungus). However, we do not intend to use the net proceeds of this offering for the development of any drug candidate using the PB-201
technology.
Employees
We currently employ four full-time
employees. None of our employees is represented by a labor union and we have not experienced any strikes or work stoppages. We believe our relations
with our employees are good.
Given our limited number of employees,
although we manage the execution and conduct of our preclinical and clinical studies, we utilize many service providers to perform certain elements of
the preclinical and clinical studies, such as assisting us with such tasks as study design, data management, statistical analysis and evaluation,
quality assurance and clinical site monitoring. See Business Product Development Process for more information.
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Facilities
Our facilities consist of temporary
office space in San Diego, California. We believe that these facilities are adequate to meet our current needs. We believe that if additional or
alternative space is needed in the future, such space will be available on commercially reasonable terms as necessary.
Given the limited nature of our
facilities, our preclinical and clinical studies and other aspects of our product development are conducted at the facilities of third party service
providers, including contract research organizations and clinical trial sites. See Business Product Development Process for more
information.
Corporate History
We were organized as a Delaware
corporation on October 5, 2006 under the name Pacific Beach BioSciences, Inc. and we changed our corporate name to IASO Pharma
Inc. on April 12, 2010. Our principal executive offices are located at 12707 High Bluff Drive, Suite 200, San Diego, California
92130.
Legal Proceedings
We are not currently a party to any
material legal proceedings.
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Executive Officers and Directors
The following table sets forth the
name, age and position of each of our directors and executive officers.
Name
|
|
|
|
Age
|
|
Position |
Michael S.
Weiss |
|
|
|
45 |
|
Executive Chairman of the Board-elect(1) |
Matthew A.
Wikler, M.D. |
|
|
|
61 |
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
James W.
Klingler |
|
|
|
6 4 |
|
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
James
Rock |
|
|
|
43 |
|
Director of New Product Development |
Mark W.
Lotz |
|
|
|
58 |
|
Vice President of Regulatory Affairs |
J. Jay
Lobell |
|
|
|
4 8 |
|
Director |
Jai Jun (Matthew)
Choung, Ph.D. |
|
|
|
5 2 |
|
Director |
Michael L.
Corrado, M.D. |
|
|
|
63 |
|
Director |
Gary G.
Gemignani |
|
|
|
45 |
|
Director |
Michael
Rice |
|
|
|
46 |
|
Director |
(1) |
|
On June 10, 2011, we entered into an offer letter with Mr.
Weiss, pursuant to which he will be appointed as Executive Chairman of the Board upon the execution of a definitive employment agreement with
us. Under the offer letter, Mr. Weiss agreed to join the company as an unsalaried employee pending execution of such employment
agreement. |
The business experience for the
past five years (and, in some instances, for prior years) of each of our executive officers and directors are as follows:
Michael S. Weiss
was appointed to serve as our Executive Chairman-elect in June 2011. Since August 2009, Mr.
Weiss has served as the Managing Member of Opus Point Partners, LLC, an investment and advisory firm that manages a series of private
investment funds focused on investments in healthcare and life sciences companies. In 1999, Mr. Weiss founded Access Oncology,
Inc., a private biotechnology company, which was later acquired by Keryx Biopharmaceuticals Inc. (NASDAQ: KERX), a biopharmaceutical company, in
2004. Following the merger, Mr. Weiss remained as Chief Executive Officer of Keryx until April 2009. From 1993 through 1999, Mr. Weiss
was engaged in biotechnology investment banking and investments. Prior to that, Mr. Weiss was
an attorney with the law firm of Cravath, Swaine & Moore LLP. Mr. Weiss currently serves as chairman of the board of directors of National
Holdings Corporation (OTCBB: NHLD), a financial services organization, a position he has held since January 2011. Mr. Weiss earned his B.S. in Finance
from the State University of New York at Albany and his J.D. from Columbia Law School. We believe Mr. Weiss qualifications to sit
on our Board of Directors include his significant experience with biotechnology companies and in the financial advisory services
industry.
Matthew A. Wikler, M.D.
has served as our President and Chief Executive Officer and director since February 28, 2010 and from November 2006 to January 2009. From January 2009
to February 26, 2010, Dr. Wikler served as Chief Medical Officer at the Institute for One World Health, an institute that develops new medicines
for people with infectious diseases in the developing world. Prior to joining us in November 2006, Dr. Wikler served as the Chief Medical
Officer at MPEX Pharmaceuticals, Inc., a private biopharmaceutical company developing new therapies to combat antibiotic resistance, from January 2006
to November 2006, and as the Chief Medical Officer and Executive Vice President at Peninsula Pharmaceuticals, Inc., a private biopharmaceutical company
focused on developing and commercializing antibiotics to treat life-threatening infections, from November 2002 to December 2005. From 1994 to 1995, Dr.
Wikler worked at the FDA, and for part of that time served as the Deputy Director of the Division of Anti-infective Drug Products . Dr. Wikler is
currently on the Board of Directors of the Clinical and Laboratory Standards Institute . Dr. Wikler received
his M.D. from Temple University, completed an Infectious Diseases fellowship at the Hospital of the University of Pennsylvania, and received his M.B.A.
from the Wharton School of Business. We believe Dr. Wiklers qualifications to sit on our Board of Directors include his vast knowledge and
experience in the development of
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infectious diseases products and
the integral role he played in the success of other small biotechnology companies.
James W. Klingler has
served as our Executive Vice President and Chief Financial Officer since July 12, 2010. Previously, Mr. Klingler served as Executive Vice President,
Chief Financial Officer and Interim Chief Executive Officer of Avastra Sleep Centres, Ltd., a health care company that operates sleep centers for
diagnosing and treating sleep disorders, from March 2008 to July 2010. From July 2004 to March 2008, Mr. Klingler served as Senior Vice President and
Chief Financial Officer of North American Scientific, Inc., a medical device company that developed, manufactured and marketed products for the
radiation treatment of cancer. From January 2002 to July 2004, Mr. Klingler served as Vice President, Finance and Chief Financial Officer of Troy
Group, Inc., a company that developed, manufactured and marketed security printing systems, network connectivity products and financial payment
software. Mr. Klingler received his M.B.A. from Columbia University, Graduate School of Business, and his B.A. from The Ohio State University. He is a
certified management accountant.
James Rock has served as
our Director of New Product Development since January 2007. Prior to that, Mr. Rock served as Director of Clinical Development at MPEX Pharmaceuticals,
Inc., a private biopharmaceutical company developing new therapies to combat antibiotic resistance, from December 2005 to February 2007. From June 2002
to December 2005, Mr. Rock served as Clinical Trial Manager at Santarus, Inc. (NasdaqGM: SNTS), a specialty biopharmaceutical company focused on
acquiring, developing and commercializing proprietary products that address the needs of patients treated by gastroenterologists, endocrinologists, and
other physicians. Mr. Rock holds a B.S. from the University of Vermont, received his M.Sc. degree from Springfield College, and received his M.B.A from
Pepperdine University.
Mark W. Lotz has served
as our Vice President of Regulatory Affairs since May 2007. Previously, Mr. Lotz served as Senior Director, Regulatory Affairs at Elan Pharmaceuticals,
Inc., a private neuroscience-based biotechnology company, from October 2005 to April 2007. Prior to that, Mr. Lotz served as Vice President, Regulatory
Affairs and Quality Assurance at MediciNova, Inc. (NasdaqGM: MNOV), a biopharmaceutical company focused on acquiring and developing novel,
small-molecule therapeutics for the treatment of diseases with unmet needs, from February 2004 until May 2005. Previously, Mr. Lotz worked for 14 years
at Abbott Laboratories (NYSE:ABT), a global broad-based health care company, where he focused primarily on regulatory affairs. Mr. Lotz holds a
B.Pharm. from the St. Louis College of Pharmacy.
J. Jay Lobell has served
a director of ours since October 2006. Mr. Lobell has served as the President and Chief Operating Officer of Paramount Biosciences, LLC, a global
pharmaceutical development and healthcare investment firm that is an affiliate of ours, since January 2005. Mr. Lobell is a founder of, and, since
December 2009, has served as Vice Chairman of Beech Street Capital, LLC, a real estate lending company. Mr. Lobell has served as an officer of Meridian
Capital Group, LLC, a real estate mortgage brokerage firm, since January 2010. Mr. Lobell was a partner in the law firm Covington & Burling LLP
from October 1996 through January 2005, where he advised companies and individuals as a member of the firms Securities Litigation and White
Collar Defense practice group. Mr. Lobell previously served on the boards of directors of NovaDel Pharma Inc. (OTCBB:NVDL), Innovive Pharmaceuticals,
Inc. and ChemRx Corporation (OTCPK:CHRX), and currently serves on the boards of several private biotechnology companies. Mr. Lobell received his B.A.
(summa cum laude, Phi Beta Kappa) from the City University of New York and his J.D. from Yale Law School, where he was senior editor of the Yale Law
Journal. We believe Mr. Lobells qualifications to sit on our Board of Directors include his financial, regulatory and deal-structuring experience
in healthcare and biotechnology transactions and his management experience related to healthcare and biotechnology companies.
Jai Jun (Matthew) Choung,
Ph.D. has served as a director of ours since May 2010. Dr. Choung has served as the Managing Director of EU Biotech Development Ltd, a drug
development consulting company, since July 2001. Dr. Choung previously served as Director of Prolysis Ltd, an antibacterial drug discovery and
development company, from July 2001 to July 2003, and as Director of the Korean Collaboration Centre for Biotechnology and Biological Sciences from
December 1995 to May 2001. Dr. Choung was a research fellow in physiology at the Institute of Biotechnology, Cambridge University and at the Rowett
Research Institute, from January 2000 to May 2001 and December 1995 to December 1999, respectively. Dr. Choung received his BSc in Physiology from
Cheju National University and his Ph.D. in physiology biochemistry from Glasgow University. We believe Dr. Choungs qualifications to sit on our
Board of Directors include his experience with the process of developing drugs in both the preclinical and clinical stages, as well as his experience
in licensing activities related to biotechnology and pharmaceutical companies.
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Michael L. Corrado, M.D.
has served as a director of ours since May 2010. Dr. Corrado has served as Chief Scientific Officer of INC Research, Inc., a therapeutically focused
global contract research organization, since April 2007. Dr. Corrado previously served as Chief Executive Officer of Advanced Biologics, LLC, a
full-service contract research organization, from December 1995 to April 2007. He also served in various capacities, including as Vice President,
Clinical Research/Direct Access Diagnostics and Vice President, Drug Regulatory Affairs, of R. W. Johnson Pharmaceutical Research Institute, a
subsidiary of Johnson & Johnson (NYSE: JNJ), a consumer products, pharmaceuticals, medical devices and diagnostics company, from August 1988 to
December 1995. Dr. Corrado held various positions, including Acting Chief, Anti-Infective Research, of Merck & Co., Inc. (NYSE: MRK), a global
health care company, from August 1981 to August 1988. Dr. Corrado received his B.S. in biology, chemistry and anthropology from the University of
Pittsburgh and his M.D. from Meharry Medical College. We believe Dr. Corrados qualifications to sit on our Board of Directors include his
extensive experience in the area of infectious diseases.
Gary G. Gemignani has
served as a director of ours since May 2010. Mr. Gemignani has served as Chief Operating Officer and Chief Financial Officer of Coronado Biosciences,
Inc., a clinical stage biopharmaceutical company, since May 2010. Mr. Gemignani has also served as a consultant to Gentium S.P.A. (NasdaqGM: GENT), an
Italian biotechnology company, since April 2010, and as its Executive Vice President and Chief Financial Officer from June 2006 to March 2010. From
February 2004 to February 2005, Mr. Gemignani served as Vice President, Financial Reporting and Accounting, U.S. Pharmaceutical Division, of Novartis
Pharmaceuticals Corp., a U.S. affiliate of Switzerland-based Novartis AG (NYSE: NVS) that researches, develops and markets patent-protected
prescription drugs. From 1998 to 2004, he held a variety of vice-president level positions for Prudential Financial Inc. (NYSE: PRU), a financial
products and services provider. From 1993 to 1998, Mr. Gemignani held a variety of senior financial positions at Wyeth, a pharmaceutical, consumer
healthcare and animal health company. From 1986 to 1993, he was an employee of Arthur Andersen & Co. Mr. Gemignani received his B.S. in accounting
from St. Peters College. We believe Mr. Gemignanis qualifications to sit on our Board of Directors include his background in accounting,
including his experience at a major accounting firm and his current and prior senior-level financial and operational positions at biopharmaceutical and
biotechnology companies.
Michael Rice has served
as a director of ours since May 2010. Mr. Rice has served as Managing Partner of DJE Advisors, LLC, a strategic consulting firm for companies in the
life sciences industry, since December 2008. From April 2007 to November 2008, Mr. Rice served as Managing Director - Life Sciences Investment Banking
of Canaccord Adams, an investment banking firm. Mr. Rice previously served as Managing Director - Healthcare Capital Markets, of ThinkEquity Partners /
ThinkPanmure, a financial services company, from April 2005 to April 2007, as Managing Director - Private Client Services, at Bank of America, from
September 2001 to March 2005, Mr. Rice also previously served as Managing Director of JP Morgan, Bear Stearns, and Alex Brown & Sons, financial
services companies. Mr. Rice received his B.A. in economics from the University of Maryland. We believe Mr. Rices qualifications to sit on our
Board of Directors include his extensive experience in the financial services industry, his ability to provide advice on capital markets and business
development, and his exposure to the health care industry.
Director Independence
Our Board of Directors has determined
that each of our directors, with the exception of Dr. Wikler and Mr. Lobell,
qualifies as independent under the listing standards of NYSE Amex (even though we are not currently listed on such exchange), federal
securities laws and SEC rules with respect to members of boards of directors and members of all board committees on which he serves.
Arrangements Regarding Nomination for Election to the Board of
Directors
Under the terms of our license
agreement with Dong Wha, we agreed to cause a designee of Dong Wha to be elected as a member of our Board of Directors and to use our best efforts
throughout the term of the license agreement to include a designee of Dong Wha in our slate for election as a director at each stockholders meeting at
which such designees term as a director would otherwise expire. Mr. Choung is the initial designee of Dong Wha on our Board of
Directors.
Under the terms of the Backstop
Agreement, Manchester Securities Corp. has the right to appoint one member of our Board of Directors. Manchester Securities Corp.
has not exercised its right to appoint a director.
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If and when appointed, this director would be subject to stockholder approval
upon the expiration of his or her term.
Board Committees
Our Board of Directors has recently
established the following committees: an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee. The
composition and responsibilities of each committee are described below. Members will serve on these committees until their resignation or until
otherwise determined by our Board of Directors.
Audit Committee
Our Audit Committee consists of Dr.
Corrado, Mr. Gemignani and Mr. Rice, each of whom satisfies the independence requirements under NYSE Amex and SEC rules and regulations applicable to
audit committee members and has an understanding of fundamental financial statements. Mr. Gemignani serves as chairman of the Audit
Committee.
Our Board of Directors has determined
that Mr. Gemignani qualifies as an audit committee financial expert as that term is defined in the rules and regulations of the SEC. The
designation of Mr. Gemignani as an audit committee financial expert will not impose on him any duties, obligations or liability that are
greater than those that are generally imposed on him as a member of our Audit Committee and our Board of Directors, and his designation as an
audit committee financial expert pursuant to this SEC requirement will not affect the duties, obligations or liability of any other member
of our Audit Committee or Board of Directors.
The Audit Committee monitors our
corporate financial statements and reporting and our external audits, including, among other things, our internal controls and audit functions, the
results and scope of the annual audit and other services provided by our independent registered public accounting firm and our compliance with legal
matters that have a significant impact on our financial statements. Our Audit Committee also consults with our management and our independent
registered public accounting firm prior to the presentation of financial statements to stockholders and, as appropriate, initiates inquiries into
aspects of our financial affairs. Our Audit Committee is responsible for establishing procedures for the receipt, retention and treatment of complaints
regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our employees of concerns
regarding questionable accounting or auditing matters, and has established such procedures to become effective upon the effectiveness of the
registration statement of which this prospectus forms a part. In addition, our Audit Committee is directly responsible for the appointment, retention,
compensation and oversight of the work of our independent auditors, including approving services and fee arrangements. All related party transactions
will be approved by our Audit Committee before we enter into them.
Both our independent auditors and
internal financial personnel will regularly meet with, and will have unrestricted access to, the Audit Committee.
Compensation Committee
Our Compensation Committee consists of
Dr. Corrado, Mr. Gemignani and Mr. Rice, each of whom satisfies the independence requirements of NYSE Amex and SEC rules and regulations. Each member
of this committee is a non-employee director, as defined pursuant to Rule 16b-3 promulgated under the Exchange Act, and an outside director, as defined
pursuant to Section 162(m) of the Internal Revenue Code of 1986, as amended. Dr. Corrado serves as chairman of the Compensation
Committee.
The Compensation Committee reviews and
approves our compensation policies and all forms of compensation to be provided to our executive officers and directors, including, among other things,
annual salaries, bonuses, and other incentive compensation arrangements. In addition, our Compensation Committee administers our stock option and
employee stock purchase plans, including granting stock options to our executive officers and directors. Our Compensation Committee also reviews and
approves employment agreements with executive officers and other compensation policies and matters.
Nominating and Corporate Governance
Committee
Our Nominating and Corporate Governance
Committee consists of Dr. Choung, Dr. Corrado and Mr. Rice, each of whom satisfies the independence requirements of NYSE Amex and SEC rules and
regulations. Mr. Rice serves as chairman of the Nominating and Corporate Governance Committee.
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Our Nominating and Corporate Governance
Committee identifies, evaluates and recommends nominees to our Board of Directors and committees of our Board of Directors, conducts searches for
appropriate directors and evaluates the performance of our Board of Directors and of individual directors. The Nominating and Corporate Governance
Committee also is responsible for reviewing developments in corporate governance practices, evaluating the adequacy of our corporate governance
practices and reporting and making recommendations to the Board of Directors concerning corporate governance matters.
Family Relationships
There are no family relationships
between any of our directors or executive officers.
Scientific Advisory Board
Following completion of this offering,
we intend to establish a Scientific Advisory Board that provides guidance to us on numerous matters, including the following: identifying current and
future needs for the treatment and prevention of infectious diseases; evaluation of potential new opportunities; providing input into the development
of current assets; providing perspectives on the current and future commercial considerations in the infectious diseases market. We expect that our
Scientific Advisory Board will be composed of leading physicians and scientists with special expertise in clinical infectious diseases, microbiology,
and pharmacokinetics/pharmacodynamics.
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Table of Contents
Summary Compensation Table
The following Summary Compensation
Table shows the compensation awarded to or earned by our President and Chief Executive Officer, our Executive Vice President and Chief Financial
Officer and our other two most highly compensated executive officers for fiscal 2010 and 2009 . The persons listed in the following
Summary Compensation Table are referred to herein as the Named Executive Officers.
Name and Principal Position
|
|
|
|
Year
|
|
Salary ($)
|
|
Bonus ($)
|
|
All other compensation ($)
|
|
Total ($)
|
Matthew A.
Wikler, M.D. President and Chief Executive Officer(1) |
|
|
|
|
2010 |
|
|
|
262 ,500 |
|
|
|
60,000 |
(5) |
|
|
1 ,137 |
(6) |
|
|
323,637 |
|
|
|
|
|
|
2009 |
|
|
|
14,583 |
|
|
|
|
|
|
|
|
|
|
|
14,583 |
|
|
James W.
Klingler Executive Vice President and Chief Financial Officer(2) |
|
|
|
|
2010 |
|
|
|
79,858 |
|
|
|
|
|
|
|
568 |
(7) |
|
|
80,426 |
|
|
|
|
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Rock
Director of New Product Development(3) |
|
|
|
|
2010 |
|
|
|
135 ,000 |
|
|
|
|
|
|
|
219 |
(8) |
|
|
135,219 |
|
|
|
|
|
|
2009 |
|
|
|
135,000 |
|
|
|
25,000 |
(9) |
|
|
5,403 |
(10) |
|
|
165,403 |
|
|
Mark W. Lotz
Vice President of Regulatory Affairs(4) |
|
|
|
|
2010 |
|
|
|
210,833 |
|
|
|
|
|
|
|
1,364 |
(11) |
|
|
212,197 |
|
|
|
|
|
|
2009 |
|
|
|
220,000 |
|
|
|
|
|
|
|
11,513 |
(12) |
|
|
231,513 |
|
(1) |
|
Dr. Wikler has served as our President and Chief Executive
Officer and director since February 28, 2010. Dr. Wikler previously served as our President and Chief Executive Officer from November
2006 to January 2009. |
(2) |
|
Mr. Klingler has served as our Executive Vice President and
Chief Financial Officer since July 12, 2010. |
(3) |
|
Mr. Rock has served as our Director of New Product Development
since January 2007. |
(4) |
|
Mr. Lotz has served as our Vice President of Regulatory Affairs
since May 2007. |
(5) |
|
Represents a bonus accrued for the year ended December 31, 2010
pursuant to Dr. Wiklers employment agreement. |
(6) |
|
Represents $1,137 in life insurance premiums paid by us
for Dr. Wikler. |
(7) |
|
Represents $568 in life insurance premiums paid by us for Mr.
Klingler. |
(8) |
|
Represents $219 in life insurance premiums paid by us for
Mr. Rock. |
(9) |
|
Represents a bonus accrued for the year ended December 31, 2009
and paid in 2010 in connection with Mr. Rocks efforts on our behalf relating to the non-exclusive patent sublicense agreement entered into with
Merck effective on November 4, 2009. |
(10) |
|
Represents $5,184 in 401(k) Plan contributions and $219 in life
insurance premiums paid by us for Mr. Rock. |
(11) |
|
Represents $1,364 in life insurance premiums paid by us
for Mr. Lotz. |
(12) |
|
Represents $10,650 in 401(k) Plan contributions and $863 in life
insurance premiums paid by us for Mr. Lotz. |
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Table of Contents
Employment Agreements and
Arrangements
On June 10, 2011, we entered into an
offer letter with Michael S. Weiss setting forth certain terms and conditions pursuant to which Mr. Weiss would be appointed as our Executive
Chairman of the Board upon the execution of a mutually agreeable definitive employment agreement with us. Under the offer letter, Mr. Weiss
agreed to join the company as an unsalaried employee pending execution of such employment agreement. Pursuant to the offer letter, the
employment agreement will provide that Mr. Weiss will receive an annual base salary of $180,000, payment of which will commence upon the
completion of this offering, and will be eligible to receive an annual discretionary bonus in an amount up to 100% of his base salary based on
the achievement of certain annual goals and objectives, as established annually by mutual agreement between the Board of Directors and
Mr. Weiss. Mr. Weiss will also receive a onetime cash bonus of $150,000 upon completion of this
offering.
Pursuant to the offer letter and as
an inducement for Mr. Weiss to accept the position of Executive Chairman, on June 10, 2011, we granted Mr. Weiss 950,000
restricted shares of common stock on a stand-alone basis, outside our Amended and Restated 2007 Stock Incentive Plan, pursuant to a Stand-Alone
Restricted Stock Award Agreement. The restricted shares will be subject to
a one-time vesting on the tenth anniversary of the grant date provided that Mr. Weiss remains an officer or director
of ours on such date. However, the restricted shares may vest earlier upon the achievement of the following market capitalization
milestones: (a) 50% of the restricted shares will vest the first time that our fully diluted market capitalization exceeds
$100,000,000 for a period of ten consecutive trading days during the term of Mr. Weisss employment; and (b) 50% of the restricted shares
will vest the first time that our fully diluted market capitalization exceeds $200,000,000 for a period of ten consecutive
trading days during the term of Mr. Weisss employment.
Under the offer letter, we will have
the right to repurchase up to 150,000 of the restricted shares granted to Mr. Weiss, at a price of $0.01 per share, if the gross proceeds of
this offering are less than $20,000,000. The exact number of restricted shares subject to this repurchase right will be equal to the product of
(a) 150,000 multiplied by (b) the quotient of (i) the difference between $20,000,000 and the actual gross proceeds of this offering
divided by (ii) 3,500,000. For example, if the gross proceeds of this offering were $17,000,000 then 128,571 restricted shares would be subject
to this repurchase right. This repurchase right may be exercised by us at any time during the 30-day period following the completion of this
offering.
In addition, the offer letter
provides that following the completion of this offering and any subsequent equity financing until such time as we have raised an aggregate of
$25,000,000 in additional equity financings, Mr. Weiss will be granted options to purchase additional shares of common stock so that the total
number of restricted shares held by Mr. Weiss, plus all shares underlying options held by him, will equal 10% of the common stock
outstanding following this offering or such financing on a fully diluted basis. Any such options granted to Mr. Weiss will vest in three equal
installments on each of the first three anniversaries of the grant date.
Matthew A. Wikler
We entered into an employment agreement
with Matthew A. Wikler, M.D., effective as of February 28, 2010, pursuant to which Dr. Wikler serves as our President and Chief Executive Officer. Dr.
Wiklers employment agreement has a two-year term and will automatically renew for additional one-year terms unless three months prior
written notice of an election not to renew is given by either us or Dr. Wikler to the other party. Pursuant to Dr. Wiklers employment, we agreed
to use our best efforts to cause Dr. Wikler to be elected as a member of our Board of Directors and include him in the management slate for election as
a director at every stockholder meeting during the term of his employment agreement. Dr. Wikler agreed to accept election and to serve as director
during the term of his employment agreement.
Dr. Wiklers employment agreement
provides for an annual base salary of $300,000 and an annual guaranteed cash bonus of $60,000, referred to herein as the Guaranteed Bonus. Dr. Wikler
may also be awarded an additional cash bonus equal to as much as his annual base salary in the Board of Directors sole and complete discretion,
based on, among other things, the attainment by Dr. Wikler and/or us of certain financial, clinical
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development and business
milestones, as established annually by the Board of Directors, after consultation with Dr. Wikler, referred to herein as the Annual Milestone Bonus.
Dr. Wikler will receive a one-time cash payment of $100,000 in full and final consideration and settlement of any amount of compensation claimed by or
due to Dr. Wikler with respect to his services to us during his earlier term of employment with us. Dr. Wikler is also eligible to receive a onetime
cash bonus, of (i) $100,000 within 30 days after the closing of our initial public offering; (ii) $125,000 the first time that our market
capitalization exceeds $125,000,000 for a period of ten consecutive trading days during the term of Dr. Wiklers employment agreement and the
average trading volume of our common stock during such period is at least 50,000 shares per trading day; (iii) $300,000 the first time that our market
capitalization exceeds $300,000,000 for a period of ten consecutive trading days during the term of Dr. Wiklers employment agreement and the
average trading volume of our common stock during such period is at least 100,000 shares per trading day; (iv) $500,000 the first time that our market
capitalization exceeds $500,000,000 for a period of ten consecutive trading days during the term of Dr. Wiklers employment agreement and the
average trading volume of our common stock during such period is at least 100,000 shares per trading day; (v) $750,000 the first time that our market
capitalization exceeds $750,000,000 for a period of ten consecutive trading days during the term of Dr. Wiklers employment agreement and the
average trading volume of our common stock during such period is at least 100,000 shares per trading day; and (vi) $1,000,000 the first time that our
market capitalization exceeds $1,000,000,000 for a period of ten consecutive trading days during the term of Dr. Wiklers employment agreement and
the average trading volume of our common stock during such period is at least 100,000 shares per trading day. The events described in (ii) through (vi)
above are referred to herein each as a Market Capitalization Milestone.
Pursuant to Dr. Wiklers
employment agreement, as amended on December 22, 2010, Dr. Wikler will be granted options to purchase such number of shares of common stock equal to 5%
of the common stock outstanding upon the completion of this offering on a fully diluted basis (which exact number will be determined by the
Compensation Committee) in accordance with the terms of our Amended and Restated 2007 Stock Incentive Plan. Such options will have an exercise price
equal to the offering price of the shares sold in this offering and will vest in three equal installments over a two-year period with the first
installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively.
Dr. Wiklers employment agreement
will be terminated upon his death and may be terminated: (i) by the Board of Directors with or without cause, due to Dr. Wiklers disability or
upon a change of control and (ii) by Dr. Wikler with or without good reason.
Paramount Biosciences, LLC agreed that,
in the event a payment is not made to Dr. Wikler by us, it will guarantee the payment to Dr. Wikler of severance in an amount equal to three months of
his guaranteed salary and pro rated bonus as well as the costs of continuing his benefit programs during that three-month period. Paramount
Biosciences, LLCs guarantee will be released upon the completion by us of an initial public offering.
James W. Klingler
We entered into an employment agreement
with James W. Klingler, effective as of July 12, 2010, pursuant to which Mr. Klingler serves as our Executive Vice President and Chief Financial
Officer. Mr. Klinglers employment is at-will, subject to certain severance payments payable to him, as more fully described below, under
Potential Payments Upon Termination or Change in Control. Mr. Klinglers employment agreement provides for an annual base salary of
$225,000. Effective as of July 12, 2010 through September 6, 2010, Mr. Klingler was employed on a part-time basis and was eligible to receive 50% of
his base salary. Since September 7, 2010, Mr. Klingler has been employed on a full-time basis and receives 100% of his base salary.
Mr. Klingler will also be eligible to
receive an additional annual discretionary bonus in an amount equal to up to 20% of the salary earned by Mr. Klingler in the prior year, and based upon
corporate and Mr. Klinglers individual performance on our behalf in the prior year, in the Board of Directors sole discretion. The annual
discretionary bonus will be payable in a lump-sum payment or in installments, in our sole discretion. As additional compensation, Mr. Klingler will
also be eligible to receive a $60,000 bonus upon our completion of an initial public offering, payable within thirty days of the closing of such
initial public offering.
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Pursuant to Mr. Klinglers
employment agreement, as amended on December 22, 2010, Mr. Klingler will be granted options to purchase such number of shares of common stock equal to
2% of the common stock outstanding upon the completion of this offering on a fully diluted basis (which exact number will be determined by the
Compensation Committee) in accordance with the terms of our Amended and Restated 2007 Stock Incentive Plan. Such options will have an exercise price
equal to the offering price of the shares sold in this offering and will vest in three equal installments over a two-year period with the first
installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively.
James Rock
On January 19, 2007, we entered into an
employment agreement with James Rock, pursuant to which Mr. Rock accepted an at-will position with us to serve as our Director of New Product
Development. Under his employment agreement, Mr. Rock receives an annual base salary of $135,000 and is also eligible to receive an annual
discretionary bonus in an amount up to 15% of his base salary dependent on our and Mr. Rocks performance, subject to the sole discretion of our
Board of Directors and based on the achievement of certain financial, clinical development and business milestones. In addition, we have paid a $25,000
bonus to Mr. Rock in connection with his efforts on our behalf relating to the non-exclusive patent sublicense agreement entered into with Merck
effective on November 4, 2009. In conjunction with the execution of his employment agreement, Mr. Rock also purchased 859 restricted shares of our
common stock at a price of $0.048 per share pursuant to the terms and conditions of a stock purchase agreement. One third of these purchased shares
vest annually in equal parts on each of the first three anniversaries of such purchase, in each case only if Mr. Rock remains employed by us at such
times. Mr. Rocks employment agreement contains other customary terms and provisions that are standard in our industry.
In connection with this offering, our
Board of Directors has approved the issuance to Mr. Rock, upon the completion of this offering, of an option to purchase such number of shares of
common stock representing 1.0% of the common stock outstanding upon the completion of this offering on a fully diluted basis (which exact number will
be determined by the Compensation Committee) in accordance with the terms of our Amended and Restated 2007 Stock Incentive Plan. Such options will have
an exercise price equal to the offering price of the shares sold in this offering and will vest in three equal installments over a two-year period with
the first installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively.
Mark W. Lotz
On May 17, 2007, we entered into an
employment agreement with Mark W. Lotz, pursuant to which Mr. Lotz accepted an at-will position with us to serve as our Vice President of Regulatory
Affairs, beginning on May 28, 2007. Under his employment agreement, Mr. Lotz receives an annual base salary of $220,000 and is also eligible to receive
an annual discretionary bonus in an amount up to 20% of his base salary dependent on our and Mr. Lotzs performance, subject to the sole
discretion of our Board of Directors. Mr. Lotz also was granted an option to purchase 2 shares of our common stock at an exercise price
equal to the fair market value at the time of such grant, pursuant to the Amended and Restated 2007 Stock Incentive Plan. This option was
forfeited by Mr. Lotz on April 27, 2011 in connection with our recapitalization. Mr. Lotzs employment agreement contains other customary
terms and provisions standard in our industry.
In connection with this offering, our
Board of Directors has approved the issuance to Mr. Lotz, upon the completion of this offering, of an option to purchase such number of shares of
common stock representing 1.0% of the common stock outstanding upon the completion of this offering on a fully diluted basis (which exact number will
be determined by the Compensation Committee) in accordance with the terms of our Amended and Restated 2007 Stock Incentive Plan. Such options will have
an exercise price equal to the offering price of the shares sold in this offering and will vest in three equal installments over a two-year period with
the first installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively.
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Potential Payments Upon Termination or Change in
Control
Pursuant to Mr. Weisss offer
letter, the employment agreement we execute with him will provide that in the event Mr. Weisss employment is terminated by the Board of
Directors without cause or by Mr. Weiss for good reason, we will pay him one and a half years of his annual base salary and bonus and all
restricted shares and options held by Mr. Weiss will be accelerated and vest in full. In addition, in the event Mr. Weisss
employment is terminated in connection with a change in control, we will pay him two years of his annual base salary and bonus and all
restricted shares and options held by Mr. Weiss will be accelerated and vest in full. These termination provisions will be incorporated into the
definitive employment agreement for Mr. Weiss.
Matthew A. Wikler
In the event that Dr. Wiklers
employment is terminated as a result of his death or disability, we will pay Dr. Wikler or his estate, as applicable, (i) his annual base salary
through the date of his termination, benefits (if disabled), and any expense reimbursement amounts owed Dr. Wikler, (ii) the Guaranteed Bonus, pro
rated to the date of Dr. Wiklers death or disability; and (iii) any accrued but unpaid Annual Milestone Bonuses earned by Dr. Wikler prior to the
date of his death or disability. All stock options held by Dr. Wikler that were granted under his employment agreement that are scheduled to vest on
the next succeeding anniversary of his employment commencement date , will be accelerated and deemed to have vested as of the
termination date. Other than the stock options described in the preceding sentence, all stock options that were granted under his employment agreement
that have not vested as of the date of termination will be terminated as of such date. Stock options that have vested as of the termination date will
remain exercisable for 90 days following such termination.
In the event that Dr. Wiklers
employment is terminated by the Board of Directors for cause, we will pay him his annual base salary through the date of his termination. All stock
options held by Dr. Wikler that were granted under this employment agreement that have not vested as of the date of termination will be terminated as
of such date. Stock options that have vested as of the termination date will remain exercisable for 90 days following such
termination.
In the event that Dr. Wiklers
employment is terminated by us other than as a result of Dr. Wiklers death, or disability and other than for cause or due to a change of control,
or if Dr. Wikler terminates his employment for good reason, we will pay Dr. Wikler (i) his annual base salary and benefits for a period of six months
following termination; (ii) the Guaranteed Bonus, pro-rated to the date of termination; (iii) any accrued but unpaid Annual Milestone Bonuses earned by
Dr. Wikler; and (iv) any expense reimbursements owed him. All stock options held by Dr. Wikler that were granted under this employment agreement that
are scheduled to vest during the 12-month period following such termination will be accelerated and deemed to have vested as of the termination date.
Stock options that have vested as of the termination date will remain exercisable for 90 days following such termination.
In the event that Dr. Wiklers
employment is terminated by us (or our successor) upon the occurrence of a change of control, and on the date of termination the fair market value of
our common stock, in the aggregate, as determined in good faith by the Board of Directors on the date of the change of control, is more than
$35,000,000, then (i) we (or our successor, as applicable) will continue to pay Dr. Wikler his annual base salary and benefits for a period of six
months following the termination and (ii) we will pay Dr. Wikler (a) the Guaranteed Bonus, pro rated to the date of termination; (b) any accrued but
unpaid Annual Milestone Bonuses earned by Dr. Wikler prior to the date of termination; and (c) any expense reimbursement amounts owed him. All stock
options held by Dr. Wikler that were granted under this employment agreement will be accelerated in full and deemed to have fully vested as of the
termination date. Stock options that have vested as of the termination date will remain exercisable for 90 days following such
termination.
In the event that Dr. Wiklers
employment agreement is terminated by us other than for cause or by Dr. Wikler for good reason, within 90 days prior to the occurrence of a Market
Capitalization Milestone, then we will pay Dr. Wikler the applicable cash bonus as if he were employed by us on the date of such
occurrence.
For purposes of Dr. Wiklers
employment agreement, cause means (i) the willful failure, disregard or refusal by Dr. Wikler to perform his material duties or obligations
under the employment agreement, which shall
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require affirmative or intentional
improper actions or omissions by Dr. Wikler and not simply actions that result in our performance overall or in certain respects that falls below
levels expected by, or acceptable to, our Board of Directors; (ii) any willful, intentional or grossly negligent act by Dr. Wikler having the effect of
materially injuring (whether financial or otherwise and as determined in good-faith by a majority of the members of our Board of Directors) our
business or reputation or any of our affiliates, including but not limited to, any of our or our affiliates officers, directors, executives or
shareholders; (iii) the willful misconduct by Dr. Wikler in respect of the material duties or obligations of Dr. Wikler under the employment agreement,
including, without limitation, willful insubordination with respect to lawful and reasonable directions received by Dr. Wikler from our Board of
Directors; (iv) Dr. Wiklers indictment of any felony involving moral turpitude (including entry of a nolo contendere plea); (v) our
determination, after a reasonable and good-faith investigation following a written allegation by another of our employees, (which investigation, among
other actions, shall include Dr. Wiklers opportunity to respond fully to any such allegation) that Dr. Wikler engaged in some form of harassment
prohibited by law (including, without limitation, age, sex or race discrimination), unless Dr. Wiklers actions were specifically directed by our
Board of Directors; (vi) any material misappropriation or embezzlement of our or our affiliates property (whether or not a misdemeanor or
felony); (vii) breach by Dr. Wikler of any of the provisions of the employment agreement relating to confidential information and inventions,
non-competition, non-solicitation and non-disparagement and representations and warranties, which is not cured by Dr. Wikler within thirty (30) days
after notice thereof is given to Dr. Wikler by us and (viii) breach by Dr. Wikler of any material provision of the employment agreement other than
those provisions set forth in (vii) above, which, to the extent it is reasonably subject to notice and cure, is not cured by Dr. Wikler within thirty
(30) days after notice thereof is given to Dr. Wikler by us.
For purposes of Dr. Wiklers
employment agreement, change of control means (i) the acquisition, directly or indirectly, following the date of the employment agreement
by any person (as such term is defined in Section 13(d) and 14(d)(2) of the Exchange Act), in one transaction or a series of related transactions, of
our securities representing in excess of fifty percent (50%) or more of the combined voting power of our then outstanding securities if such person or
his or its affiliate(s) do not own in excess of 50% of such voting power on the date of the employment agreement, or (ii) the future disposition by us
(whether direct or indirect, by sale of assets or stock, merger, consolidation or otherwise) of all or substantially all of our business and/or assets
in one transaction or series of related transactions (other than a merger effected exclusively for the purpose of changing our
domicile).
James W. Klingler
Pursuant to Mr. Klinglers
employment agreement, if Mr. Klinglers employment is terminated by us prior to January 1, 2011, without cause and other than as a result of his
death or disability, then we will continue to pay him his base salary and benefits for a period of one month following the date of termination and pay
any expense reimbursement amounts owed Mr. Klingler through the date of termination. If Mr. Klinglers employment is terminated by us on or after
January 1, 2011, without cause and other than as a result of Mr. Klinglers death or disability, then we will continue to pay him his base salary
and benefits for a period of three months following the date of termination and pay any expense reimbursement amounts owed Mr. Klingler through the
date of termination. All options that have vested as of the date of Mr. Klinglers termination will remain exercisable for period of 90
days.
James Rock
Pursuant to an amendment to Mr.
Rocks employment agreement, dated August 18, 2008, we agreed that in the event we terminate Mr. Rocks employment without cause, Mr. Rock
will be entitled to (i) severance payments in the form of a continuation of his base salary in effect at the time of termination for a period of three
months following the date of termination and (ii) reimbursement for certain costs related to health insurance until the earlier of three months after
the date of termination or the last day of the month in which Mr. Rock begins full-time employment with another company or business entity. Pursuant to
the amendment, Paramount BioSciences, LLC agreed to guarantee the performance of our obligations to provide Mr. Rock with the above-enumerated benefits
upon a termination without cause, which guarantee will terminate upon the consummation by us of a financing in which we (in one transaction or a series
of transactions) receive aggregate gross proceeds of $20,000,000 in connection with the sale or issuance of any of our equity and/or debt securities
(convertible or otherwise).
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For purposes of Mr. Rocks
employment agreement, cause means (i) Mr. Rocks repeated failure to satisfactorily perform his job duties following written notice of
such failure by us to him and failure of Mr. Rock to cure such failure within a reasonable period of time following the date of such written notice;
(ii) Mr. Rocks commission of an act that materially injures our business; (iii) Mr. Rocks refusal or failure to follow lawful and
reasonable directions of the appropriate individual to whom Mr. Rock reports following written notice of such failure by us to him and failure of Mr.
Rock to cure such failure within a reasonable period of time following the date of such written notice; (iv) Mr. Rocks conviction of a felony
involving moral turpitude that is likely to inflict or has inflicted material injury on our business; (v) Mr. Rocks engaging or in any manner
participating in any activity which is directly competitive with or injurious to us or any of our affiliates or which violates any material provisions
of the employment agreement or (vi) Mr. Rocks commission of any fraud against us, our affiliates, employees, agents or customers or use or
intentional appropriation for his personal use or benefit of any of our funds or properties not authorized by us to be so used or
appropriated.
Mark W. Lotz
If Mr. Lotzs employment is
terminated by us other than as a result of Mr. Lotzs death or disability and for reasons unrelated to cause, then we agreed to continue to pay
Mr. Lotz his base salary and benefits for a period of four months following the termination of his employment and pay any expense reimbursements
amounts owed Mr. Lotz through the termination of his employment. In addition, all options that have vested as of the date of Mr. Lotzs
termination will remain exercisable for a period of ninety days.
Outstanding Equity Awards at Fiscal Year-End
Table
The following table sets forth certain
information, on an award-by-award basis, for each Named Executive Officer concerning unexercised options to purchase common stock that have not yet
vested and is outstanding as of December 31, 2010.
|
|
|
|
Option Awards
|
|
Name
|
|
|
|
Number of Securities Underlying
Unexercised Options (#) Exercisable
|
|
Number of Securities Underlying
Unexercised Options (#) Unexercisable
|
|
Option Exercise Price ($)
|
|
Option Expiration Date
|
Matthew A.
Wikler |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Rock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark W. Lotz
(1) |
|
|
|
|
2 |
|
|
|
|
|
|
|
45 , 60 0 |
|
|
|
09/27/17 |
|
(1) |
|
On September 27, 2007, Mr. Lotz was granted an option to
purchase 2 shares of common stock. The option vested with respect to one-third of the shares of common stock on each of May 28, 2008,
2009 and 2010. On April 27, 2011, Mr. Lotz forfeited this option in connection with our recapitalization. |
Employee Benefit and Stock Plans
Amended and Restated 2007 Stock Incentive Plan
We have adopted a Amended and Restated
2007 Stock Incentive Plan. The purpose of the Amended and Restated 2007 Stock Incentive Plan is to provide us with the flexibility to use restricted
stock, stock options and other awards based on our common stock as part of an overall compensation package to provide performance-based compensation to
attract and retain qualified personnel. We believe that awards under the Amended and Restated 2007 Stock Incentive Plan may serve to broaden the equity
participation of key employees and further link the long-term interests of management and stockholders. Awards under the Amended and Restated 2007
Stock Incentive Plan will be limited to shares, cash, and options, stock appreciation rights, or similar right, to purchase shares of our common
stock.
There are 1,500,000 shares of the
common stock authorized for issuance under the Amended and Restated 2007 Stock Incentive Plan, all of which are available for issuance as
of the date of this prospectus.
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Table of Contents
Administration
The Amended and Restated 2007 Stock
Incentive Plan will be administered by our Compensation Committee, which consists of two or more non-employee directors, each of whom is intended to
be, to the extent required by Rule 16b-3 under the Exchange Act and Section 162(m) of the Internal Revenue Code, referred to herein as the Code, a
non-employee director under Rule 16b-3 and an outside director under Section 162(m). The Compensation Committee has the full authority to administer
and interpret the Amended and Restated 2007 Stock Incentive Plan and to take any other actions and make all other determinations that it deems
necessary or appropriate in connection with the Amended and Restated 2007 Stock Incentive Plan or the administration or interpretation
thereof.
Eligibility and Types of Awards
Our employees, directors and
consultants, advisors or other independent contractors who provide services to us are eligible to be granted stock options, stock awards and
performance shares under the Amended and Restated 2007 Stock Incentive Plan.
Available Shares
Subject to adjustment upon certain
corporate transactions or events, a maximum of 1,500,000 shares of our common stock may be issued under the Amended and Restated 2007 Stock Incentive
Plan. In addition, subject to adjustment upon certain corporate transactions or events, a participant may not receive awards with respect to more than
100,000 shares of our common stock in any year (and an additional 50,000 shares in connection with a grantees commencement of continuous
service). If an option or other award granted under the Amended and Restated 2007 Stock Incentive Plan expires, is cancelled, or terminates, the shares
subject to any portion of the award that expires, is cancelled, or terminates without having been exercised or paid, as the case may be, will again
become available for the issuance of additional awards. Unless previously terminated by our Board of Directors, no new award may be granted under the
Amended and Restated 2007 Stock Incentive Plan after the tenth anniversary of the date that such plan was initially approved by our
stockholders.
Awards Under the Plan
Stock Options. The terms of
specific options, including whether options shall constitute incentive stock options for purposes of Section 422(b) of the Code, shall be
determined by the Compensation Committee. The exercise price of an option shall be determined by the Compensation Committee and reflected in the
applicable award agreement. The exercise price with respect to incentive stock options may not be lower than 100% (110% in the case of an incentive
stock option granted to a 10% stockholder, if permitted under the plan) of the fair market value of our common stock on the date of grant. Each option
will be exercisable after the period or periods specified in the award agreement, which will generally not exceed ten years from the date of grant (or
five years in the case of an incentive stock option granted to a 10% stockholder, if permitted under the plan). Options will be exercisable at such
times and subject to such terms as determined by the Compensation Committee.
Stock Awards and Restricted
Stock. A stock award consists of the transfer by us to a participant of shares of common stock, without any payment therefor, as additional
compensation for services to us. Restricted stock will be subject to restrictions as the Compensation Committee shall determine, and such restrictions
may include a prohibition against transfer until such time as the Compensation Committee determines, forfeiture upon a termination of employment or
other service during the applicable restriction period and such other conditions or restrictions as the Compensation Committee may deem
advisable.
Performance Shares. A
performance share consists of an award paid in shares of our common stock or cash (as determined by the Compensation Committee), subject to performance
objectives to be achieved by the participant before the end of a specified period. The grant of performance shares to a participant does not create any
rights in such participant as a stockholder until the payment of shares of common stock with respect to an award. In the event that a
participants employment or consulting engagement with us is terminated for any reason other than normal retirement, death or disability prior to
the achievement of the participants performance objectives, the participants rights to the performance shares shall expire and terminate
unless otherwise determined by the Compensation Committee.
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Change in Control. Upon a change
in control of us (as defined in the Amended and Restated 2007 Stock Incentive Plan), if the acquiring entity or successor to us does not assume the
incentive awards or replace them with substantially equivalent incentive awards, The Compensation Committee may provide that all outstanding options
will vest and become immediately exercisable in full, the restrictions on all shares of restricted stock awards shall lapse immediately and all
performance shares shall be deemed to be met and payment made immediately.
Amendment and Termination. Our
Board of Directors may amend, suspend or terminate the Amended and Restated 2007 Stock Incentive Plan as it deems advisable, except that it may not
amend the Amended and Restated 2007 Stock Incentive Plan in any way that would adversely affect a participant with respect to an award previously
granted. In addition, our Board of Directors may not amend the Amended and Restated 2007 Stock Incentive Plan without stockholder approval if such
approval is then required pursuant to Section 422 of the Code, the regulations promulgated thereunder or the rules of any stock exchange or similar
regulatory body.
Director Compensation
Our directors did not receive
compensation for their service on our Board of Directors in 2010. Our Board of directors adopted the following comprehensive director compensation
policy to be effective upon consummation of this offering.
Employee directors do not receive any
compensation for their services on our Board of Directors. Non-employee directors are entitled to receive the following cash compensation: (i) a
$15,000 annual retainer, (ii) $5,000 annually for service on the Audit Committee, except that the Chairman of the Audit Committee will be paid $12,000,
(iii) $4,000 annually for service on the Nominating and Corporate Governance Committee, except that the Chairman of the Nominating and Corporate
Governance Committee will be paid $5,000, (iv) $4,000 annually for service on the Compensation Committee, except that the Chairman of the Compensation
Committee will be paid $5,000, (v) $1,000 for each in person meeting of the Board attended, and (vi) $500 for each telephonic meeting of the Board
attended. As compensation for their services on our Board of Directors prior to and in connection with this offering, each of our non-employee
directors will receive, upon consummation of this offering, a payment in cash of $7,500.
As an equity incentive, upon the
consummation of this offering we will grant each of our non-employee directors options to purchase such number of shares of common stock equal to 0.25%
of the common stock outstanding upon the completion of this offering on a fully diluted basis (which exact number will be determined by the
Compensation Committee) in accordance with the terms of our Amended and Restated 2007 Stock Incentive Plan. Such options will have an exercise price
equal to the offering price of the shares sold in this offering and will vest in two equal installments over a one-year period with the first
installment vesting on the grant date and the second installment vesting on the first anniversary of the grant date.
Indemnification of Officers and Directors
Our amended and restated certificate of
incorporation that will be in effect upon the closing of this offering limits the personal liability of directors for breach of fiduciary duty to the
maximum extent permitted by the General Corporation Law of the State of Delaware, referred to herein as the DGCL. Our amended and restated certificate
of incorporation provides that no director will have personal liability to us or to our stockholders for monetary damages for breach of fiduciary duty
or other duty as a director. However, these provisions do not eliminate or limit the liability of any of our directors for any of the
following:
|
|
any breach of their duty of loyalty to us or our
stockholders; |
|
|
acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law; |
|
|
voting or assenting to unlawful payments of dividends or other
distributions; or |
|
|
any transaction from which the director derived an improper
personal benefit. |
Any amendment to or repeal of these
provisions will not eliminate or reduce the effect of these provisions in respect of any act or failure to act, or any cause of action, suit or claim
that would accrue or arise prior to any amendment or repeal or adoption of an inconsistent provision. If the DGCL is amended to
provide
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for further limitations on the
personal liability of directors of corporations, then the personal liability of our directors will be further limited in accordance with the
DGCL.
In addition, our amended and restated
certificate of incorporation provides that we must indemnify our directors and officers and we must advance expenses, including attorneys fees,
to our directors and officers in connection with legal proceedings, subject to very limited exceptions.
We have entered into, and intend to
continue to enter into, separate indemnification agreements with each of our officers and directors. These agreements, among other things, require us
to indemnify our officers and directors for certain expenses, including attorneys fees, judgments, fines and settlement amounts incurred by an
officer or director in any action or proceeding arising out of their services as one of our officers and directors, or any of our subsidiaries or any
other company or enterprise to which the person provides services at our request, to the fullest extent permitted by Delaware law. We will not
indemnify an officer director, however, unless he or she acted in good faith, reasonably believed his or her conduct was in, and not opposed, to our
best interests, and, with respect to any criminal action or proceeding, had no reason to believe his or her conduct was unlawful.
Equity Compensation Plan Information
The following table provides
information as of December 31, 2010 about the common stock that may be issued upon exercise of options, warrants and rights under all of our equity
compensation plans as of December 31, 2010.
Plan Category
|
|
|
|
Number of Shares to Be Issued Upon Exercise
of Outstanding Options, Warrants and Rights (1)
|
|
Weighted Average Exercise Price of Outstanding
Options, Warrants and Rights
|
|
Number of Shares Remaining Available for Future
Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
|
|
|
|
|
(a) |
|
(b) |
|
(c) |
Equity
compensation plans approved by security holders |
|
|
|
|
2 |
|
|
$ |
45 , 60 0 |
|
|
|
1,49 9 , 998 |
|
Equity
compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
2 |
|
|
$ |
45 , 60 0 |
|
|
|
1,49 9 , 998 |
|
(1) |
|
The number of shares is subject to adjustments in the event of
stock splits and other similar events. |
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Table of Contents
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Transactions and Relationships with
Affiliates
From December 1, 2006
through March 31, 2011, affiliates of Dr. Lindsay A. Rosenwald, a significant stockholder of ours during such period,
had loaned us an aggregate principal amount of $ 3,036,350 under the Related Party Notes. The Related
Party Notes we re unsecured obligations of ours with a maturity date of June 3 0 , 2011 and
accrue d interest at the rate of 8% per annum. As described below , $1,000,000 of the principal amount outstanding under
one of the Related Party Notes converted into a 2010 Note in February 2010 in connection with the 2010 Notes financing.
As of March 31, 2011, an aggregate of $2,629,715, including accrued and unpaid interest, remained outstanding under the Related Party Notes.
As described above, pursuant to amendment agreements dated as of March 30, 2011 with the holders of the Related Party Notes, all
principal and interest outstanding on the Related Party Notes converted into the right to receive a pro rata share of the Milestone Payments
upon the consummation of the Rights Offering on April 29, 2011.
Pursuant to the Dong Wha License
Agreement, which we entered into on June 12, 2007, and amended on April 22, 2008, November 4, 2010 and March 23, 2011, PBS has
guaranteed the payment in full of amounts owed by us under the Dong Wha License Agreement, until such time as we have certifiable net tangible assets
of at least $10 million. This offering, if consummated, would cause the guarantee to terminate according to its terms. See License Agreements
& Intellectual Property.
On December 3, 2008, we,
and various other private pharmaceutical companies with common ownership by Dr. Rosenwald, entered into a loan agreement
with Bank of America, N.A. for a line of credit of $2,000,000, which was subsequently reduced to $1,000,000 pursuant to an amendment (the Bank of
America Line of Credit). An affiliate of Dr. Rosenwald pledged collateral securing our and the other borrowers
obligations to Bank of America, N.A. under the loan agreement. The amounts borrowed by us under the Bank of
America Line of Credit totaled $150,000 and were due on November 5, 2010, on which date we repaid it with borrowings
under a new line of credit we entered into on such a date with Israel Discount Bank of New York (IDB Bank) in
the amount of $150,000, which is evidenced by a promissory note we issued to IDB Bank on such date (the IDB Bank Line of Credit). On
December 23, 2010, we entered into an amendment with IDB Bank to increase the IDB Bank Line of Credit to $325,000. Our obligations under the IDB
Bank Line of Credit are secured by cash collateral pledged by Dr. Rosenwald from an account maintained by Dr. Rosenwald at IDB Bank. The
interest rate on loans under the IDB Bank Line of Credit is equal to the interest rate that IDB Bank pays to Dr. Rosenwald on the cash account
pledged to secure the loans, plus 1%. Amounts borrowed under the IDB Bank Line of Credit are due upon the earlier to occur of a demand by IDB
Bank or November 4, 2011. As of March 31, 2011, the amount borrowed by us that was outstanding under this line of credit was $325,000 and we
intend to repay such amount out of the proceeds of this offering.
On each of January 15, 2009 and June
24, 2009, we issued a senior promissory note to Paramount Credit Partners, LLC, an investment partnership of which Dr. Rosenwald is the managing
member (PCP), in the principal amount of $2,750,000 and $125,000, respectively, (each a PCP Note and together, the
PCP Notes). The PCP Notes accrue interest at the rate of 10% per annum and are unsecured
obligations of ours with current maturity dates of the earlier of (i) December 31, 2013, (ii) the completion of a Qualified Financing (as
defined below under Description of Capital Stock PCP Notes), and (iii) the completion of a Reverse Merger (as defined below
under Description of Capital Stock PCP Notes). The aggregate amount of accrued and unpaid interest under the PCP Notes as of
March 31, 2011 was $349,561. As of March 31, 2011, an aggregate of $3,224,561, including accrued and unpaid interest, remained
outstanding under the PCP Notes. This offering will not constitute a Qualified Financing for purposes of the PCP Notes and the PCP
Notes will remain outstanding following consummation of this offering. We do not intend to use the proceeds of this offering to repay the PCP
Notes. In connection with the issuance of the PCP Notes, we issued to PCP five-year warrants to purchase shares of common stock
which are currently exercisable for a total of 24 shares of common stock at an exercise price of $48,000 per share (each a PCP
Warrant, and together, the PCP Warrants). For a description of the PCP Warrants, see Description of Capital Stock
Currently Outstanding Warrants PCP Warrants.
In February 2010, in connection with
the 2010 Notes financing, Dr. Rosenwald purchased a 2010 Note in the principal amount of $500,000. In connection with the issuance of such 2010
Note, Dr. Rosenwald also received 2010 Noteholder Warrants. In addition, pursuant to the terms of the PBS Note, $1,000,000 of the
principal amount outstanding under the PBS Note converted into a 2010 Note in February 2010 in connection
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with the 2010 Notes financing. In connection with the issuance of such 2010
Note, PBS also received 2010 Noteholder Warrants. As described above, pursuant to an amendment agreement dated as of March 30, 2011 with
the holders of the 2010 Notes, all principal and interest outstanding on the 2010 Notes converted into the right to receive a pro rata share
of the Milestone Payments and the 2010 Noteholder Warrants were terminated upon the consummation of the Rights Offering on April 29,
2011.
On May 26, 2010, we entered into a
consulting agreement with Timothy Hofer, who was our Corporate Secretary at such time , pursuant to which Mr. Hofer provide d
us with general consulting services focused on general business and company development. Under the terms of the consulting
agreement with Mr. Hofer and as compensation for his services thereunder, we granted Mr. Hofer a ten-year warrant to purchase 2 shares of our
common stock, subject to adjustment so that such number of shares is equal to 1.0% of our outstanding common stock, on a fully diluted basis,
upon completion of this offering (the Hofer Consultant Warrant). For a description of the Hofer Consultant Warrant,
see Description of Capital Stock Currency Outstanding Warrants Consultant
Warrants.
In connection with the Rights
Offering, on April 6, 2011, we entered into the Backstop Agreement with Manchester Securities Corp. and Dr. Rosenwald (together,
the Backstop Investors), pursuant to which each Backstop Investor agreed to purchase an aggregate principal amount of Rights
Offering Notes equal to 50% of the difference between (i) $3,000,000 and (ii) the aggregate principal amount of Rights Offering Notes
subscribed for in the Rights Offering. The Rights Offering Notes to be purchased by the Backstop Investors are to be purchased following the
consummation of the Rights Offering based upon our request on up to three occasions. Approximately $600,000 in aggregate principal amount of
such Rights Offering Notes was purchased by the Backstop Investors on June 10, 2011. For a description of the Rights Offering Notes, see
Managements Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources
Sources of Liquidity Rights Offering Notes.
In addition, Dr. Rosenwald is a
co-portfolio manager, together with Mr. Weiss, our Executive Chairman-elect, of Opus Point Partners, LLC, an investment and advisory firm that manages
a series of private investment funds focused on investments in healthcare and life sciences companies, some of which may be potential
competitors of ours.
Future Affiliate Relationships and Competition with
Affiliates
We are not currently aware of nor do we
anticipate any proposed future affiliate relationships or that any affiliates will compete with us or our products.
Review, Approval and Ratification of Transactions with Related
Parties
Prior to May 2010, our
Board of Directors was comprised solely of affiliates of Dr. Rosenwald and we did not have a formal written policy or procedure for the
review, approval or ratification of related party transactions. However, Delaware corporate law, under which we are governed, generally requires that
any transaction between us and any of our affiliates be on terms that, when taken as a whole, are substantially as favorable to us as those then
reasonably obtainable from a person who is not an affiliate in an arms-length transaction, and we believe that the terms of the agreements we entered
into with our affiliates satisfy the requirement of Delaware law. Since May 2010 our Board of Directors has been comprised of a majority of
independent directors and all related party transactions were approved by our Board of Directors prior to the time we entered into such
transactions. Following consummation of the proposed offering, all related party transactions will be reviewed and approved by our Audit Committee,
which is comprised entirely of independent directors, before we enter into them.
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain
information regarding the beneficial ownership of our common stock as of June 20 , 2011, as adjusted to reflect the
sale of the shares of common stock in this offering and the other adjustments discussed below, by the following:
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each of our directors and Named Executive Officers; |
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all of our directors and executive officers as a group;
and |
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each person, or group of affiliated persons, known to us to
beneficially own 5% or more of our outstanding common stock. |
Beneficial ownership is determined in
accordance with SEC rules and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the stockholders
listed in the table have sole voting and investment power with respect to the shares indicated.
The table below lists the number of
shares and percentage of shares beneficially owned prior to this offering based on 950,001 share of common stock issued and
outstanding as of June 20 , 2011. The table also lists the number of shares and percentage of shares
beneficially owned after this offering based on shares of common stock outstanding upon completion of this offering,
assuming no exercise by the underwriters of their over-allotment option and after giving effect to the following:
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no exercise by us of our option to repay a portion of the
unpaid principal and accrued interest of the Rights Offering Notes, in an amount not to exceed $1,000,000 in the aggregate, out of the
proceeds of this offering in lieu of the conversion of such amount into shares of common stock upon consummation of this
offering; |
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the automatic conversion of outstanding
principal and accrued interest on the Rights Offering Notes into an aggregate of shares of common stock
upon the completion of this offering, assuming an initial public offering price of $ per share (the mid-point of the
price range set forth on the cover page of this prospectus) and assuming the conversion occurs on
, 2011; |
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the filing of our amended and restated certificate of
incorporation and the adoption of our amended and restated by-laws effective upon the completion of this offering; and |
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no exercise of warrants or options outstanding on the date of
this prospectus, except as specifically set forth herein. |
For purposes of the table below, we
treat shares of common stock subject to options or warrants that are currently exercisable or exercisable within 60 days after June
20, 2011 to be outstanding and to be beneficially owned by the person holding the options or warrants for the purpose of computing
the percentage ownership of the person, but we do not treat the shares as outstanding for the purpose of computing the percentage ownership of any
other stockholder.
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Except as otherwise set forth below,
the address of each of the persons or entities listed in the table is c/o IASO Pharma Inc., 12707 High Bluff Drive, Suite 200, San Diego, California
92130.
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Shares Beneficially Owned Prior to Offering
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Shares Beneficially Owned After the Offering
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Name
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Number
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Percentage
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Number
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Percentage
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Named
Executive Officers and Directors:
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Michael S.
Weiss |
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950,000 |
(1) |
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100 |
% |
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(2 ) |
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Matthew A.
Wikler, M.D. |
|
|
|
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- |
( 3 ) |
|
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- |
|
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|
( 4 ) |
|
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|
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James W.
Klingler |
|
|
|
|
- |
( 5 ) |
|
|
- |
|
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|
( 6 ) |
|
|
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Mark. W. Lotz
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|
|
|
- |
( 7 ) |
|
|
- |
|
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|
( 8 ) |
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James Rock
|
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|
|
|
- |
( 9 ) |
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- |
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|
( 10 ) |
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J. Jay Lobell
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|
|
- |
|
|
|
- |
|
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|
( 11 ) |
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Jai Jun
(Matthew) Choung |
|
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|
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- |
|
|
|
- |
|
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|
( 11 ) |
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Michael L.
Corrado |
|
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- |
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- |
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|
( 11 ) |
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Gary G.
Gemignani |
|
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- |
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|
|
- |
|
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|
( 11 ) |
|
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Michael Rice
|
|
|
|
|
- |
|
|
|
- |
|
|
|
( 11 ) |
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|
|
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|
All executive
officers and directors as a group (nine persons) |
|
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|
|
- |
( 12 ) |
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- |
|
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|
( 13 ) |
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5%
Stockholders:
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Lindsay A.
Rosenwald, M.D. |
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25 |
( 14 ) |
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* |
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( 15 ) |
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Manchester Securities Corp. |
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- |
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- |
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(16) |
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* |
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Represents less than 1% |
(1) |
|
Represents 950,000 restricted shares of common stock granted
to Mr. Weiss on June 10, 2011. |
(2) |
|
Does not include an option to purchase such
number of shares of common stock as shall represent, together with the 950,000 restricted shares held by Mr. Weiss, 10% of the common stock
outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Mr. Weiss under the Plan upon the
consummation of this offering. |
( 3 ) |
|
Does not include an option to purchase such number of shares of
common stock representing 5% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Dr.
Wikler under the Plan upon the consummation of this offering. |
( 4 ) |
|
Includes shares of common stock
underlying an option granted to Dr . Wikler under the Plan upon consummation of this offering that will vest upon consummation of this
offering. Does not include shares of common stock underlying such option that will not have vested upon consummation
of this offering. |
( 5 ) |
|
Does not include an option to purchase such number of shares of
common stock representing 2% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Mr.
Klingler under the Plan upon the consummation of this offering. |
( 6 ) |
|
Represents shares of common
stock underlying an option granted to Mr. Klingler under the Plan upon consummation of this offering that will vest upon consummation of this offering.
Does not include shares of common stock underlying such option that will not have vested upon consummation of this offering. |
(7) |
|
Does not include an option to purchase such number of shares of
common stock representing 1% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted to Mr.
Lotz under the Plan upon the consummation of this offering. |
(8) |
|
Represents shares of common stock
underlying an option granted to Mr. Lotz under the Plan upon consummation of this offering that will vest upon consummation of this offering.
Does not include shares of common stock underlying such option that will not have vested upon consummation of this offering. |
(9) |
|
Does not include an option to purchase such number of shares
of common stock representing 1% of the common stock outstanding upon the consummation of this offering on a fully diluted basis, to be granted
to Mr. Rock under the Plan upon the consummation of this offering. |
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( 10 ) |
|
Includes shares of
common stock underlying an option granted to Mr. Rock under the Plan upon consummation of this offering that will vest upon consummation of this
offering. Does not include shares of common stock underlying such option that will not have vested upon
consummation of this offering. |
( 11 ) |
|
Includes shares of common stock
underlying an option granted to each of our non-employee directors under the Plan upon consummation of this offering that will vest upon consummation
of this offering. Does not include shares of common stock underlying such options that will not have vested upon
consummation of this offering. |
(1 2) |
|
Does not include options to purchase shares of
common stock to be granted to officers under the Plan upon the consummation of this offering referred to in notes 3, 5, 7 and
9 above. |
( 13 ) |
|
Represents shares of common
stock and options to purchase shares of common stock. |
(1 4) |
|
Includes (i) 1 share of common stock and (ii)
24 shares of common stock issuable upon the exercise of the PCP Warrants issued to Paramount Credit Partners LLC, an
investment partnership of which Dr. Rosenwald i s the managing member, which are exercisable at an exercise
price of $48,000 per share . |
(1 5 ) |
|
Includes (i) 1 share of common stock, (ii)
shares of common stock to be issued upon the automatic conversion of the Rights Offering
Notes held by Dr. Rosenwald upon consummation of this offering, ( iii ) shares of common
stock to be issued upon the automatic conversion of the Rights Offering Notes held by
affiliates of Dr. Rosenwald upon consummation of this
offering and (iv) 24 shares of common stock issuable upon the exercise of the PCP Warrants,
which are exercisable at an exercise price of $48,000 per share . |
( 16) |
|
Manchester Securities Corp. (Manchester) is
a wholly owned subsidiary of Elliott Associates, L.P. Includes (i) shares of common
stock to be issued upon the automatic conversion of the Rights Offering Notes held by Manchester upon consummation of this offering , and (ii)
shares of common stock issuable upon exercise of the Backstop Warrant issued to Manchester, assuming the sale of shares in
this offering at an offering price of $ (the midpoint of the range listed on the cover page of this
prospectus). |
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DESCRIPTION OF CAPITAL
STOCK
General
Currently, our authorized capital stock
consists of 25,000,000 shares, of which (i) 20,000,000 are designated as common stock, par value $0.001 per share, and (ii) 5,000,000 are designated as
preferred stock, par value $0.001 per share. Upon the completion of this offering and filing of our amended and restated certificate of incorporation,
our authorized capital stock will consist of 55,000,000 shares, of which (i) 50,000,000 shares will be designated as common stock, and (ii) 5,000,000
shares will be designated as preferred stock, par value $0.001 per share.
The following description of our
capital stock are summaries and are qualified by reference to the amended and restated certificate of incorporation and amended and restated by-laws
that will be in effect upon completion of this offering. Copies of these documents will be filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part. The descriptions of the common stock and preferred stock reflect changes to our capital structure
that will occur upon the closing of this offering.
Common Stock
As of June
20 , 2011, there were 950,001 shares of common stock issued and outstanding, that were held of record by
two stockholders , including 950,000 restricted shares held by our Executive Chairman-elect, Michael S.
Weiss .
Holders of common stock are entitled to
one vote per share on matters on which our stockholders vote. There are no cumulative voting rights. At any meeting of the stockholders, all matters,
with certain exceptions, are to be decided by the vote of a majority in voting interest of the stockholders. Directors are to be elected by a plurality
of the votes cast in the election of directors.
Subject to any preferential dividend
rights of any outstanding shares of preferred stock, holders of common stock are entitled to receive dividends, if declared by our Board of Directors,
out of funds that we may legally use to pay dividends. If we liquidate or dissolve, holders of common stock are entitled to share ratably in our assets
once our debts and any liquidation preference owed to any then-outstanding preferred stockholders are paid. Our certificate of incorporation does not
provide the common stock with any redemption, conversion or preemptive rights. All shares of common stock that are outstanding as of the date of this
prospectus and, upon issuance and sale, all shares we are selling in this offering, will be fully paid and nonassessable.
Underwriters Warrants
We have agreed to issue to the
underwriters warrants to purchase a number of shares of our common stock equal to an aggregate of 3% of the shares of our common stock sold in this
offering. The warrants will have an exercise price equal to 110% of the offering price of the shares sold in this offering and may be exercised on a
cashless basis. The warrants are exercisable commencing six months after the effective date of the registration statement related to this offering, and
will be exercisable for four and a half years thereafter. The warrants are not redeemable by us. The warrants also provide for one demand registration
of the shares of common stock underlying the warrants at our expense, an additional demand at the warrant holders expense and for unlimited
piggyback registration rights at our expense with respect to the underlying shares of common stock during the five-year period commencing
six months after the effective date. The warrants and the shares of our common stock underlying the warrants
( shares if the over-allotment option is exercised in full) have been deemed compensation by the Financial Industry
Regulatory Authority (FINRA) and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or
permitted assignees under the Rule) may not sell, transfer, assign, pledge, or hypothecate the warrants or the shares of our common stock underlying
the warrants, except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners, nor will they
engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the
underlying shares of our common stock for a period of 180 days from the date of this prospectus. Additionally, the warrants may not be sold
transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180 day period) following the effective date of the
registration statement except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners. The
warrants will provide for adjustment in
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the number and price of such
warrants (and the shares of common stock underlying such warrants) in the event of recapitalization, merger or other structural transaction to prevent
mechanical dilution.
Preferred Stock
The Board of Directors has the
authority at any time to establish the rights and preferences of, and issue up to, 5,000,000 shares of preferred stock, of which none currently have
designation. Our amended and restated certificate of incorporation, which will be effective upon the completion of this offering, will provide for
5,000,000 shares of preferred stock over which the Board of Directors will have the authority to establish the rights and
preferences.
Rights Offering Notes
In April 2011, in order to obtain
interim financing in advance of this offering, we conducted a rights offering to the holders of the Existing Convertible Notes to subscribe for
a pro rata share of a new issue of secured convertible notes, which are referred to herein as the Rights Offering Notes, in the
aggregate principal amount of $3,000,000. In connection with the rights offering, which commenced on April 8, 2011 and expired on April
22, 2011, holders of the Existing Convertible Notes subscribed for approximately $1.8 million in aggregate principal amount of Rights Offering
Notes, which were issued upon consummation of the Rights Offering on April 29, 2011. The remaining Rights Offering Notes in aggregate principal
amount of approximately $1.2 million are to be purchased by the Backstop Investors (as defined below) pursuant to the Backstop
Agreement (as defined below) based upon our request on up to three occasions. Approximately $600,000 in aggregate principal
amount of such Rights Offering Notes was purchased by the Backstop Investors on June 10, 2011.
The Rights Offering Notes are
secured by all our assets and accrue interest at the rate of 5% per annum with a maturity date of April 22, 2012. Under the terms of the Rights
Offering Notes, upon the consummation of a Qualified IPO, the outstanding principal amount of the Rights Offering Notes, and all
accrued interest thereon, will automatically convert into shares of common stock equal to 100% of our common stock outstanding
immediately prior to the consummation of a Qualified IPO (other than restricted shares granted to our employees with the consent of each of
the Backstop Investors) at a conversion price equal to the price at which shares of common stock are sold in a Qualified IPO. However, we may,
at our option, elect to prepay a portion of the unpaid principal and accrued interest of the Rights Offering Notes, in an amount not to
exceed $1,000,000 in the aggregate, out of the proceeds of a Qualified IPO in lieu of the conversion of such amount, provided that such
prepayment is made to all holders of Rights Offering Notes on a pro rata basis. In the event we exercise such prepayment
right, we must provide a written notice to the holders of the Rights Offering Notes at least 10 days prior to the anticipated closing of a
Qualified IPO setting forth the aggregate amount of principal and accrued interest of the Rights Offering Notes that we will prepay out of the
proceeds of a Qualified IPO. For purposes of the Rights Offering Notes, Qualified IPO means the completion of an
underwritten initial public offering of our equity securities resulting in aggregate gross cash proceeds (before commissions
or other expenses) to us of at least $10,000,000.
This offering, if consummated,
will be considered a Qualified IPO. Assuming an offering price of $ per share, the Rights Offering Notes
will automatically convert into shares of common stock at a conversion price equal to the offering price of the
shares sold in this offering.
PCP Notes
On each of January 15, 2009 and June
24, 2009, we issued a senior promissory note to PCP in the principal amount of $2,750,000 and $125,000, respectively, each referred to herein as a PCP
Note, and together, the PCP Notes. The PCP Notes are unsecured obligations of ours with current maturity dates of the earlier of (i) December 31, 2013,
(ii) the completion of a Qualified Financing (as defined below), and (iii) the completion of a Reverse Merger (as defined below). The PCP Notes accrue
interest at the rate of 10% per annum. The aggregate amount of accrued and unpaid interest under the PCP Notes as of March 31, 2011 was
$ 396 , 295 .
For purposes of the PCP Notes,
Qualified Financing means the closing of an equity financing or series of related equity financings by us after our initial public offering
resulting in aggregate gross cash proceeds (before brokers fees or other transaction related expenses) of at least $10,000,000. For purposes of
the PCP
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Notes, Reverse Merger
means a merger, share exchange or other transaction or series of related transactions in which (a) we merge into or otherwise becomes a wholly owned
subsidiary of a company subject to the public company reporting requirements of the Exchange Act and (b) the aggregate consideration payable to us or
our stockholders in such transaction(s) (the Reverse Merger Consideration) is greater than or equal to $10,000,000.
This offering will not constitute a
Qualified Financing for purposes of the PCP Notes and the PCP Notes will remain outstanding following consummation of this offering. We do
not intend to use the proceeds of this offering to repay the PCP Notes.
Currently Outstanding Warrants
All of the warrants described below are
currently outstanding and none have been exercised.
Backstop Warrants
In connection with the Rights
Offering, on April 6, 2011, the Company entered into a Backstop Commitment Agreement (the Backstop Agreement) with Manchester
Securities Corp. (Manchester) and Dr. Lindsay Rosenwald (together, the Backstop Investors), pursuant to which each
Backstop Investor agreed to purchase an aggregate principal amount of Rights Offering Notes equal to 50% of the difference between (i)
$3,000,000 and (ii) the aggregate principal amount of Rights Offering Notes subscribed for in the Rights Offering. The Rights
Offering Notes to be purchased by the Backstop Investors are to be purchased following the consummation of the
Rights Offering based upon our request on up to three occasions. Approximately $600,000 in aggregate principal amount of such
Rights Offering Notes was purchased by the Backstop Investors on June 10, 2011.
As compensation for the commitments
provided in the Backstop Agreement, each Backstop Investor received warrants to purchase $1,500,000 of common stock at an exercise price equal
to the price at which shares of common stock are sold in a Qualified IPO (the Backstop Warrants). The Backstop Warrants will
become exercisable upon the consummation of this offering and have a term of five years. Pursuant to the amendment agreements with the holders
of the 2007 Notes and 2010 Notes described above, Dr. Rosenwald assigned his Backstop Warrants to all the holders of the 2007 Notes and 2010
Notes (other than the Backstop Investors and their affiliates) on a pro rata basis.
The Backstop Warrant issued to
Manchester (the Manchester Backstop Warrant) contains certain anti-dilution provisions which provide that (a) the number shares
issuable upon exercise of the Manchester Backstop Warrant will be the greater of (i) $1,500,000, divided by the price at which shares of
common stock are sold in a Qualified IPO and (ii) the number of shares of common stock equal to 9.99% of the aggregate number
of shares of our common stock outstanding upon consummation of the Qualified IPO on a fully diluted basis and (b) that the percentage of our
outstanding common stock (on a fully diluted basis) into which the Manchester Backstop Warrant is exercisable upon consummation of the Qualified
IPO may not be diluted until such time as we have raised an aggregate of $25,000,000 in additional equity financings. The Backstop Warrant
issued to Dr. Rosenwald, which he assigned to the holders of the 2007 Notes and 2010 Notes (other than the Backstop Investors and their
affiliates) on a pro rata basis, did not contain these anti-dilution provisions.
Assuming an offering price of
$ per share, the Backstop Warrants will entitle the holders thereof to purchase
shares of common stock at an exercise price equal to the offering price of the shares sold in this
offering.
PCP Warrants
In connection with the issuance of the
PCP Notes, we issued to PCP five-year warrants to purchase a number of shares of common stock equal to 40% of the aggregate principal amount of the PCP
Notes ($2,875,000), divided by the lowest price paid in a Qualified Financing (as defined in the PCP Notes) , each referred to herein as a PCP
Warrant, and together, the PCP Warrants. The per share exercise price of each of the PCP Warrants is equal to 110% of the lowest price paid in a
Qualified Financing.
The PCP Warrants will become
exercisable commencing on the consummation of a Qualified Financing or a Reverse Merger. However, in the event that neither a Qualified Financing nor a
Reverse Merger is consummated by the two-year anniversary of the issuance of each PCP Note, the applicable PCP Warrant will be
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automatically exercisable into an
aggregate number of shares of common stock equal to 40% of the principal amount of the corresponding PCP Note divided by $ 48,000, at a
per share exercise price of $ 48,000. Because a Qualified Financing was not consummated by January 15, 2011, the PCP Warrants
issued on January 15, 2009 became automatically exercisable into 23 shares of common stock, which is equal to 40% of the principal amount
of the PCP Note issued on January 15, 2009 ($2,750,000) divided by $48,000, at a per share exercise price of $48,000.
Simil arly, because a Qualified Financing was not consummated by June 24, 2011, the PCP Warrants issued on June 24, 2009
became automatically exercisable into 1 share of common stock, which is equal to 40% of the principal amount of the PCP Note issued on June 24,
2009 ($125,000) divided by $48,000, at a per share exercise price of
$48,000.
The PCP Warrants are subject to
redemption by us in certain circumstances and in the event of a sale of our company (whether by merger, consolidation, sale or transfer of our
capital stock or assets or otherwise) prior to, but not in connection with, a Qualified Financing or Reverse Merger, the PCP Warrants will terminate
without the opportunity for exercise.
Placement Agent Warrant
In December 2007, we issued a
warrant to Paramount as partial compensation for its services in connection with the offering of the 2007 Notes
( the Placement Agent Warrant ) , which is currently exercisable for 9 shares
of common stock at a per share exercise price of $ 48,000 . The
Placement Agent Warrant was subsequently assigned by Paramount to selected dealers in the offering of the 2007 Notes and other
individuals.
Consultant Warrants
In September 2007, Robert
Feldman, a former employee of Paramount, received as compensation for certain services provided in connection with the in-licensing of certain of our
product candidates, a warrant currently exercisable into 6 shares of common stock at a purchase price of $ 45,600 per share,
subject to adjustment (the Feldman Consultant Warrant). The Feldman Consultant Warrant expires on September 27, 2012.
On May 26, 2010, we entered into a
one-year consulting agreement with Timothy Hofer, our former Corporate Secretary, pursuant to which Mr. Hofer provide d us
with general consulting services focused on general business and company development. Under the terms of the consulting agreement with Mr. Hofer and as
compensation for his services thereunder, we granted Mr. Hofer a ten-year warrant to purchase 2 shares of our common stock, subject to
adjustment as described below (the Hofer Consultant Warrant). The Hofer Consultant Warrant will become exercisable upon the consummation of
a Qualified Financing at a per share exercise price equal to the price at which shares of our common stock are issued in such Qualified Financing. If a
Qualified Financing does not occur on or before September 30, 2011 (extended from September 30, 2010, pursuant to amendment agreements
dated as of September 16, 2010, December 23, 2010 and March 30, 2011), then the Hofer Consultant Warrant will be immediately exercisable at a per
share exercise price equal to the fair market value of our common stock, as determined pursuant to a valuation performed by an independent appraisal
firm. Under the terms of the Hofer Consultant Warrant, if we consummate a Qualified Financing, the number of shares of common stock issuable upon
exercise of the Hofer Consultant Warrant will be automatically adjusted so that such number of shares is equal to 1.0% of our outstanding common stock
on a fully diluted basis, after giving effect to such Qualified Financing (including the conversion of all our convertible notes triggered by such
Qualified Financing). This adjustment provision will terminate once we consummate a Qualified Financing. For purposes of the Hofer Consultant Warrant,
a Qualified Financing means our next equity financing (or series of related equity financings) sufficient to trigger conversion of all
amounts then outstanding under our senior convertible promissory notes. This offering, if consummated, will be considered a Qualified
Financing.
The Feldman Consultant Warrant and the
Hofer Consultant Warrant are collectively referred to herein as the Consultant Warrants.
Registration Rights
Rights Offering Notes; Backstop Warrants
Holders of
shares of our common stock, received upon conversion of our outstanding Rights Offering Notes upon
completion of this offering, have rights, under the terms of the purchase agreements between us and these holders, to require us to file registration
statements under the Securities Act, subject to
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limitations and restrictions, or
request that their shares of common stock be covered by a registration statement that we are otherwise filing, subject to specified
exceptions.
We refer to the shares of common stock
issuable upon conversion of our Rights Offering Notes and the shares of stock issuable upon exercise of the Backstop
Warrants, as the case may be, as registrable securities. The subscription agreements for the Rights Offering Notes do not
provide for any liquidated damages, penalties or other rights in the event we do not file a registration statement. These rights will continue in
effect following this offering.
Demand Registration Rights
At any time after 180 days following
the effective date of this registration statement, subject to certain exceptions, the holders of a majority of the registrable securities
issuable upon the conversion of our Rights Offering Notes have the right to demand that we file a registration statement covering the
offering and sale of at least 30 % of the registrable securities issuable upon the conversion of our Rights Offering Notes
then outstanding.
We have the ability to delay the filing
of such registration statement under specified conditions, such as during the period starting with the date of filing of and ending on the date 180
days following the effective date of this offering or if our Board of Directors determines that it is advisable to delay such filing or if we are in
possession of material nonpublic information that would be in our best interests not to disclose. Postponements at the discretion of our Board of
Directors cannot exceed 90 days from the date of such determination by our Board of Directors. We are not obligated to file such registration statement
on more than two occasion s upon the request of the holders of a majority of the registrable securities issuable upon the
conversion of our Rights Offering Notes.
Form S-3 Registration Rights
If we are eligible to file a
registration statement on Form S-3, the holders of the registrable securities issuable upon the conversion of the Rights Offering Notes
have the right, on one or more occasions, to request registration on Form S-3 of the sale of the registrable securities held by such holder
provided such securities are anticipated to have an aggregate sale price (before deducting any underwriting discounts and commissions) of at least
$5,000,000.
We have the ability to delay the filing
of any such registration statement under the same conditions as described above under Demand Registration Rights, and we are not obligated
to effect more than one registration of registrable securities on Form S-3 in any twelve-month period for the holders of the registrable securities
issuable upon the conversion of the Rights Offering Notes.
Piggyback Registration Rights
The holders of the registrable
securities described above have piggyback registration rights. Under these provisions, if we register any securities for public sale, including
pursuant to any stockholder-initiated demand registration, these holders will have the right to include their shares in the registration statement,
subject to customary exceptions. The underwriters of any underwritten offering will have the right to limit the number of shares having registration
rights to be included in the registration statement, and piggyback registration rights are also subject to the priority rights of stockholders having
demand registration rights in any demand registration.
Expenses of Registration
We will pay all registration expenses
related to any demand, Form S-3 or piggyback registration, other than underwriting discounts and commissions and any professional fees or costs of
accounting, financial or legal advisors to any of the holders of registrable securities.
Indemnification
The subscription
agreements for the Rights Offering Notes contain customary cross-indemnification provisions, under which we are obligated to indemnify
the selling stockholders in the event of material misstatements or omissions in the registration statement attributable to us, and each selling
stockholder is
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obligated to indemnify us for
material misstatements or omissions in the registration statement due to information provided by such stockholder provided that such information was
not changed or altered by us.
PCP Warrants, Placement Agent Warrants and Feldman
Consultant Warrant
The holders of the PCP Warrants, the
Placement Agent Warrants and the Feldman Consultant Warrant also have piggyback registration rights if we register any securities for public sale,
including pursuant to any stockholder-initiated demand registration, subject to customary exceptions.
Anti-Takeover Effects of Delaware Law and Our Corporate
Charter Documents
We are subject to the provisions of
Section 203 of the DGCL. In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination
with an interested stockholder for a three-year period following the time that this stockholder becomes an interested stockholder, unless
the business combination is approved in a prescribed manner. A business combination includes, among other things, a merger, asset or stock
sale or other transaction resulting in a financial benefit to the interested stockholder. An interested stockholder is a person who,
together with affiliates and associates, owns, or did own within three years prior to the determination of interested stockholder status, 15% or more
of the corporations voting stock. Under Section 203, a business combination between a corporation and an interested stockholder is prohibited
unless it satisfies one of the following conditions:
|
|
before the stockholder became interested, the Board of Directors
approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
|
|
upon completion of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining the voting stock outstanding shares owned by persons who are directors and also
officers, and employee stock plans, in some instances; or |
|
|
at or after the time the stockholder became interested, the
business combination was approved by the Board of Directors of the corporation and authorized at an annual or special meeting of stockholders by the
affirmative vote of at least two-thirds of the outstanding voting stock which is not owned by the interested stockholder. |
Our Corporate Charter Documents
Our amended and restated certificate of
incorporation and amended and restated bylaws will include provisions that are intended to enhance the likelihood of continuity and stability in our
Board of Directors and in its policies. These provisions might have the effect of delaying or preventing a change in control of our company even if
such transaction could be beneficial to the interests of stockholders. These provisions include the following:
|
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blank check preferred stock; |
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|
prohibiting our stockholders from fixing the number of our
directors; and |
|
|
establishing advance notice requirements for stockholder
proposals that can be acted on at stockholder meetings and nominations to our Board of Directors. |
Transfer Agent and Registrar
Upon the completion of this offering,
the transfer agent and registrar for our common stock will be VStock Transfer, LLC.
Listing
We applied to have our common stock
listed on NYSE Amex under the symbol IASO. We expect that shares of our common stock will begin trading on or promptly after the date of
this prospectus.
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SHARES ELIGIBLE FOR FUTURE
SALE
Prior to this offering, there has been
no public market for our common stock, and we cannot assure you that a significant public market for our common stock will develop or be sustained
after this offering. As described below, no shares currently outstanding will be available for sale immediately after this offering due to certain
contractual and securities law restrictions on resale. Sales of substantial amounts of our common stock in the public market after the restrictions
lapse could cause the prevailing market price to decline and limit our ability to raise equity capital in the future.
Upon completion of this offering, we
will have outstanding an aggregate of shares of common stock, assuming no exercise of the underwriters
option to purchase additional shares and no exercise of options or warrants to purchase common stock that were outstanding as of the date of this
prospectus. The shares of common stock being sold in this offering will be freely tradable without restriction or further registration under the
Securities Act.
The remaining
shares of common stock held by existing stockholders are restricted securities as that term is defined in Rule
144 under the Securities Act. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from
registration under Section 4(1), or Rules 144 or 701 promulgated under the Securities Act, which rules are summarized below.
The following table shows approximately
when the shares of our common stock that are not being sold in this offering, but which will be outstanding when
this offering is complete, will be eligible for sale in the public market:
Days After Date of this Prospectus
|
|
|
|
Shares Eligible for Sale
|
|
Comment
|
Upon
Effectiveness |
|
|
|
|
|
Shares sold in this offering |
90
Days |
|
|
|
|
|
Shares saleable under Rules 144 and 701 that are not subject to the lock-up |
180
Days |
|
|
|
|
|
Lock-up released, subject to extension; shares saleable under Rules 144 and 701 |
Resale of
of the restricted shares that will become available for sale in the public market starting 180 days after the
effective date will be limited by volume and other resale restrictions under Rule 144 because the holders are our affiliates.
Rule 144
The availability of Rule 144 will vary
depending on whether restricted shares are held by an affiliate or a non-affiliate. Under Rule 144 as in effect on the date of this prospectus, once we
have been a reporting company subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act for 90 days, an affiliate who
has beneficially owned restricted shares of our common stock for at least six months would be entitled to sell within any three-month period a number
of shares that does not exceed the greater of either of the following:
|
|
1% of the number of shares of common stock then outstanding,
which will equal shares immediately after this offering; and |
|
|
the average weekly trading volume of our common stock during the
four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale. |
However, the six month holding period
increases to one year in the event we have not been a reporting company for at least 90 days. In addition, any sales by affiliates under Rule 144 are
also limited by manner of sale provisions and notice requirements and the availability of current public information about us.
The volume limitation, manner of sale
and notice provisions described above will not apply to sales by non-affiliates. For purposes of Rule 144, a non-affiliate is any person or entity who
is not our affiliate at the time of sale and has not been our affiliate during the preceding three months. Once we have been a reporting company for 90
days, a non-affiliate who has beneficially owned restricted shares of our common stock for six months may rely on Rule 144 provided that certain public
information regarding us is available. The six month holding period increases to one year in the event we have not been a reporting company for at
least 90 days.
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However, a non-affiliate who has
beneficially owned the restricted shares proposed to be sold for at least one year will not be subject to any restrictions under Rule 144 regardless of
how long we have been a reporting company.
Rule 701
Under Rule 701, common stock acquired
upon the exercise of certain currently outstanding options or pursuant to other rights granted under our stock plans may be resold, to the extent not
subject to lock-up agreements, (a) by persons other than affiliates, beginning 90 days after the effective date of this offering, subject only to the
manner-of-sale provisions of Rule 144, and (b) by affiliates, subject to the manner-of-sale, current public information and filing requirements of Rule
144, in each case, without compliance with the one-year holding period requirement of Rule 144. All Rule 701 shares will be, however, subject to
lock-up agreements and will only become eligible for sale upon the expiration of the contractual lock-up agreements. Ladenburg may release all or any
portion of the securities subject to lock-up agreements.
Lock-Up Agreements
Prior to the completion of this
offering, we and each of our officers, directors, and greater than 5% stockholders will agree, subject to certain exceptions, not to offer, issue,
sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities
convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part without the prior written consent of Ladenburg. This 180-day restricted period will be automatically
extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event;
or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following
the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
In addition, the holders of
the Rights Offering Notes have agreed pursuant to the subscription agreements for the Rights Offering Notes
not to sell the shares of our common stock they receive upon conversion of the Rights Offering for a period of 180 days after the
effective date of the registration statement of which this prospectus is a part.
Registration Rights
After the completion of this offering,
the holders of shares of our common stock will be entitled to the registration rights described in the section
titled Description of Capital Stock Registration Rights. All such shares are or will be covered by lock-up agreements. Following the
expiration of the lock-up period, registration of these shares under the Securities Act would result in the shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of the registration, except for shares purchased by our
affiliates.
Form S-8 Registration Statements
Prior to the expiration of the lock-up
period, we intend to file one or more registration statements on Form S-8 under the Securities Act to register the shares of our common stock that are
issuable pursuant to our Amended and Restated 2007 Stock Incentive Plan. See Executive Compensation Equity Compensation Plan
Information for additional information. Subject to the lock-up agreements described above and any applicable vesting restrictions, shares
registered under these registration statements will be available for resale in the public market immediately upon the effectiveness of these
registration statements, except with respect to Rule 144 volume limitations that apply to our affiliates.
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Subject to the terms and conditions of
the underwriting agreement, the underwriters named below, through their representative, Ladenburg Thalmann & Co. Inc., referred to herein as
Ladenburg, have severally agreed to purchase from us on a firm commitment basis the following respective number of shares of common stock at a public
offering price, less the underwriting discounts and commissions set forth on the cover page of this prospectus:
Underwriters
|
|
|
|
Number of Shares
|
Ladenburg
Thalmann & Co. Inc. |
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
The underwriting agreement provides
that the obligation of the underwriters to purchase all of the shares of our common stock being offered to the public is subject to specific
conditions, including the absence of any material adverse change in our business or in the financial markets and the receipt of certain legal opinions,
certificates and letters from us, our counsel and the independent auditors. Subject to the terms of the underwriting agreement, the underwriters will
purchase all of the shares of our common stock being offered to the public, other than those covered by the
over-allotment option described below, if any of these shares are purchased.
Over-Allotment Option
We have granted to the underwriters an
option, exercisable not later than 45 days after the effective date of the registration statement, to purchase up to
additional shares of our common stock at the public offering price less the underwriting discounts and commissions set forth on the cover of this
prospectus. The underwriters may exercise this option only to cover over-allotments made in connection with the sale of shares of our common stock
offered by this prospectus. The over-allotment option will only be used to cover the net syndicate short position resulting from the initial
distribution. To the extent that the underwriters exercise this option, each of the underwriters will become obligated, subject to conditions, to
purchase approximately the same percentage of these additional shares as the number of shares to be purchased by it in the above table bears to the
total number of shares offered by this prospectus. We will be obligated, pursuant to the option, to sell these additional shares of our common stock to
the underwriters to the extent the option is exercised. If any additional shares are purchased, the underwriters will offer the additional shares on
the same terms as those on which the other shares are being offered hereunder.
Commissions and Expenses
The underwriting discounts and
commissions are % of the initial public offering price. We have agreed to pay the underwriters the discounts and
commissions set forth below, assuming either no exercise or full exercise by the underwriters of the underwriters over-allotment option. In
addition, we have agreed to pay to the underwriters 1% of the gross proceeds of this offering as a non-accountable expense allowance.
We have been advised by the
representative of the underwriters that the underwriters propose to offer the shares to the public at the public offering price set forth on the cover
of this prospectus and to dealers at a price that represents a concession not in excess of $ per share under the public offering
price of $ per share. The underwriters may allow, and these dealers may re-allow, a concession of not more than $
per share to other dealers. After the initial public offering, the representative of the underwriters may change the offering price and other selling
terms.
The following table summarizes the
underwriting discounts and commissions we will pay to the underwriters. The underwriting discounts and commissions are equal to the public offering
price per share less the amount per share the underwriters pay us for the shares.
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|
|
|
|
Fee Per Share (1)
|
|
Total Without Exercise of Over- Allotment
|
|
Total With Exercise of Over-Allotment
|
Public
offering price |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Discount
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Proceeds
before expenses |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
(1) |
|
The fees do not include the over-allotment option granted to the
underwriters, the non-accountable expense allowance in the amount of 1% of the gross proceeds (excluding the over-allotment proceeds), or the warrants
to purchase shares of our common stock equal to 3% of the number of shares sold in the offering issuable to the underwriters at the
closing. |
We estimate that the total expenses of
the offering, including registration, filing and listing fees, printing fees and legal and accounting expenses, but excluding underwriting discounts
and commissions, will be approximately $ , all of which are payable by us.
Underwriters Warrants
We have also agreed to issue to the
underwriters warrants to purchase a number of shares of our common stock equal to an aggregate of 3% of the shares sold in this offering. The warrants
will have an exercise price equal to 110% of the offering price of the shares sold in this offering and may be exercised on a cashless basis. The
warrants are exercisable commencing six months after the effective date of the registration statement related to this offering, and will be exercisable
for four and a half years thereafter. The warrants are not redeemable by us. The warrants also provide for one demand registration of the shares of
common stock underlying the warrants at our expense, an additional demand at the warrant holders expense and unlimited piggyback
registration rights at our expense with respect to the underlying shares of common stock during the five-year period commencing six months after the
closing date. The warrants and the shares of our common stock underlying the warrants
( shares if the over-allotment option is exercised in full) have been deemed compensation by FINRA and are
therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The underwriters (or permitted assignees under the Rule) may not sell,
transfer, assign, pledge, or hypothecate the warrants or the shares of our common stock underlying the warrants, except to any underwriter and selected
dealer participating in the offering and their bona fide officers or partners, nor will they engage in any hedging, short sale, derivative, put, or
call transaction that would result in the effective economic disposition of the warrants or the underlying shares of our common stock for a period of
180 days from the date of this prospectus. Additionally, the warrants may not be sold transferred, assigned, pledged or hypothecated for a one-year
period (including the foregoing 180 day period) following the effective date of the registration statement except to any underwriter and selected
dealer participating in the offering and their bona fide officers or partners. The warrants will provide for adjustment in the number and price of such
warrants (and the shares of common stock underlying such warrants) in the event of recapitalization, merger or other structural transaction to prevent
mechanical dilution.
Lock-Up Agreements
Prior to the completion of this
offering, we and each of our officers, directors, and greater than 5% stockholders will agree, subject to certain exceptions, not to offer, issue,
sell, contract to sell, encumber, grant any option for the sale of or otherwise dispose of any shares of our common stock or other securities
convertible into or exercisable or exchangeable for shares of our common stock for a period of 180 days after the effective date of the registration
statement of which this prospectus is a part without the prior written consent of Ladenburg. This 180-day restricted period will be automatically
extended if: (1) during the last 17 days of the 180-day restricted period we issue an earnings release or announce material news or a material event;
or (2) prior to the expiration of the 180-day restricted period, we announce that we will release earnings results during the 16-day period following
the last day of the 180-day period, in which case the restrictions described in the preceding paragraph will continue to apply until the expiration of
the 18-day period beginning on the issuance of the earnings release or the announcement of the material news or material event.
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Pricing of this Offering
Prior to this offering there has been
no public market for our common stock and we cannot be certain that an active trading market will develop and continue after this offering. The public
offering price of the common stock was negotiated between us and Ladenburg. This price should not be considered an indication of the actual value of
the common stock. This price may not correspond to the price at which our shares of common stock will trade in the public market following this
offering. Factors considered in determining the prices and terms of the common stock include:
|
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the history and prospects of companies in our
industry; |
|
|
prior offerings of those companies; |
|
|
our prospects for developing and commercializing our
products; |
|
|
an assessment of our management and their
experience; |
|
|
general conditions of the securities markets at the time of the
offering; and |
|
|
other factors as were deemed relevant. |
However, although these factors were
considered, the determination of our offering price is more arbitrary than the pricing of securities for an operating company in a particular industry
since the underwriters are unable to compare our financial results and prospects with those of public companies operating in the same
industry.
Price Stabilization, Short Positions and Penalty
Bids
Until the distribution of our common
stock offered by this prospectus is completed, rules of the SEC may limit the ability of the underwriters to bid for and to purchase our securities. As
an exception to these rules, the underwriters may engage in over-allotment, stabilizing transactions, syndicate covering transactions, and penalty bids
or purchases for the purpose of pegging, fixing or maintaining the price of the common stock, in accordance with Regulation M under the Exchange
Act.
|
|
Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a
covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater
than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than
the number of shares in the over-allotment option. The underwriters may close out any short position by either exercising their over-allotment option
and/or purchasing shares in the open market. |
|
|
Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a specified maximum. |
|
|
Syndicate covering transactions involve purchases of securities
in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of securities to
close out the short position, the underwriters will consider, among other things, the price of securities available for purchase in the open market as
compared to the price at which they may purchase securities through the over-allotment option. If the underwriters sell more securities than could be
covered by the over-allotment option, creating a naked short position, the position can only be closed out by buying securities in the open market. A
naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the
securities in the open market after pricing that could adversely affect investors who purchase in the offering. |
|
|
Penalty bids permit the underwriters to reclaim a selling
concession from a syndicate member when the security originally sold by the syndicate member is purchased in a stabilizing or syndicate covering
transaction to cover syndicate short positions. |
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These stabilizing transactions,
syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common stock or preventing or
retarding a decline in the market price of the common stock. As a result, the price of the common stock may be higher than the price that might
otherwise exist in the open market. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be
discontinued at any time.
Neither we nor any of the underwriters
make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our
common stock. In addition, neither we nor any of the underwriters make representation that the underwriters will engage in these stabilizing
transactions or that any transaction, once commenced, will not be discontinued without notice.
Other Terms
The underwriters have informed us that
they do not expect to confirm sales of common stock offered by this prospectus to accounts over which they exercise discretionary authority without
obtaining the specific approval of the account holder.
Although we are not under any
contractual obligation to engage any of the underwriters to provide any services for us after this offering, and have no present intent to do so, any
of the underwriters may, among other things, assist us in raising additional capital, as needs may arise in the future. If any of the underwriters
provide services to us after this offering, we may pay such underwriter fair and reasonable fees that would be determined at that time in an arms
length negotiation; provided that no agreement will be entered into with any of the underwriters and no fees for such services will be paid to any of
the underwriters prior to the date which is 90 days after the effective date of the registration statement, unless FINRA determines that such payment
would not be deemed underwriters compensation in connection with this offering.
Indemnification
We have agreed to indemnify the
underwriters against liabilities relating to the offering arising under the Securities Act, liabilities arising from breaches of some or all of the
representations and warranties contained in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for
these liabilities.
Electronic Distribution
In connection with this offering, the
underwriters may distribute prospectuses electronically. No forms of prospectus other than printed prospectuses and electronically distributed
prospectuses that are printable in Adobe PDF format will be used in connection with this offering.
A prospectus in electronic format may
be made available on the internet sites or through other online services maintained by one or more of the underwriters participating in this offering,
or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter,
prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to
online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other
allocations.
Other than the prospectus in electronic
format, the information on any underwriters web site and any information contained in any other web site maintained by an underwriter is not part
of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter
in its capacity as underwriter and should not be relied upon by investors.
Relationships
Certain of the underwriters or their
affiliates have provided from time to time and may in the future provide investment banking, lending, financial advisory and other related services to
us and our affiliates for which they have received and may continue to receive customary fees and commissions.
The validity of the shares of our
common stock offered hereby will be passed upon for us by Olshan Grundman Frome Rosenzweig & Wolosky LLP, New York, New York. In connection with
the offering of our common stock, Sichenzia Ross Friedman Ference LLP, New York, New York advised the underwriters with respect to certain United
States securities law matters.
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J.H. Cohn LLP, our independent
registered public accounting firm, has audited our balance sheets as of December 31, 2010 and 2009 , and the related
statements of operations, changes in stockholders deficiency and cash flows for the years ended December 31, 2010 and
2009 and the period from October 5, 2006 (inception) to December 31, 2010, as set forth in their report, which includes
explanatory paragraph s relating to our ability to continue as a going concern and a restatement of our financial
statements as of and for the year ended December 31, 2009 to reflect adjustments relating to the recording of repayment premiums associated
with certain convertible notes . We have included our financial statements in this prospectus and in this registration
statement in reliance on J.H. Cohn LLPs report given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE
INFORMATION
We have filed with the SEC a
registration statement on Form S-1, including exhibits and schedules, under the Securities Act with respect to the securities to be sold in this
offering. This prospectus does not contain all the information contained in the registration statement. For further information with respect to us and
the securities to be sold in this offering, we refer you to the registration statement and the exhibits and schedules attached to the registration
statement. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily
complete. When we make such statements, we refer you to the copies of the contracts or documents that are filed as exhibits to the registration
statement because those statements are qualified in all respects by reference to those exhibits.
Upon the closing of this offering, we
will be subject to the informational requirements of the Exchange Act and we intend to file annual, quarterly and current reports, proxy statements and
other information with the SEC. You can read our SEC filings, including the registration statement, at the SECs website at www.sec.gov. You may
also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Washington, D.C. 20549, on official
business days during the hours of 10:00 am to 3:00 pm.
You may also obtain copies of the
documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the public reference facility.
105
Table of Contents
IASO PHARMA INC.
(A Development
Stage Company)
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Page
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F-2 |
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F-3 |
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F-4 |
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F-5 |
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F-6 F- 1 8 |
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F-1
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
March 31, 201 1
|
|
December 31, 201 0
|
|
|
|
|
(Unaudited) |
|
(Note 1) |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
$ |
1,888 |
|
|
|
$ 115,165 |
|
Other current
assets |
|
|
|
|
767 |
|
|
|
8,250 |
|
|
Total current
assets |
|
|
|
|
2,655 |
|
|
|
123,415 |
|
|
Office
equipment, net of accumulated depreciation |
|
|
|
|
14,070 |
|
|
|
16,330 |
|
Other assets
deferred financing and offering costs |
|
|
|
|
235,343 |
|
|
|
864,404 |
|
|
Total assets
|
|
|
|
$ |
252,068 |
|
|
$ |
1,004,149 |
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
|
$ |
3,568,995 |
|
|
$ |
3,169,284 |
|
Borrowings
under line of credit agreement |
|
|
|
|
325,000 |
|
|
|
325,000 |
|
Interest
payable line of credit |
|
|
|
|
772 |
|
|
|
|
|
2007 senior
convertible notes |
|
|
|
|
4,340,000 |
|
|
|
4,340,000 |
|
Interest
payable 2007 senior convertible notes |
|
|
|
|
1,495,932 |
|
|
|
1,354,245 |
|
Repayment
premium payable 2007 senior convertible notes |
|
|
|
|
1,743,579 |
|
|
|
1,743,579 |
|
Notes payable
related parties |
|
|
|
|
2,036,350 |
|
|
|
2,028,205 |
|
Interest
payable related parties |
|
|
|
|
593,365 |
|
|
|
553,617 |
|
Repayment
premium payable related parties |
|
|
|
|
1,039,003 |
|
|
|
1,039,003 |
|
Interest
payable Paramount Credit Partners, LLC |
|
|
|
|
349,561 |
|
|
|
277,686 |
|
Deferred
revenue sublicense |
|
|
|
|
37,714 |
|
|
|
37,714 |
|
|
Total current
liabilities |
|
|
|
|
15,530,271 |
|
|
|
14,868,333 |
|
|
Notes payable
Paramount Credit Partners, LLC (net of discount of $ 632,223 in 2011 and $689,269 in 2010) |
|
|
|
|
2,242,777 |
|
|
|
2,185,731 |
|
2010
senior convertible notes (net of discount of $ 709,814 in 2011 and $918,225 in 2010) |
|
|
|
|
3,633,186 |
|
|
|
3,424,775 |
|
Interest
payable 2010 senior convertible notes |
|
|
|
|
396,295 |
|
|
|
307,036 |
|
Advance
from related party |
|
|
|
|
200,000 |
|
|
|
|
|
Deferred
revenue sublicense |
|
|
|
|
568,857 |
|
|
|
578,286 |
|
Total
liabilities |
|
|
|
|
22,571,386 |
|
|
|
21,364,161 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, none issued |
|
|
|
|
|
|
|
|
|
|
Common stock,
$.001 par value; 20,000,000 shares authorized; 93 shares issued and outstanding at March 31, 2011 and December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital |
|
|
|
|
4,180,666 |
|
|
|
4,180,666 |
|
Deficit
accumulated during the development stage |
|
|
|
|
( 26,499,984 |
) |
|
|
( 24,540,678 |
) |
|
Total
stockholders deficiency |
|
|
|
|
( 22,319,318 |
) |
|
|
( 20,360,012 |
) |
|
Total
liabilities and stockholders deficiency |
|
|
|
$ |
252,068 |
|
|
$ |
1,004,149 |
|
See Notes to Unaudited Condensed Financial
Statements.
F-2
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statements of Operations
(Unaudited)
|
|
|
|
Three Months Ended March 31,
2011
|
|
Three Months Ended March 31,
201 0
|
|
Period from October 5, 2006 (Inception) to
March 31, 2011
|
Operating
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublicense
|
|
|
|
$ |
9,429 |
|
|
$ |
9,429 |
|
|
$ |
53,429 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
|
|
231,272 |
|
|
|
675,502 |
|
|
|
13,354,366 |
|
General and
administrative |
|
|
|
|
1,065,647 |
|
|
|
190,976 |
|
|
|
4,383,990 |
|
|
Total
operating expenses |
|
|
|
|
1,296,919 |
|
|
|
866,478 |
|
|
|
17,738,356 |
|
|
Loss from
operations |
|
|
|
|
( 1,287,490 |
) |
|
|
( 857,049 |
) |
|
|
( 17,684,927 |
) |
|
Interest
income |
|
|
|
|
24 |
|
|
|
10 |
|
|
|
30,126 |
|
Interest
expense, including amortization of debt discount and deferred financing costs and accrual of
repayment premium |
|
|
|
|
( 671,840 |
) |
|
|
( 1,410,099 |
) |
|
|
( 8,845,183 |
) |
|
Net loss
|
|
|
|
$ |
( 1,959,306 |
) |
|
$ |
( 2,267,138 |
) |
|
$ |
( 26,499,984 |
) |
|
Basic and
diluted net loss per common share |
|
|
|
$ |
( 21,067.81 |
) |
|
$ |
( 24,377.83 |
) |
|
|
|
|
|
Weighted
average common shares outstanding basic and diluted |
|
|
|
|
93 |
|
|
|
93 |
|
|
|
|
|
See Notes to Unaudited Condensed Financial
Statements.
F-3
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statement of Changes in
Stockholders Deficiency (Unaudited)
Period from January 1, 2011 to March 31, 2011
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Deficit Accumulated During the
Development Stage
|
|
Total
|
Balance at
January 1, 2011 |
|
|
|
|
93 |
|
|
$ |
|
|
|
$ |
4,180,666 |
|
|
$ |
( 24,540,678 |
) |
|
$ |
( 20,360,012 |
) |
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,959,306 |
) |
|
|
( 1,959,306 |
) |
Balance at
March 31, 2011 |
|
|
|
|
93 |
|
|
$ |
|
|
|
$ |
4,180,666 |
|
|
$ |
( 26,499,984 |
) |
|
$ |
( 22,319,318 |
) |
See Notes to Unaudited Condensed Financial
Statements.
F-4
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
Condensed Statements of Cash Flows
(Unaudited)
|
|
|
|
Three Months Ended March 31,
2011
|
|
Three Months Ended March 31,
201 0
|
|
Period from October 5, 2006 (Inception) to
March 31, 2011
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$ |
( 1,959,306 |
) |
|
$ |
(2,267,138 |
) |
|
$ |
(26,499,984 |
) |
Adjustments to
reconcile net loss to net cash provided by ( used in ) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
|
|
|
|
|
|
|
|
3,635 |
|
|
|
504,024 |
|
Write-off
of deferred financing costs related to failed IPO |
|
|
|
|
804,814 |
|
|
|
|
|
|
|
804,814 |
|
Amortization
of deferred financin g and offering costs and debt discount |
|
|
|
|
327,685 |
|
|
|
272,798 |
|
|
|
2,409,753 |
|
Warrants
issued in connection with related party note conversion |
|
|
|
|
|
|
|
|
|
|
|
|
505,694 |
|
Interest
payable 2007 senior convertible notes |
|
|
|
|
141,687 |
|
|
|
166,003 |
|
|
|
1,495,932 |
|
Repayment
premium payable 2007 senior convertible notes |
|
|
|
|
|
|
|
|
256,192 |
|
|
|
1,743,579 |
|
Expenses paid
on behalf of the Company satisfied through the issuance of notes |
|
|
|
|
|
|
|
|
|
|
|
|
263,205 |
|
Interest payable related parties |
|
|
|
|
39,748 |
|
|
|
55,195 |
|
|
|
593,365 |
|
Repayment
premium payable related parties |
|
|
|
|
|
|
|
|
541,111 |
|
|
|
1,039,003 |
|
Interest
payable Paramount Credit Partners |
|
|
|
|
71,875 |
|
|
|
71,875 |
|
|
|
349,561 |
|
Interest
payable 2010 senior convertible notes |
|
|
|
|
89,259 |
|
|
|
46,456 |
|
|
|
396,295 |
|
Interest
payable line of credit |
|
|
|
|
772 |
|
|
|
|
|
|
|
772 |
|
Depreciation
|
|
|
|
|
2,260 |
|
|
|
2,087 |
|
|
|
32,277 |
|
Amortization
of deferred revenue |
|
|
|
|
( 9,429 |
) |
|
|
(9,429 |
) |
|
|
( 53,429 |
) |
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current
assets |
|
|
|
|
7,483 |
|
|
|
760 |
|
|
|
( 767 |
) |
Accounts
payable and accrued expenses |
|
|
|
|
504,133 |
|
|
|
( 291,231 |
) |
|
|
3,568,993 |
|
Deferred
revenue sublicense |
|
|
|
|
|
|
|
|
|
|
|
|
660,000 |
|
|
Net cash
provided by ( used in ) operating activities |
|
|
|
|
20,981 |
|
|
|
( 1,151,686 |
) |
|
|
( 12,186,913 |
) |
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
office and computer equipment |
|
|
|
|
|
|
|
|
|
|
|
|
( 46,347 |
) |
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
2010 senior convertible notes |
|
|
|
|
|
|
|
|
3,343,000 |
|
|
|
3,343,000 |
|
Proceeds from
notes payable to Paramount Credit Partners |
|
|
|
|
|
|
|
|
|
|
|
|
2,875,000 |
|
Proceeds from
notes payable to related party |
|
|
|
|
8,145 |
|
|
|
215,000 |
|
|
|
4,373,145 |
|
Proceeds from
2007 senior convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
4,340,000 |
|
Proceeds
from related party advance |
|
|
|
|
200,000 |
|
|
|
|
|
|
|
200,000 |
|
Payments for
deferred financing costs |
|
|
|
|
( 342,403 |
) |
|
|
( 486,436 |
) |
|
|
( 1,625,477 |
) |
Proceeds from
utilization of line of credit |
|
|
|
|
|
|
|
|
|
|
|
|
325,000 |
|
Repayment of amounts loaned under related party notes |
|
|
|
|
|
|
|
|
|
|
|
|
(1,600,000 |
) |
Proceeds from
receipt of stock issuances |
|
|
|
|
|
|
|
|
|
|
|
|
4,480 |
|
|
Net cash
provided by (used in) financing activities |
|
|
|
|
(134,258 |
) |
|
|
3,071,564 |
|
|
|
12,235,148 |
|
|
Net increase
(decrease) in cash |
|
|
|
|
(113,277 |
) |
|
|
1,919,878 |
|
|
|
1,888 |
|
Cash beginning
of period |
|
|
|
|
115,165 |
|
|
|
10,728 |
|
|
|
|
|
|
Cash end of
period |
|
|
|
$ |
1,888 |
|
|
|
$ 1,930,606 |
|
|
|
$ 1,888 |
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
to placement agent |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
358,262 |
|
Warrants issued
to investors in connection with notes |
|
|
|
$ |
|
|
|
$ |
2,609,729 |
|
|
$ |
2,808,206 |
|
Stock issued to
founders and employees |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
52 |
|
Conversion of
PBS Notes to 2010 senior convertible notes |
|
|
|
$ |
|
|
|
$ |
1,000,000 |
|
|
$ |
1,000,000 |
|
|
Supplemental
disclosure cash paid for interest |
|
|
|
$ |
814 |
|
|
|
$ 469 |
|
|
|
$ 31 1,229 |
|
See Notes to Unaudited Condensed Financial
Statements.
F-5
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Note 1 Organization, Business and
Basis of Presentation:
Organization and business:
IASO Pharma Inc., formerly known as
Pacific Beach BioSciences, Inc. (IASO or the Company), was incorporated in the State of Delaware on October 5, 2006. The
Company changed its name from Pacific Beach BioSciences, Inc. to IASO Pharma Inc. on April 12, 2010. IASO is a biopharmaceutical company developing
therapeutics for the treatment and prevention of infectious diseases.
Basis of presentation:
The accompanying unaudited condensed
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of
the Securities and Exchange Commission for interim financial information. Accordingly, the unaudited condensed financial statements do not include all
information and footnotes required by accounting principles generally accepted in the United States of America for complete annual financial
statements. In the opinion of management, the accompanying unaudited condensed financial statements reflect all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative of results that may be
expected for the full year ending December 31, 2011 or for any subsequent period. These unaudited condensed financial statements should
be read in conjunction with the audited financial statements and notes thereto of the Company which are included elsewhere in this registration
statement. The accompanying condensed balance sheet as of December 31, 2010 has been derived from the audited financial statements
included elsewhere in this registration statement.
The Companys primary activities
since incorporation have been organizational activities, including recruiting personnel, establishing office facilities, acquiring licenses for its
pharmaceutical compound pipeline, performing business and financial planning, performing research and development and raising funds through the
issuance of debt and common stock. The Companys planned principal operations have not yet commenced; accordingly, the Company is considered to be
in the development stage. The Companys activities comprise one operating segment.
The Companys financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments through the
normal course of business. For the three months ended March 31 , 2011 and the period from October 5, 2006
(inception) to March 31 , 2011 , the Company incurred net losses of $ 1,959,306 and $ 26,499,984 ,
respectively. The Company has a stockholders deficiency as of March 31 , 2011 of $22,319,318. Management believes that
the Company will continue to incur losses for the foreseeable future and will need additional equity or debt financing and/or will need to generate
significant revenue from the licensing of its products or by entering into strategic alliances to be able to sustain its operations until it can
achieve profitability and positive cash flows, if ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot
assure that such financing will be available on acceptable terms, or at all. These matters raise substantial doubt about the Companys ability to
continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this
uncertainty.
Reverse Stock Split s :
On January 19, 2011, the Company
effected a 1-for-48 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein have been
adjusted to reflect the effects of the 1-for-48 reverse stock split.
On April 29, 2011, the Company
effected a 1-for-1,000 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein
have been adjusted to reflect the effects of the 1-for-1,000 reverse stock split.
F-6
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Note 2 Summary of Significant Accounting
Policies:
Use of estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Loss per common share:
Basic earnings (loss) per common share
excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted
earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the Company has only
incurred losses, basic and diluted loss per share is the same. The number of potentially dilutive securities excluded from the calculation was
8 warrants and options at both March 31 , 2011 and 2010 . The number of warrants issued to placement
agents that are potentially dilutive and are excluded from the calculation related to the issuance of senior convertible notes, based upon an exercise
price of $ 48,000.00 (lowest possible conversion price), at both March 31 , 2011 and 2010 is
9 . The number of warrants issued to investors that are potentially dilutive and are excluded from the calculation related to the
issuance of senior convertible notes, based upon an exercise price of $ 48,000.00 (lowest possible conversion price), at both
March 31 , 2011 and 2010 is 87.
Fair value measurements:
The carrying value of the
Companys notes payable approximate s fair value due to the short-term nature of these notes and since the related interest rate
approximates market rates. There has been no change in the fair value of the Companys notes payable between reporting periods.
Accounting for Convertible Debt, Debt Issued with Stock
Purchase Warrants and Debt Modifications:
In accordance with ASC Topic 470-20,
Debt with Conversion and Other Options, the proceeds from any debt financing in which the Company issues warrants to purchase its common
stock are allocated to the warrants and the debt based upon their estimated relative fair values as of the closing date. The portion of the proceeds
allocated to the warrants is accounted for as additional paid-in capital and a reduction in the carrying value of the related debt. This debt discount
is amortized to interest expense from the issuance date through the maturity date of the debt using the straight-line method.
When the convertible feature of
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and
any detachable free-standing instruments that are included, such as common stock warrants. The Companys existing convertible
notes had BCFs, however, the number of shares to be issued upon conversion of such convertible notes would only have been
determined if a Qualified Financing (as defined in the notes) was completed. Accordingly, pursuant to ASC Topic 470-20-25,
at the Companys outstanding convertible notes were issued the conversion of such notes and, therefore, the recording of the
related BCFs, was contingent upon the completion of a Qualified Financing.
As a result of the modifications to the
Companys outstanding convertible notes under the amendment agreements dated March 30, 2011, pursuant to which
such notes automatically converted into the right to receive Milestone Payments upon the consummation of
the Rights Offering on April 29, 2011 , the BCFs associated with such notes were eliminated and the Company
did not record any beneficial conversion charge to interest expense in connection with the conversion of such notes.
F-7
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Modifications to convertible debt are
recorded in accordance with ASC Topic 470-50, Modifications and Extinguishments of Convertible Debt. A modification of a debt instrument in
a non-troubled situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The modifications to the Companys convertible notes through March 31, 2011 have either been contingent
upon the occurrence of certain events or have not resulted in a change in excess of 10 percent in the present value of the aggregate cash flows
associated with the applicable notes. Accordingly, no charge has been recognized for debt modifications.
As a result of the
restructuring of the Companys convertible notes pursuant to amendment agreements dated March 30,
2011, with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the Existing Convertible Notes),
the holders agreed to amend the Existing Convertible Notes so that all principal and accrued interest on the Existing Convertible Notes will
automatically convert upon the consummation of the Rights Offering (as discussed below) on April 29, 2011 into the right to receive a pro
rata share (based on the aggregate original principal amount of the Existing Convertible Notes) of the Milestone Payments (as discussed
below). The amendment agreement with the holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the
2010 Notes would terminate and be of no further force and effect upon the consummation of the Rights Offering.
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The restructuring of the Existing
Convertible Notes into Milestone Payment Rights will be recorded in accordance with ASC 470-60-15, Troubled Debt Restructurings by
Debtors. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the
debtors financial difficulties grants a concession to the debtor that it would not otherwise consider. The
Company will record the Milestone Payments, if any, when they occur first as a reduction of the carrying amount of the debt until the liability
is extinguished, and subsequently as interest expense until the total Milestone Payments have been recognized.
Note 3 Related Party Transactions:
Consulting services:
Effective June 2007, the Company began
accruing monthly fees for consulting services at a rate of $25,000 per month to Paramount BioSciences, LLC (PBS), an affiliate of a
significant investor in the Company. Consulting services expense was $0, $0 and $375,000 for the three months ended March
31 , 2011 and 2010 and the period from October 5, 2006 (inception) to March 31 , 2011 , respectively. As of
March 31 , 2011 and December 31, 2010 , the Company had $375,000 outstanding under this arrangement which is
included in accrued expenses. This agreement was terminated as of August 31, 2008.
Notes payable:
On December 1, 2006, the Company issued
an 8% promissory note payable to PBS. All amounts outstanding under this note, which was amended and restated on September 30, 2009, were scheduled
to mature on June 3 0 , 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of
September 16, 2010 , from December 31, 2010 pursuant to an amendment agreement dated as of December 23, 2010 and from March 31, 2011
pursuant to an amendment agreement dated as of March 23, 2011 ), or earlier if
F-8
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
certain events occur. All amounts
outstanding under this note would have automatically convert ed into the Companys equity securities issued in the
Companys next equity financing (or series of related equity financings) prior to the maturity date involving the sale of securities in which the
Company receives at least $10,000,000 in aggregate gross cash proceeds (before brokers fees or other transaction related expenses, and excluding
any such proceeds resulting from any conversion of the Companys then-existing convertible bridge notes minus the amount of aggregate gross cash
proceeds to the Company from the sale of equity or debt securities of the Company after December 14, 2009 (a Qualified Financing)), at a
conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and upon such
other terms, conditions and agreements as may be applicable in such Qualified Financing. This note also would have automatically
convert ed into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the notes. In the event that
this note would have become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified
Financing, or a sale or merger of the Company which convert ed the note into equity securities of the Company, then in connection with the
repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company
would have been obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate
principal amount plus all accrued and unpaid interest on the note. The Company has recorded the repayment premium as a liability and
accrued it over the remaining term of this note as of September 30, 2009, the date this note was amended to include the
repayment premium feature. Notwithstanding the foregoing, all loans (including principal and accrued interest thereon) made by PBS to the Company
under this note on or after September 30, 2009, up to $1,000,000 in the aggregate, shall immediately and automatically be converted into the same
equity or derivative securities as are issued in any equity or derivative equity financing consummated by the Company on or after September 30, 2009
that does not otherwise constitute a Qualified Financing, on the same terms and conditions that such equity securities are offered in such
non-Qualified Financing. On January 4, 2010, PBS advanced another $215,000 to the Company. On February 9, 2010, $1,000,000 in principal outstanding
under this note was converted into 2010 Notes pursuant to this provision. This note was issued to PBS for expenses that PBS has paid on behalf of the
Company. As of March 31 , 2011 and December 31, 2010 , the principal amount outstanding under this note is
$ 1,323,800 and $ 1,318,205 , respectively.
On December 1, 2006, the Company issued
an 8% promissory note payable to a trust established for the benefit of the family of the sole member of PBS. All unpaid principal and accrued and
unpaid interest outstanding under this note, which was amended and restated on September 30, 2009, were scheduled to mature on
June 3 0 , 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 ,
from December 31, 2010 pursuant to an amendment agreement dated as of December 23, 2010 and from March 31, 2011 pursuant to an amendment
agreement dated as of March 23, 2011 ), or earlier if certain events occur. All amounts outstanding under this note would have
automatically convert ed into the Companys equity securities issued in the Companys next equity financing (or series of related
equity financings) prior to the maturity date involving the sale of securities in which the Company receives at least $10,000,000 in a Qualified
Financing, at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified Financing,
and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. This note also would have
automatically convert ed into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the notes.
In the event that this note would have become due and payable (whether on the due date or earlier) prior to the consummation by the
Company of a Qualified Financing, or a sale or merger of the Company which convert ed the note into equity securities of the Company, then
in connection with the repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the
note, the Company would have been obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the
aggregate principal amount plus all accrued and unpaid interest on the note. The Company has recorded the repayment premium as a
liability and accrued it over the remaining term of this note as of September 30, 2009, the date this note was amended to
include the repayment premium feature. As of March 31, 2011 and December 31, 2010, the principal amount outstanding under this note
is $660,000.
F-9
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
On December 18, 2008, the Company
issued an 8% promissory note payable to an entity related to the sole member of PBS. All unpaid principal and accrued and unpaid interest outstanding
under this note, which was amended and restated on September 30, 2009, were scheduled to mature on June
3 0 , 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 , from December
31, 2010 pursuant to an amendment agreement dated as of December 23, 2010 and from March 31, 2011 pursuant to an amendment agreement dated as of
March 23, 2011 ), or earlier if certain events occur. All amounts outstanding under this note would have automatically
convert ed into the Companys equity securities issued in the Companys next equity financing (or series of related equity financings)
prior to the maturity date involving the sale of securities in which the Company receives at least $10,000,000 in a Qualified Financing, at a
conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and upon such
other terms, conditions and agreements as may be applicable in such Qualified Financing. This note also would have automatically
convert ed into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the note. In the event that
this note would have become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified
Financing, or a sale or merger of the Company which convert ed the note into equity securities of the Company, then in connection with the
repayment of the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company
would have been obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate
principal amount plus all accrued and unpaid interest on the note. The Company has recorded the repayment premium as a liability and
accrued it over the remaining term of this note as of September 30, 2009, the date this note was amended to
include the repayment premium feature. As of March 31, 2011 and December 31, 2010, the principal amount outstanding under this note
is $50,000.
The promissory notes referenced in the
preceding three paragraphs are sometimes referred to herein as the Related Party Notes.
On March 30, 2011, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the
Existing Convertible Notes), pursuant to which the holders agreed to amend the Existing Convertible Notes so that all principal and
accrued interest on the Existing Convertible Notes will automatically convert upon the consummation of the Rights Offering (as discussed
below) into the right to receive a pro rata share (based on the aggregate original principal amount of the Existing Convertible Notes) of the
Milestone Payments (as discussed below).
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
As a result of the conversion of the
Related Party Notes into the right to receive Milestone Payments upon the consummation of the Rights Offering on April 29, 2011 ,
the beneficial conversion feature associated with the Related Party Notes was eliminated and the Company did not record any
beneficial conversion charge to interest expense in connection with the conversion of the Related Party Notes.
The amendment agreement with the
holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would terminate and be of no
further force and effect upon the consummation of the Rights Offering (as discussed below).
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from March 31, 2011 to June 30,
2011.
F-10
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
On January 15, 2009 and June 24, 2009,
the Company issued 10% promissory notes (the PCP Notes) payable in the aggregate amount of $2,875,000 to Paramount Credit Partners, LLC
(PCP), an entity whose managing member is a significant stockholder of the Company. Interest on this note is payable quarterly, in arrears,
and the principal matures on the earlier of (i) December 31, 2013, (ii) the completion of a Qualified Financing, and (iii) the completion of a Reverse
Merger (each, as defined below). In addition, PCP received five-year warrants (PCP Warrants) to purchase, at an exercise price of 110% of
the lowest price paid for securities in a Qualified Financing, a number of shares of the Companys common stock equal to 40% of the principal
amount of the Notes purchased divided by the lowest price paid for securities in a Qualified Financing prior to the two-year anniversary of the notes.
If the Qualified Financing does not occur on or before the two-year anniversary of the notes, the PCP Warrants will be exercisable for a number of
shares of the Companys common stock equal to 40% of the principal amount of the Notes purchased divided by $ 48,000.00 , at a per
share exercise price of $ 48,000.00 . As of March 31 , 2011 and December 31, 2010 , the principal
amount outstanding under these notes , net of discount, is $ 2,242,777 and $ 2,185,731 , respectively. For purposes of
the PCP Notes, Qualified Financing means the closing of an equity financing or series of related equity financings by the Company resulting
in aggregate gross cash proceeds (before brokers fees or other transaction related expenses) of at least $10,000,000. For purposes of the PCP
Notes, Reverse Merger means a merger, share exchange or other transaction or series of related transactions in which (a) the Company merges
into or otherwise becomes a wholly owned subsidiary of a company subject to the public company reporting requirements of the Securities Exchange Act of
1934, as amended, and (b) the aggregate consideration payable to the Company or its stockholders in such transaction(s) (the Reverse Merger
Consideration) is greater than or equal to $10,000,000. The Company valued the PCP Warrants issued in January 2009 at $1,093,725 and the PCP
Warrants issued in June 2009 at $47,191 using the Black Scholes option pricing model, assuming that the warrants were presently exercisable in
the aggregate for that number of shares of the Companys common stock equal to 40% of the principal amount of the PCP Notes, divided by
$ 48,000.00 (or 1,150 ), at an exercise price of $ 52,800.00 , and the following additional assumptions: (i) a
risk-free interest rate of 3.39%; (ii) an expected volatility of 246.18%; (iii) an expected term (contractual term) of five years; and (iv) an expected
dividend yield of 0%.
The Company has paid
interest owed to PCP for the first three quarters of 2010. For the fourth quarter of 2010 and the first quarter of 2011, the
Company had insufficient funds to pay the quarterly interest amount owed to PCP. Interest amounts for these two quarterly periods were
paid directly by Lindsay A. Rosenwald, M.D. to PCP, pursuant to certain guarantee obligations owed by Dr. Rosenwald under PCPs operating
agreement.
Paramount BioCapital,
Inc. (PCI) acted as placement agent for the private placement of the Companys senior convertible notes in the aggregate principal
amount of $4,340,000 during 2007.
On December 3, 2008,
the Company, PBS and various other private pharmaceutical companies with common ownership by the sole member of PBS entered into a loan agreement with
Bank of America, N.A. for a line of credit of $2,000,000. PBS pledged collateral securing the Companys and the other borrowers obligations
to Bank of America, N.A. under the loan agreement. Interest on amounts borrowed under the line of credit accrues and is payable on a monthly basis at
an annual rate equal to the London Interbank Offered Rate (LIBOR) plus 1%. On November 10, 2009, the parties entered into Amendment No. 1 to the Loan
Agreement, which extended the initial one-year term for an additional year to November 5, 2010, and reduced the aggregate amount available under the
line of credit to $1,000,000. Under the loan agreement, the Companys liability under the line of credit was several, not joint, with respect to
the payment of all obligations thereunder.
On November 5, 2010, the Company
repaid the amounts outstanding under the line of credit with Bank of America, N.A. with the proceeds of a new line of credit the Company entered
into with Israel Discount Bank of New York (IDB Bank) in the amount of $150,000, which is evidenced by a promissory note the
Company issued to IDB Bank on such date. On December 23, 2010, the Company entered into an amendment with IDB Bank to increase the line
of credit to $325,000. The Companys obligations under the IDB Bank line of credit are secured by cash collateral pledged by Dr. Rosenwald
from an account maintained by Dr. Rosenwald at IDB
F-11
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Bank. The interest rate on loans under the IDB Bank line of credit is equal to
the interest rate that IDB Bank pays to Dr. Rosenwald on the cash account pledged to secure the loans, plus 1%. Amounts borrowed under the
IDB Bank line of credit are due upon the earlier to occur of a demand by IDB Bank or November 4, 2011. As of March 31, 2011 and December
31, 2010, the amounts borrowed by the Company that were outstanding under this line of credit were $ 325,000.
Note 4 Stockholders Deficiency:
Common stock options and warrants:
A summary of the
Companys stock option activity under the Plan and related information is as follows:
|
|
|
|
Three Months Ended March 31,
2011
|
|
Three Months Ended March
31 , 2010
|
|
|
|
|
|
Shares
|
|
Weighted Average Exercise Price
|
|
Shares
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of period |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
2 |
|
|
|
$ 45,600.00 |
|
Outstanding
at end of period |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
2 |
|
|
|
$ 45,600.00 |
|
Options
exercisable at March 31 |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
2 |
|
|
|
$ 45,600.00 |
|
The weighted average remaining
contractual life of stock options outstanding at March 31 , 2011 is 6.5 years. As of
March 31 , 2011 , the total compensation expense related to common stock options has been recognized.
Equity instruments :
There were no equity
instruments issued or granted by the Company during the three months ended March 31, 2011.
Note 5 Private Placements:
2007 senior convertible notes:
During 2007, the Company issued 8%
senior convertible notes in connection with a private placement in the aggregate principal amount of $4,340,000 (the 2007 Notes). The 2007
Notes were originally scheduled to mature on December 14, 2008, but the Company exercised its option to extend the maturity date to December 14, 2009,
at an increased interest rate of 10%. The Company subsequently solicited the consent of the Noteholders to an additional extension of the maturity date
of the 2007 Notes to September 30, 2010 (which was subsequently further extended to December 31, 2010 pursuant to an extension agreement dated as of
September 16, 2010 , to March 31, 2011 pursuant to an amendment agreement dated as of December 23, 2010 and to June 30, 2011 pursuant
to an amendment agreement dated as of March 23, 2011 ). After giving effect to such consent, the 2007 Notes, plus all accrued interest thereon,
would have automatically convert ed into the same securities issued in the Companys next Qualified Financing (as defined
below), at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and
upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. The Company valued the beneficial conversion feature
of the 2007 Notes at $1,860,000, which would have been recorded as interest expense only if a Qualified Financing would have
been completed.
The amount of the value of the
beneficial conversion feature would not have been dependent upon the price at which the 2007 Notes convert ed to common
stock. The number of shares to be issued upon conversion would have been determined for the principal amount of the 2007 Notes and the
accrued interest on such 2007 Notes if a Qualified Financing (as defined below) would have been completed. Accordingly, pursuant to ASC
Topic 470-20-25, the conversion of the 2007 Notes and, therefore, the recording of the beneficial conversion feature, were contingent
upon the completion of a Qualified Financing. The value of the beneficial conversion
F-12
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
feature for the 2007 Notes was
determined based on the amount of the 2007 Notes and the discount at which such 2007 Notes convert, contingent on the occurrence of certain events
(including a Qualified Financing), into common stock. Upon conversion of the 2007 Notes, the Company would have record ed as
interest expense a beneficial conversion charge of $1,860,000 for the principal amount of the 2007 Notes plus an additional beneficial conversion
charge for the accrued interest on the 2007 Notes through the date of conversion. Specifically, the beneficial conversion feature calculation is as
follows:
Principal
amount of 2007 Notes |
|
|
|
$ |
4,340,000 |
|
Divided by
percentage of price at which 2007 Notes convert to common stock |
|
|
|
|
70 |
% |
Aggregate
value to investors |
|
|
|
|
6,200,000 |
|
Less
principal amount of 2007 Notes |
|
|
|
|
4,340,000 |
|
Amount of
beneficial conversion feature |
|
|
|
$ |
1,860,000 |
|
However, as a result of the
modifications to the 2007 Notes under the amendment agreement dated March 30, 2011 (see below), pursuant to which the 2007 Notes
automatically converted into the right to receive Milestone Payments upon the consummation of the Rights Offering on April
29, 2011 , the beneficial conversion feature associated with the 2007 Notes was eliminated and the Company
did not record any beneficial conversion charge to interest expense in connection with the conversion of the 2007
Notes.
The 2007 Notes would have
also automatically convert ed into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the 2007
Notes. In the event that the 2007 Notes would have become due and payable (whether on the due date or earlier) prior to the consummation by the
Company of a Qualified Financing, or a sale or merger of the Company which would have convert ed the 2007 Notes into equity
securities of the Company, then in connection with the repayment of the 2007 Notes, in addition to the payment of the unpaid principal amount and all
accrued but unpaid interest on the 2007 Notes, the Company would have been obligated to pay to the Noteholders, as a repayment premium,
an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid interest on the 2007 Notes. The Company has
recorded the repayment premium as a liability and accrued it over the remaining term of the 2007 Notes as of December 14, 2009, the
date the 2007 Notes were amended to include the repayment premium feature. For purposes of the 2007 Notes, Qualified Financing means
the sale of the Companys equity securities in an equity financing or series of related equity financings in which the Company receives (minus the
amount of aggregate gross cash proceeds to the Company from our arms length sale of equity or debt securities, or incurrence of new loans, after
December 14, 2009) aggregate gross proceeds of at least $10,000,000 (before brokers fees or other transaction related expenses, and excluding any
such proceeds resulting from any conversion of the 2007 Notes).
In connection with the offering of the
2007 Notes, PCI and the Company entered into a placement agency agreement dated September 18, 2007, pursuant to which the Company paid PCI cash
commissions of $198,800 (of which $38,500 was further allocated to third party agents) for their services. The Company also has agreed to pay to PCI a
commission on sales by the Company of securities during the 18-month period subsequent to December 14, 2007 to the purchasers of the 2007 Notes who
were introduced to the Company by PCI. The Company also granted PCI the right of first refusal to act as exclusive finder, placement agent or other
similar agent in relation to any securities offerings on its behalf during the 18-month period following December 14, 2007. This agreement has since
expired. PCI is a related party to the Company since it is an affiliate of a significant investor in the Company.
In addition, PCI received warrants (the
Placement Warrants) to purchase, at an exercise price of 110% of the lowest price paid for securities in a Qualified Financing, a number of
shares of the Companys common stock equal to 10% of the principal amount of the 2007 Notes purchased, less any amount used to repay the related
party notes, or amounts due to PBS or their affiliates or employees as finders fees, payments under the services agreement or other similar
payments, divided by the lowest price paid for securities in a Qualified Financing prior to December 14, 2009. If the Qualified Financing did not occur
on or before December 14, 2009,
F-13
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
the Placement Warrants will be
exercisable for a number of shares of the Companys common stock equal to 10% of the principal amount of the 2007 Notes purchased, less any amount
used to repay the related party notes, or amounts due to PBS or their affiliates or employees as finders fees, payments under the services
agreement or other similar payments, divided by $ 48,000.00 , at a per share exercise price of $ 48,000.00 and are exercisable
for seven years. Since the Qualified Financing did not occur by such date, the Placement Warrants are now exercisable into 9 shares of
the Companys common stock, at a per share exercise price of $ 48,000.00 . The Company estimated the value of the Placement Warrants
at approximately $358,000 using the Black-Scholes option pricing model and the following assumptions: (i) a risk-free interest rate of 3.88%; (ii) an
expected volatility of 98.94%; (iii) an expected term (contractual term) of seven years; and (iv) an expected dividend yield of 0%. The Company
recorded the value of the warrants as deferred financing costs, which was amortized to interest expense over the term of the 2007
Notes.
On March 30, 2011, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the
Existing Convertible Notes), pursuant to which the holders agreed to amend the Existing Convertible Notes so that all principal and
accrued interest on the Existing Convertible Notes will automatically convert upon the consummation of the Rights Offering (as discussed
below) into the right to receive a pro rata share (based on the aggregate original principal amount of the Existing Convertible Notes) of the
Milestone Payments (as discussed below).
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The amendment agreement with the
holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would terminate and be of no
further force and effect upon the consummation of the Rights Offering (as discussed below).
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from March 31, 2011 to June 30,
2011.
2010 senior convertible notes:
In February and March 2010, the Company
issued 8% senior convertible notes in connection with a private placement in the aggregate principal amount of $4,343,000 (the 2010 Notes).
The 2010 Notes were scheduled to mature on February 9, 2012. Upon the closing of a Qualified IPO (as defined below), the 2010 Notes plus any
accrued but unpaid interest thereon would have convert ed automatically into shares of the Companys common stock at 70% of
the price at which shares of common stock are sold in the Qualified IPO (the IPO Price), upon the terms and conditions on which such
securities are issued in the Qualified IPO. The Company valued the beneficial conversion feature of the 2010 Notes at $1,861,000, which would
have been recorded as interest expense only if a Qualified IPO would have been completed.
The amount of the value of the
beneficial conversion feature would not have been dependent upon the price at which the 2010 Notes convert ed to common
stock. The number of shares to be issued upon conversion would have been determined for the principal amount of the 2010 Notes and the
accrued interest on such 2010 Notes if a Qualified IPO (as defined below) would have been completed. Accordingly, pursuant to ASC
Topic 470-20-25, the conversion of the 2010 Notes and, therefore, the recording of the beneficial conversion feature, were contingent
upon the completion of a Qualified IPO. The value of the beneficial conversion feature for the 2010 Notes was determined based on the amount of the
2010 Notes and the discount at which such 2010 Notes convert, contingent on the occurrence of certain events (including a Qualified IPO), into common
stock.
F-14
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
Upon conversion of the 2010 Notes,
the Company would have record ed as interest expense a beneficial conversion charge of $1,861,000 for the principal amount of the
2010 Notes plus an additional beneficial conversion charge for the accrued interest on the 2010 Notes through the date of conversion. Specifically, the
beneficial conversion feature calculation is as follows:
Principal
amount of 2010 Notes |
|
|
|
$ |
4,343,000 |
|
Divided by
percentage of price at which 2010 Notes convert to common stock |
|
|
|
|
70 |
% |
Aggregate
value to investors |
|
|
|
|
6,204,000 |
|
Less
principal amount of 2010 Notes |
|
|
|
|
4,343,000 |
|
Amount of
beneficial conversion feature |
|
|
|
$ |
1,861,000 |
|
However, as a result of the
modifications to the 2010 Notes under the amendment agreement dated March 30, 2011 (see below), pursuant to which the 2010 Notes
automatically converted into the right to receive Milestone Payments upon the consummation of the Rights Offering on April
29, 201 1, the beneficial conversion feature associated with the 2010 Notes was eliminated and the Company
did not record any beneficial conversion charge to interest expense in connection with the conversion of the 2010
Notes.
For purposes hereof, Qualified
IPO means the consummation of an initial public offering by the Company of equity securities resulting in aggregate gross cash proceeds (before
commissions or other expenses) to the Company of at least $10,000,000.
Each 2010 Noteholder also
held a warrant to purchase a number of shares of the Companys common stock equal to 70% of the principal amount of the 2010 Notes
purchased by it divided by the IPO Price at a per share exercise price equal to the exercise price of the warrants issued in the Qualified IPO, subject
to adjustment. Each of these warrants were scheduled to expire on February 9, 2015. Notwithstanding the foregoing, if a Qualified
IPO did not occur on or before February 9, 2012, then each warrant would have been exercisable for that number of shares of
the Companys common stock equal to 70% of the principal amount of the 2010 Note purchased by the original holder divided by
$ 48,000.00 , at a per share exercise price of $ 48,000.00 . In the event of a sale of the Company (whether my merger,
consolidation, sale or transfer of the Companys capital stock or assets or otherwise) prior to, but not in connection with, a Qualified IPO, each
of these warrants would have terminate d 90 days following such sale and the warrants would have
continue d to be exercisable pursuant to its terms during such 90-day period. The Company valued these warrants at $2,172,985 using the
Black Scholes option pricing model, assuming that the warrants were presently exercisable in the aggregate for that number of shares of the
Companys common stock equal to 70% of the principal amount of the 2010 Notes, divided by $ 48,000.00 (or $3,040,100), at an exercise
price of $ 48,000.00 , and the following additional assumptions: (i) a risk-free interest rate of 2.32% (2.28% for warrants issued in March
2010); (ii) an expected volatility of 110% (100% for warrants issued in March 2010); (iii) an expected term (contractual term) of five years; and (iv)
an expected dividend yield of 0%.
Lindsay A. Rosenwald, M.D., a
significant stockholder of the Company and a related party, purchased $500,000 in aggregate principal amount of 2010 Notes and related warrants in this
offering. In addition, a 2010 Note and related warrant in the aggregate principal amount of $1,000,000 were issued to PBS for the cancellation of
certain debt, discussed above.
In connection with the offering of the
2010 Notes and related warrants, Maxim Group LLC (Maxim) and the Company entered into a placement agency agreement dated October 13, 2009,
as amended on February 8, 2010, pursuant to which the Company paid Maxim cash commissions of $351,730 for its services.
The Company also granted Maxim the
right of first negotiation to co-manage any public underwriting or private placement of debt or equity securities, subject to customary exclusions, of
the Company or any subsidiary or successor of the Company, receiving the right to underwrite or place a minimum of 50% of the securities to be sold
therein, until eighteen months after completion of the offering of the 2010 Notes and related warrants.
On March 30, 2011, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the
Existing Convertible Notes), pursuant to
F-15
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
which the holders agreed to amend the Existing Convertible Notes so that all
principal and accrued interest on the Existing Convertible Notes will automatically convert upon the consummation of the Rights Offering (as
discussed below) into the right to receive a pro rata share (based on the aggregate original principal amount of the Existing Convertible
Notes) of the Milestone Payments (as discussed below).
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The amendment agreement with the
holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would terminate and be of no
further force and effect upon the consummation of the Rights Offering (as discussed below).
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from March 31, 2011 to June 30,
2011.
Note 6 License
Agreements:
On March 23, 2011, the Company
entered into an amendment to the Dong Wha License Agreement, pursuant to which (i) the deadline for the Companys obligation to pay
$200,000 to Dong Wha was extended from February 28, 2011 to March 28, 2011 and such payment was made on such date, (ii) the deadline for the
Companys obligation to consummate an equity offering yielding at least $10 million in net proceeds was extended from
February 28, 2011 to June 30, 2011 and (iii) the Company was required to obtain by April 6, 2011 a financing commitment for $3 million to fund
its operations and clinical trials pending the consummation of the proposed equity offering, which requirement was satisfied by the Backstop
Commitment Agreement (as discussed below), and the Company is required to diligently continue its Phase 2 CAP trial without interruption
or delay until the completion of the proposed equity offering. The amendment also provides that if the Company fails to comply with these
provisions , Dong Wha will have the right to terminate the license agreement at anytime within 90 days of such failure. The Company does
not expect to complete an equity offering by June 30, 2011 and is in the process of negotiating with Dong Wha for an extension of such deadline.
If the Company fails to obtain an extension of such deadline, Dong Wha will have the right to terminate the license agreement at anytime
within 90 days of the Companys failure to meet such deadline.
Note 7 Subsequent
events:
The Company has evaluated subsequent
events through June 24, 2011, the date at which the financial statements were available to be issued.
On April 6, 2011, the Company
entered into a Backstop Commitment Agreement (the Backstop Agreement) with Manchester Securities Corp. (Manchester) and
Dr. Lindsay Rosenwald, M.D., the Chairman, Chief Executive Officer and sole stockholder of Paramount BioCapital, Inc. (together, the
Backstop Investors), in connection with the Companys rights offering to the holders of the Existing Convertible Notes to
subscribe for a pro rata share of a new issue of secured convertible notes (the Rights Offering Notes), in the aggregate
principal amount of $3,000,000 (the Rights Offering). Pursuant to the Backstop Agreement, each Backstop Investor agreed to
purchase an aggregate principal amount of Rights Offering Notes equal to 50% of the difference between (i) $3,000,000 and (ii) the aggregate
principal amount of Rights Offering Notes subscribed for in the Rights Offering. The Rights Offering Notes to be purchased by Backstop Investors
are to be purchased following the consummation of Rights Offering based upon the request of the Company on up to three occasions.
$602,730 in aggregate principal amount of such Rights Offering Notes was purchased by the Backstop Investors on June 10,
2011.
F-16
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
As compensation for the commitments
provided in the Backstop Agreement, each Backstop Investor received warrants to purchase $1,500,000 of common stock at an exercise price equal
to the price at which the common stock is sold in an underwritten initial public offering of the Companys equity securities
(IPO) (the Backstop Warrants). The Backstop Warrants will become exercisable upon the consummation of an IPO and
have a term of five years. The Backstop Warrants issued to Manchester contain certain anti-dilution protections that were not in the Backstop
Warrants issued to Dr. Rosenwald. Pursuant to the amendment agreements with the holders of the 2007 Notes and 2010 Notes described above, Dr.
Rosenwald assigned his Backstop Warrants to all the holders of the 2007 Notes and 2010 Notes (other than the Backstop Investors and their
affiliates) on a pro rata basis.
In addition, pursuant to the
Backstop Agreement, following consummation of the Rights Offering, Manchester and Dr. Rosenwald will each have the right to consent to any
material action taken by the Company prior to the consummation of an IPO and Manchester will have the right to designate one member of the
Companys board of directors.
In connection with the Rights
Offering, which commenced on April 8, 2011 and expired on April 22, 2011, holders of Existing Notes subscribed for $1,794,539 in aggregate
principal amount of Rights Offering Notes. Such amounts were received on or before April 29, 2011.
The Rights Offering Notes are
secured by all the Companys assets and accrue interest at the rate of 5% per annum with a maturity date of April 22, 2012. Under the terms
of the Rights Offering Notes, upon the consummation of a Qualified IPO, the outstanding principal amount of the Rights Offering Notes, and all
accrued interest thereon, will automatically convert into shares of common stock equal to 100% of the Companys common stock
outstanding immediately prior to the consummation of a Qualified IPO (other than restricted shares granted to the Companys employees with
the consent of each of the Backstop Investors) at a conversion price equal to the price at which shares of common stock are sold in a Qualified
IPO. However, the Company may, at its option, elect to prepay a portion of the unpaid principal and accrued interest of the Rights Offering
Notes, in an amount not to exceed $1,000,000 in the aggregate, out of the proceeds of a Qualified IPO in lieu of the conversion of such
amount, provided that such prepayment is made to all holders of Rights Offering Notes on a pro rata basis. In the event the Company exercises
such prepayment right, the Company must provide a written notice to the holders of the Rights Offering Notes at least 10 days prior to the
anticipated closing of a Qualified IPO setting forth the aggregate amount of principal and accrued interest of the Rights Offering Notes
that the Company will prepay out of the proceeds of a Qualified IPO. For purposes of the Rights Offering Notes, Qualified IPO
means the completion of an underwritten initial public offering of the Companys equity securities resulting in aggregate gross cash
proceeds (before commissions or other expenses) to the Company of at least $10,000,000.
Pursuant to an amendment agreement
dated as of June 10, 2011, the holders of the Rights Offering Notes agreed to amend the Rights Offering Notes to exclude restricted shares
granted to the Companys employees with the consent of the Backstop Investors from the calculation of the percentage of common stock
outstanding immediately prior to the consummation of a Qualified IPO.
On April 27, 2011, Mr. Mark Lotz
forfeited his ownership of an option to purchase 2 shares of the Companys common stock, with an exercise price of $45,600 (after giving
effect to a 1-for-48 reverse stock split effected on January 19, 2011 and a 1-for-1,000 reverse stock split effected on April 29,
2011).
On April 29, 2011, the Company
effected a 1-for-1,000 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein
have been adjusted to reflect the effects of the 1-for-1,000 reverse stock split.
On April 29, 2011, as a result of
the reverse stock split, the shares of common stock of each stockholder of the Company owning 999 or less shares immediately prior to the
effective time of the reverse stock split have been cancelled and converted into the right to receive from the Company cash consideration in the
amount of $0.10 per pre-split share (the Cash Out Price). Stockholders owning 1,000 or more shares prior to the
reverse
F-17
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO CONDENSED FINANCIAL STATEMENTS
stock split and the officers and directors of the Company entered into stock
repurchase agreements with the Company under which the Company repurchased their shares of common stock prior to the reverse stock split at
the Cash Out Price for stockholders who were not affiliates and at par value for officers, directors and stockholders who were affiliates,
except that Lindsay A. Rosenwald, M.D. retained 1,000 shares of common stock that converted into 1 share of common stock upon consummation of
the reverse stock split.
On June 10, 2011, the Company
entered into an offer letter with Michael S. Weiss setting forth certain terms and conditions pursuant to which Mr. Weiss would be appointed as
the Companys Executive Chairman of the Board upon the execution of a mutually agreeable definitive employment agreement with the
Company. Under the offer letter, Mr. Weiss agreed to join the Company as an unsalaried employee pending execution of such employment
agreement. Pursuant to the offer letter, the employment agreement will provide that Mr. Weiss will receive an annual base salary of $180,000,
payment of which will commence upon the completion of the Companys initial public offering, and will be eligible to receive an annual
discretionary bonus in an amount up to 100% of his base salary based on the achievement of certain annual goals and objectives, as
established annually by mutual agreement between the Board of Directors and Mr. Weiss. Mr. Weiss will also receive a onetime cash bonus
of $150,000 upon completion of the Companys initial public offering.
Pursuant to the offer
letter and as an inducement for Mr. Weiss to accept the position of Executive Chairman, the Company
granted Mr. Weiss 950,000 restricted shares of the Companys common stock on
a stand-alone basis, outside the Companys Amended and Restated 2007 Stock Incentive Plan, pursuant to a Stand-Alone Restricted Stock Award
Agreement. The restricted shares will be subject to a one-time vesting on the tenth anniversary of the grant date provided that Mr. Weiss
remains an officer or director of the Company on such date. However, the restricted shares may vest earlier upon the
achievement of the following market capitalization milestones: (a) 50% of the restricted shares will vest the first time that the Companys
fully diluted market capitalization exceeds $100,000,000 for a period of ten consecutive trading days during the term of Mr. Weisss
employment; and (b) 50% of the restricted shares will vest the first time that the Companys fully diluted market capitalization exceeds
$200,000,000 for a period of ten consecutive trading days during the term of Mr. Weisss employment.
Under the offer letter, the Company
will have the right to repurchase up to 150,000 of the restricted shares granted to Mr. Weiss, at a price of $0.01 per share, if the gross
proceeds of the Companys initial public offering are less than $20,000,000. The exact number of restricted shares subject to this
repurchase right will be equal to the product of (a) 150,000 multiplied by (b) the quotient of (i) the difference between $20,000,000 and
the actual gross proceeds of such offering divided by (ii) 3,500,000. This repurchase right may be exercised by the
Company at any time during the 30-day period following the completion of its initial public offering.
In addition, the offer letter
provides that following the completion of the Companys initial public offering and any subsequent equity financing until such time as the
Company has raised an aggregate of $25,000,000 in additional equity financings, Mr. Weiss will be granted options to purchase additional shares
of common stock so that the total number of restricted shares held by Mr. Weiss, plus all shares underlying options held by him, will
equal 10% of the common stock outstanding following the Companys initial public offering or such financing on a fully diluted basis. Any
such options granted to Mr. Weiss will vest in three equal installments on each of the first three anniversaries of the grant
date.
F-18
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
Page
|
|
|
|
|
|
F- 20 |
|
|
|
|
|
|
|
|
December 31,
2010 and 2009 (Restated) |
|
|
|
|
F- 21 |
|
|
|
|
|
|
|
|
Years ended
December 31, 2010 and 2009 (Restated) and the period from October 5, 2006 (Inception) to December 31,
2010 |
|
|
|
|
F- 22 |
|
|
|
|
|
|
|
|
Period from
October 5, 2006 (Inception) to December 31, 2010 |
|
|
|
|
F- 23 |
|
|
|
|
|
|
|
|
Years ended
December 31, 2010 and 2009 (Restated) and the period from October 5, 2006 (Inception) to December 31, 2010
|
|
|
|
|
F- 24 |
|
|
|
|
|
|
F- 25 F- 48 |
|
F-19
Table of Contents
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
IASO Pharma
Inc.
We have audited the accompanying
balance sheets of IASO Pharma Inc., formerly known as Pacific Beach BioSciences, Inc., (A Development Stage Company) as of December 31,
2010 and 2009 , and the related statements of operations, changes in stockholders deficiency and cash flows for the
years then ended and for the period from October 5, 2006 (Inception) to December 31, 2010 . These financial statements are the
responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial position of IASO Pharma Inc. as of December 31, 2010
and 2009 , and its results of operations and cash flows for the years then ended and for the period from October 5, 2006
(Inception) to December 31, 2010 , in conformity with accounting principles generally accepted in the United States of
America.
As discussed in Note 9, the Company
restated its 2009 financial statements.
The accompanying financial statements
have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company incurred a
net loss of $ 8,964,194 for the year ended December 31, 2010 and, as of that date, had a deficit accumulated during
the development stage of $ 24,540,678 . These matters, among others, raise substantial doubt about the Companys ability to
continue as a going concern. Managements plans concerning these matters are also described in Note 1. The accompanying financial statements do
not include any adjustments that might result from the outcome of this uncertainty.
/s/ J.H. Cohn LLP
Roseland, New Jersey
June 24,
2011
F-20
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
December 31, 2010 |
|
December 31, 2009 (Restated
See Note 9)
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
$115,165 |
|
|
$ |
10,728 |
|
Other current
assets |
|
|
|
|
8,250 |
|
|
|
8,535 |
|
|
Total current
assets |
|
|
|
|
123,415 |
|
|
|
19,263 |
|
|
Office
equipment, net of accumulated depreciation of $ 30,017 and $ 21,340 |
|
|
|
|
16,330 |
|
|
|
20,416 |
|
Other assets
|
|
|
|
|
864,404 |
|
|
|
50,500 |
|
|
Total assets
|
|
|
|
|
$1,004,149 |
|
|
|
$90,179 |
|
|
LIABILITIES AND STOCKHOLDERS DEFICIENCY
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
|
|
$3,169,284 |
|
|
$ |
2,037,683 |
|
Borrowings
under line of credit agreement |
|
|
|
|
325,000 |
|
|
|
150,000 |
|
2007 senior convertible notes |
|
|
|
|
4,340,000 |
|
|
|
4,340,000 |
|
Interest
payable 2007 senior convertible notes |
|
|
|
|
1,354,245 |
|
|
|
800,730 |
|
Repayment
premium payable 2007 senior convertible notes |
|
|
|
|
1,743,579 |
|
|
|
102,210 |
|
Notes payable
related parties |
|
|
|
|
2,028,205 |
|
|
|
2,777,205 |
|
Interest
payable related parties |
|
|
|
|
553,617 |
|
|
|
378,252 |
|
Repayment
premium payable related parties |
|
|
|
|
1,039,003 |
|
|
|
261,886 |
|
Interest
payable Paramount Credit Partners, LLC |
|
|
|
|
277,686 |
|
|
|
205,811 |
|
Deferred
revenue sublicense |
|
|
|
|
37,714 |
|
|
|
37,714 |
|
|
Total current
liabilities |
|
|
|
|
14,868,333 |
|
|
|
11,091,491 |
|
|
Notes payable
Paramount Credit Partners, LLC (net of discount of $ 689,269 and $ 917,451) |
|
|
|
|
2,185,731 |
|
|
|
1,957,549 |
|
2010 senior convertible notes (net of discount of $918,225) |
|
|
|
|
3,424,775 |
|
|
|
|
|
Interest
payable 2010 senior convertible notes |
|
|
|
|
307,036 |
|
|
|
|
|
Deferred
revenue sublicense |
|
|
|
|
578,286 |
|
|
|
616,000 |
|
|
Total
liabilities |
|
|
|
|
21,364,161 |
|
|
|
13,665,040 |
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders deficiency:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock, $.001 par value; 5,000,000 shares authorized, none issued |
|
|
|
|
|
|
|
|
|
|
Common stock,
$.001 par value; 20,000,000 shares authorized; 93 shares issued and outstanding at December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
Additional
paid-in capital |
|
|
|
|
4,180,666 |
|
|
|
2,001,623 |
|
Deficit
accumulated during the development stage |
|
|
|
|
(24,540,678 |
) |
|
|
( 15,576,484 |
) |
|
Total
stockholders deficiency |
|
|
|
|
(20,360,012 |
) |
|
|
( 13,574,861 |
) |
|
Total
liabilities and stockholders deficiency |
|
|
|
|
$1,004,149 |
|
|
|
$90,179 |
|
See Notes to Financial Statements
F-21
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
Year Ended December 31, 2010
|
|
Year Ended December 31,
2009 (Restated See Note 9)
|
|
Period from October 5, 2006 (Inception) to
December 31, 2010
|
Operating
revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sublicense
|
|
|
|
$ |
37,714 |
|
|
$ |
6,286 |
|
|
$ |
44,000 |
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and
development |
|
|
|
|
2,547,262 |
|
|
|
2,679,323 |
|
|
|
13,123,094 |
|
General and
administrative |
|
|
|
|
1,027,905 |
|
|
|
421,628 |
|
|
|
3,318,343 |
|
Total
operating expenses |
|
|
|
|
3,575,167 |
|
|
|
3,100,951 |
|
|
|
16,441,437 |
|
Loss from
operations |
|
|
|
|
( 3,537,453 |
) |
|
|
( 3,094,665 |
) |
|
|
( 16,397,437 |
) |
|
Interest
income |
|
|
|
|
2,243 |
|
|
|
|
|
|
|
30,102 |
|
Interest
expense, including amortization of debt discount and deferred financing costs and accrual of
repayment premium |
|
|
|
|
( 5,428,984 |
) |
|
|
( 1,453,942 |
) |
|
|
( 8,173,343 |
) |
|
Net loss
|
|
|
|
$ |
( 8,964,194 |
) |
|
$ |
( 4,548,607 |
) |
|
$ |
( 24,540,678 |
) |
|
Basic and
diluted net loss per common share |
|
|
|
$ |
( 96,389.18 |
) |
|
$ |
( 48,909.75 |
) |
|
|
|
|
|
Weighted
average common shares outstanding basic and diluted |
|
|
|
|
93 |
|
|
|
93 |
|
|
|
|
|
See Notes to Financial Statements
F-22
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
STATEMENT OF CHANGES IN
STOCKHOLDERS DEFICIENCY
Period from October 5, 2006 (Inception) to December 31, 2010
|
|
|
|
Common Stock
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Additional Paid-in Capital
|
|
Stock Subscription Receivable
|
|
Deficit Accumulated During the
Development Stage
|
|
Total
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(243,542 |
) |
|
$ |
(243,542 |
) |
Balance at
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(243,542 |
) |
|
|
(243,542 |
) |
Issuance of
common stock to founders and employees at $ 48.00 per share in March and April 2007 |
|
|
|
|
93 |
|
|
$ |
|
|
|
$ |
4,480 |
|
|
$ |
(52 |
) |
|
|
|
|
|
|
4,428 |
|
Warrants
issued to placement agent in connection with senior convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
358,262 |
|
|
|
|
|
|
|
|
|
|
|
358,262 |
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
188,313 |
|
|
|
|
|
|
|
|
|
|
|
188,313 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,607,212 |
) |
|
|
(5,607,212 |
) |
Balance at
December 31, 2007 |
|
|
|
|
93 |
|
|
|
|
|
|
|
551,055 |
|
|
|
(52 |
) |
|
|
(5,850,754 |
) |
|
|
(5,299,751 |
) |
Stock
subscription receipts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
260,406 |
|
|
|
|
|
|
|
|
|
|
|
260,406 |
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,177,123 |
) |
|
|
(5,177,123 |
) |
Balance at
December 31, 2008 |
|
|
|
|
93 |
|
|
|
|
|
|
|
811,461 |
|
|
|
|
|
|
|
(11,027,877 |
) |
|
|
(10,216,416 |
) |
Stock-based
compensation |
|
|
|
|
|
|
|
|
|
|
|
|
49,247 |
|
|
|
|
|
|
|
|
|
|
|
49,247 |
|
Warrants
issued in connection with 10% notes to PCP |
|
|
|
|
|
|
|
|
|
|
|
|
1,140,915 |
|
|
|
|
|
|
|
|
|
|
|
1,140,915 |
|
Net loss
(Restated See Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,548,607 |
) |
|
|
(4,548,607 |
) |
Balance at
December 31, 2009 (Restated See Note 9) |
|
|
|
|
93 |
|
|
|
|
|
|
|
2,001,623 |
|
|
|
|
|
|
|
(15,576,484 |
) |
|
|
(13,574,861 |
) |
Stock-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
6,058 |
|
|
|
|
|
|
|
|
|
|
|
6,058 |
|
Warrants
issued in connection with convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
2,172,985 |
|
|
|
|
|
|
|
|
|
|
|
2,172,985 |
|
Net
loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( 8,964,194 |
) |
|
|
( 8,964,194 |
) |
Balance at
December 31, 2010 |
|
|
|
|
93 |
|
|
$ |
|
|
|
$ |
4,180,666 |
|
|
$ |
|
|
|
$ |
( 24,540,678 |
) |
|
$ |
( 20,360,012 |
) |
See Notes to Financial Statements
F-23
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
|
|
|
|
Year ended December 31, 2010 |
|
Year ended December 31, 2009 (Restated
See Note 9)
|
|
Period from October 5, 2006 (Inception) to
December 31, 2010
|
Cash flows
from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
$ |
( 8,964,194 |
) |
|
$ |
(4,548,607 |
) |
|
$ |
(24,540,678 |
) |
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based
compensation |
|
|
|
|
6,058 |
|
|
|
49,247 |
|
|
|
504,024 |
|
Amortization
of deferred financing costs and debt discount |
|
|
|
|
1,179,514 |
|
|
|
235,464 |
|
|
|
2,082,068 |
|
Warrants
issued in connection with related party note conversion |
|
|
|
|
505,694 |
|
|
|
|
|
|
|
505,694 |
|
Interest
payable 2007 senior convertible notes |
|
|
|
|
553,515 |
|
|
|
432,365 |
|
|
|
1,354,245 |
|
Repayment
premium payable 2007 senior convertible notes |
|
|
|
|
1,641,369 |
|
|
|
102,210 |
|
|
|
1,743,579 |
|
Expenses paid
on behalf of the Company satisfied through the issuance of notes |
|
|
|
|
|
|
|
|
354 |
|
|
|
263,205 |
|
Interest
payable related part ies |
|
|
|
|
175,365 |
|
|
|
156,496 |
|
|
|
553,617 |
|
Repayment
premium payable related parties |
|
|
|
|
777,117 |
|
|
|
261,886 |
|
|
|
1,039,003 |
|
Interest
payable Paramount Credit Partners, LLC |
|
|
|
|
71,875 |
|
|
|
205,811 |
|
|
|
277,686 |
|
Interest
payable 2010 senior convertible notes |
|
|
|
|
307,036 |
|
|
|
|
|
|
|
307,036 |
|
Depreciation
|
|
|
|
|
8,677 |
|
|
|
8,351 |
|
|
|
30,017 |
|
Amortization
of deferred revenue |
|
|
|
|
(37,714 |
) |
|
|
(6,286 |
) |
|
|
( 44,000 |
) |
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other current
assets |
|
|
|
|
285 |
|
|
|
1,580 |
|
|
|
( 8,250 |
) |
Other assets
|
|
|
|
|
|
|
|
|
8,693 |
|
|
|
|
|
Accounts
payable and accrued expenses |
|
|
|
|
1,131,600 |
|
|
|
(1,418,979 |
) |
|
|
3,169,283 |
|
Deferred
revenue sublicense |
|
|
|
|
|
|
|
|
660,000 |
|
|
|
660,000 |
|
|
Net cash used
in operating activities |
|
|
|
|
(2,643,803 |
) |
|
|
(3,851,415 |
) |
|
|
( 12,103,471 |
) |
|
Cash flows
from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of
office and computer equipment |
|
|
|
|
(4,591 |
) |
|
|
|
|
|
|
( 46,347 |
) |
|
Cash flows
from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from 2010 senior convertible notes |
|
|
|
|
3,343,000 |
|
|
|
|
|
|
|
3,343,000 |
|
Proceeds from
notes payable to Paramount Credit Partners, LLC |
|
|
|
|
|
|
|
|
2,875,000 |
|
|
|
2,875,000 |
|
Proceeds from
notes payable to related party |
|
|
|
|
251,000 |
|
|
|
1,000,000 |
|
|
|
4,365,000 |
|
Proceeds
from 2007 senior convertible notes |
|
|
|
|
|
|
|
|
|
|
|
|
4,340,000 |
|
Payments for deferred financing costs |
|
|
|
|
(1,016,169 |
) |
|
|
(62,500 |
) |
|
|
( 1,387,497 |
) |
Proceeds from
utilization of line of credit |
|
|
|
|
175,000 |
|
|
|
100,000 |
|
|
|
325,000 |
|
Repayment of
amounts loaned under related party notes |
|
|
|
|
|
|
|
|
(100,000 |
) |
|
|
(1,600,000 |
) |
Proceeds from
receipt of stock issuances |
|
|
|
|
|
|
|
|
|
|
|
|
4,480 |
|
|
Net cash
provided by financing activities |
|
|
|
|
2,752,831 |
|
|
|
3,812,500 |
|
|
|
12,264,983 |
|
|
Net
(decrease) / increase in cash |
|
|
|
|
104,437 |
|
|
|
(38,915 |
) |
|
|
115,165 |
|
Cash, beginning
of period |
|
|
|
|
10,728 |
|
|
|
49,643 |
|
|
|
|
|
|
Cash, end of
period |
|
|
|
|
$115,165 |
|
|
|
$10,728 |
|
|
$ |
115,165 |
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued
to placement agent |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
358,262 |
|
Warrants issued
to investors |
|
|
|
|
$1,667,291 |
|
|
|
$1,140,915 |
|
|
$ |
2,208,206 |
|
Stock issued to
founders and employees |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
52 |
|
Conversion
of PBS Notes to 2010 senior convertible notes |
|
|
|
$ |
1,000,000 |
|
|
$ |
|
|
|
$ |
1,000,000 |
|
|
Supplemental
disclosure of cash flow data cash paid for interest |
|
|
|
|
$217,499 |
|
|
|
$59,710 |
|
|
$ |
310,415 |
|
See Notes to Financial Statements
F-24
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 1 Organization, Business and
Basis of Presentation:
Organization and business:
IASO Pharma Inc., formerly known as
Pacific Beach BioSciences, Inc. (IASO or the Company), was incorporated in the State of Delaware on October 5, 2006. The
Company changed its name from Pacific Beach BioSciences, Inc. to IASO Pharma Inc. on April 12, 2010. IASO is a biopharmaceutical company developing
therapeutics for the treatment and prevention of infectious diseases.
Basis of presentation:
The Companys primary activities
since incorporation have been organizational activities, including recruiting personnel, establishing office facilities, acquiring licenses for its
pharmaceutical compound pipeline, performing business and financial planning, performing research and development and raising funds through the
issuance of debt and common stock. The Companys planned principal operations have not yet commenced; accordingly, the Company is considered to be
in the development stage. The Companys activities comprise one operating segment.
The Companys financial statements
have been prepared on a going concern basis which contemplates the realization of assets and the settlement of liabilities and commitments through the
normal course of business. For the year ended December 31, 2010 and the period from October 5, 2006 (inception) to December 31,
2010 , the Company incurred net losses of $ 8,964,194 and $ 24,540,678 , respectively. The Company has a
stockholders deficiency as of December 31, 2010 of $ 20,360,012 . Management believes that the Company will continue to
incur losses for the foreseeable future and will need additional equity or debt financing or will need to generate revenue from the licensing of its
products or by entering into strategic alliances to be able to sustain its operations until it can achieve profitability and positive cash flows, if
ever. Management plans to seek additional debt and/or equity financing for the Company, but cannot assure that such financing will be available on
acceptable terms, or at all. These matters raise substantial doubt about the Companys ability to continue as a going concern. The accompanying
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Reverse Stock Split s :
On January 19, 2011, the Company
effected a 1-for-48 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein have been
adjusted to reflect the effects of the 1-for-48 reverse stock split.
On April 29, 2011, the Company
effected a 1-for-1,000 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein
have been adjusted to reflect the effects of the 1-for-1,000 reverse stock split.
Note 2 Summary of Significant Accounting
Policies:
Cash:
Financial instruments that potentially
subject the Company to concentrations of credit risk consist principally of cash. The Company maintains its cash in bank deposit and other accounts,
the balances of which, at times, may exceed Federally insured limits.
Use of estimates:
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
F-25
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
statements and reported amounts of
revenue and expenses during the reporting period. Actual results could differ from those estimates.
Office equipment:
Office equipment is stated at cost and
depreciated using the straight-line method over the estimated useful life of five years.
Stock based compensation:
The Company accounts for stock options
granted to employees according to the Financial Accounting Standards Board Accounting Standards Codification No. 718 (ASC 718),
Compensation Stock Compensation. Under ASC 718, share-based compensation cost is measured at grant date, based on the estimated fair
value of the award, and is recognized as expense over the employees requisite service period on a straight-line basis. The Company accounts for
stock options and warrants granted to non-employees on a fair value basis in accordance with ASC 718 using the Black-Scholes option pricing method. The
initial non-cash charge to operations for non-employee options and warrants with vesting are revalued at the end of each reporting period based upon
the change in the fair value of the options and recognized as consulting expense over the related vesting period.
For the purpose of valuing options and
warrants granted to employees and non-employees the Company uses the Black-Scholes option pricing model utilizing the assumptions noted in the
following table. To determine the risk-free interest rate, the Company utilized the U.S. Treasury yield curve in effect at the time of grant with a
term consistent with the expected term of the Companys awards. The Company estimated the expected life of the options granted based on
anticipated exercises in the future periods assuming the success of its business model as currently forecasted. For warrants and non-employee options,
the Company used the contractual term of the warrant or option as the expected term. The expected dividend yield reflects the Companys current
and expected future policy for dividends on its common stock. The expected stock price volatility for the Companys stock options was calculated
by examining historical volatilities for publicly traded industry peers as the Company does not have any trading history for its common stock. The
Company will continue to analyze the expected stock price volatility and expected term assumptions as more historical data for the Companys
common stock becomes available. Given the limited service period for its current employees and non-employees and the senior nature of the roles of
those employees, the Company currently estimates that it will experience no forfeitures for those options currently outstanding.
|
|
|
|
2010
|
|
2009
|
Risk-free
interest rate |
|
|
|
|
2.28% 2.32 |
% |
|
|
3.39 |
% |
Expected
volatility |
|
|
|
|
100.0% 110.0 |
% |
|
|
110.0 |
% |
Expected term
of options and warrants |
|
|
|
|
5 |
|
|
|
5 |
|
Expected
dividend yield |
|
|
|
|
0 |
% |
|
|
0 |
% |
Research and development:
Research and development costs,
including license fees, are expensed as incurred.
Income taxes:
Under Accounting Standards Board
Accounting Standards Codification No. 740 (ASC 740), Income Taxes, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period
F-26
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
that includes the enactment date.
Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized.
Loss per common share:
Basic earnings (loss) per common share
excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted
earnings per common share reflect the potential dilution that could occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. Since the Company has only
incurred losses, basic and diluted loss per share is the same. The amount of potentially dilutive securities excluded from the calculation was
8 shares of common stock being held in escrow, warrants and options at December 31, 2010 and 2009 . The number
of warrants issued to placement agents that are potentially dilutive and are excluded from the calculation related to the issuance of senior
convertible notes (see Note 9), based upon an exercise price of $ 48,000.00 (lowest possible conversion price), at December 31, 2010
and 2009 is 9. The number of warrants issued to investors that are potentially dilutive and are excluded from the calculation
related to the issuance of senior convertible notes, based upon an exercise price of $ 48,000.00 (lowest possible conversion price), at
December 31, 2010 and 2009 is 87 and 24, respectively.
Fair value measurements:
The carrying value of the senior
convertible notes and related party notes approximate fair value due to the short-term nature of these items and the related interest rate approximates
market rates. Since the senior convertible and related party notes have been recorded at carrying value there has been no change in the value between
reporting periods.
Milestone payments and upfront
payments:
The Company recognizes milestone
payments and upfront payments over the term of the sublicense. The Companys deferred revenue consists of milestone and upfront payments received
and is being recognized on a straight-line basis over the term of the sublicense agreement, which is the remaining patent life of the sublicensed
technology. Annual sublicense revenue to be recognized approximates $38,000 based on the Companys existing sublicense agreement.
Accounting for Convertible Debt, Debt Issued with Stock
Purchase Warrants and Debt Modifications:
In accordance with ASC Topic 470-20,
Debt with Conversion and Other Options, the proceeds from any debt financing in which the Company issues warrants to purchase its common
stock are allocated to the warrants and the debt based upon their estimated relative fair values as of the closing date. The portion of the proceeds
allocated to the warrants is accounted for as additional paid-in capital and a reduction in the carrying value of the related debt. This debt discount
is amortized to interest expense from the issuance date through the maturity date of the debt using the straight-line method.
When the convertible feature of
convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature
(BCF). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and
any detachable free-standing instruments that are included, such as common stock warrants. The Companys existing convertible notes
had BCFs, however, the number of shares to be issued upon conversion of such convertible notes would only have been
determined if a Qualified Financing (as defined in the notes) was completed. Accordingly, pursuant to ASC Topic 470-20-25,
at the Companys outstanding convertible notes were issued the conversion of such notes and, therefore, the recording of the
related BCFs, was contingent upon the completion of a Qualified Financing.
As a result of the modifications to
the Companys outstanding convertible notes under the amendment agreements dated March 30, 2011, pursuant to which such notes automatically
converted into the right to receive
F-27
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Milestone Payments upon the consummation of the Rights Offering on April 29,
2011 , the BCFs associated with such notes were eliminated and the Company did not record any beneficial conversion charge
to interest expense in connection with the conversion of such notes.
Modifications to convertible debt are
recorded in accordance with ASC Topic 470-50, Modifications and Extinguishments of Convertible Debt. A modification of a debt instrument in
a non-troubled situation is deemed to have been accomplished with debt instruments that are substantially different if the present value of the cash
flows under the terms of the new debt instrument is at least 10 percent different from the present value of the remaining cash flows under the terms of
the original instrument. The modifications to the Companys convertible notes through December 31, 2010 have either been contingent
upon the occurrence of certain events or have not resulted in a change in excess of 10 percent in the present value of the aggregate cash flows
associated with the applicable notes. Accordingly, no charge has been recognized for debt modifications.
As a result of the restructuring
of the Companys convertible notes pursuant to amendment agreements dated March 30, 2011, with the holders of
the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the Existing Convertible Notes), the holders agreed to
amend the Existing Convertible Notes so that all principal and accrued interest on the Existing Convertible Notes will automatically convert
upon the consummation of the Rights Offering (as discussed below) on April 29, 2011 into the right to receive a pro rata share (based on
the aggregate original principal amount of the Existing Convertible Notes) of the Milestone Payments (as discussed below). The amendment
agreement with the holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would
terminate and be of no further force and effect upon the consummation of the Rights Offering.
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The restructuring of the Existing
Convertible Notes into Milestone Payment Rights will be recorded in accordance with ASC 470-60-15, Troubled Debt Restructurings by
Debtors. A restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the
debtors financial difficulties grants a concession to the debtor that it would not otherwise consider. The
Company will record the Milestone Payments, if any, when they occur first as a reduction of the carrying amount of the debt until the liability
is extinguished, and subsequently as interest expense until the total Milestone Payments have been recognized.
Recently issued accounting
standards:
In March 2010, the Financial Accounting
Standards Board ratified the consensus of the Emerging Issues Task Force included in EITF Issue No. 08-9, Milestone Method of Revenue
Recognition. (ASC Topic 605.28; ASU No. 2010-17). The milestone method is optional by arrangement and generally provides that upon achievement of
a substantially uncertain milestone, the related milestone payment may be recognized in income in its entirety. The update is effective for
revenue arrangements entered into or modified in fiscal years beginning on or after June 15, 2010. The adoption of this update did not
have a material impact on our financial statements.
Note 3 Related Party Transactions:
Consulting services:
Effective June 2007, the Company began
accruing monthly fees for consulting services at a rate of $25,000 per month to Paramount BioSciences, LLC (PBS), an affiliate of a
significant investor in the
F-28
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Company. Consulting services
expense was $ 0 for the years ended December 31, 2010 and 2009, and $375,000 for the period from
October 5, 2006 (inception) to December 31, 2010, respectively. As of December 31, 2010 and 2009, the Company had $375,000
outstanding under this arrangement which is included in accrued expenses . This agreement was terminated as of August 31,
2008.
Notes payable:
On December 1, 2006, the Company issued
an 8% promissory note payable to PBS. All amounts outstanding under this note, which was amended and restated on September 30, 2009, were scheduled
to mature on June 30, 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of
September 16, 2010 , from December 31, 2010 pursuant to an amendment agreement dated as of December 23, 2010 and from
March 31, 2011 pursuant to an amendment agreement dated as of March 23, 2011), or earlier if certain events occur. All amounts outstanding
under this note would have automatically convert ed into the Companys equity securities issued in the Companys next
equity financing (or series of related equity financings) prior to the maturity date involving the sale of securities in which the Company receives at
least $10,000,000 in aggregate gross cash proceeds (before brokers fees or other transaction related expenses, and excluding any such proceeds
resulting from any conversion of the Companys then-existing convertible bridge notes minus the amount of aggregate gross cash proceeds to the
Company from the sale of equity or debt securities of the Company after December 14, 2009 (a Qualified Financing)), at a conversion price
equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and upon such other terms,
conditions and agreements as may be applicable in such Qualified Financing. This note also would have automatically convert ed into
equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the notes. In the event that this note would
have become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified Financing, or a
sale or merger of the Company which convert ed the note into equity securities of the Company, then in connection with the repayment of
the note, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company would have
been obligated to pay to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all
accrued and unpaid interest on the note. The Company has recorded the repayment premium as a liability and accrued it over the
remaining term of this note as of September 30, 2009, the date this note was amended to include the repayment premium feature.
Notwithstanding the foregoing, all loans (including principal and accrued interest thereon) made by PBS to the Company under this note on or after
September 30, 2009, up to $1,000,000 in the aggregate, shall immediately and automatically be converted into the same equity or derivative securities
as are issued in any equity or derivative equity financing consummated by the Company on or after September 30, 2009 that does not otherwise constitute
a Qualified Financing, on the same terms and conditions that such equity securities are offered in such non-Qualified Financing. On February 9, 2010,
$1,000,000 in principal outstanding under this note was converted into 2010 Notes pursuant to this provision. This note was issued to PBS for expenses
that PBS has paid on behalf of the Company. As of December 31, 2010 and 2009 , the principal amount outstanding under this
note is $ 1,318,205 and $ 2,067,205, respectively.
On December 1, 2006, the Company issued
an 8% promissory note payable to a trust established for the benefit of the family of the sole member of PBS. All unpaid principal and accrued and
unpaid interest outstanding under this note, which was amended and restated on September 30, 2009, were scheduled to mature on
June 30, 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of September 16,
2010 , from December 31, 2010 pursuant to an amendment agreement dated as of December 23, 2010 and from March 31, 2011 pursuant to
an amendment agreement dated as of March 23, 2011), or earlier if certain events occur. All amounts outstanding under this note
would have automatically convert ed into the Companys equity securities issued in the Companys next equity financing
(or series of related equity financings) prior to the maturity date involving the sale of securities in which the Company receives at least $10,000,000
in a Qualified Financing, at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such
Qualified Financing, and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. This note also
would have automatically convert ed into equity securities
F-29
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
of the Company immediately prior to
a sale or merger of the Company, as defined in the notes. In the event that this note would have become due and payable (whether
on the due date or earlier) prior to the consummation by the Company of a Qualified Financing, or a sale or merger of the Company which
convert ed the note into equity securities of the Company, then in connection with the repayment of the note, in addition to the payment
of the unpaid principal amount and all accrued but unpaid interest on the note, the Company would have been obligated to pay to the
noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid interest on the
note. The Company has recorded the repayment premium as a liability and accrued it over the remaining term of
this note as of September 30, 2009, the date this note was amended to include the repayment premium feature. As of December 31,
2010 and 2009 , the principal amount outstanding under this note is $660,000.
On December 18, 2008, the Company
issued an 8% promissory note payable to an entity related to the sole member of PBS. All unpaid principal and accrued and unpaid interest outstanding
under this note, which was amended and restated on September 30, 2009, were scheduled to mature on June 30, 2011
(extended from September 30, 2010 pursuant to an extension agreement dated as of September 16, 2010 , from December 31, 2010
pursuant to an amendment agreement dated as of December 23, 2010 and from March 31, 2011 pursuant to an amendment agreement dated as of March 23,
2011), or earlier if certain events occur. All amounts outstanding under this note would have automatically convert ed into the
Companys equity securities issued in the Companys next equity financing (or series of related equity financings) prior to the maturity date
involving the sale of securities in which the Company receives at least $10,000,000 in a Qualified Financing, at a conversion price equal to 70% of the
lowest per unit price paid for such securities in cash by investors in such Qualified Financing, and upon such other terms, conditions and agreements
as may be applicable in such Qualified Financing. This note also would have automatically convert ed into equity securities of the
Company immediately prior to a sale or merger of the Company, as defined in the note. In the event that this note would have become
due and payable (whether on the due date or earlier) prior to the consummation by the Company of a Qualified Financing, or a sale or merger of the
Company which convert ed the note into equity securities of the Company, then in connection with the repayment of the note, in addition to
the payment of the unpaid principal amount and all accrued but unpaid interest on the note, the Company would have been obligated to pay
to the noteholder, as a repayment premium, an amount in cash equal to 42.8571% of the aggregate principal amount plus all accrued and unpaid interest
on the note. The Company has recorded the repayment premium as a liability and accrued it over the remaining term of
this note as of September 30, 2009, the date this note was amended to include the repayment premium feature. As of
December 31, 2010 and 2009 , the principal amount outstanding under this note is $50,000.
On January 15, 2009 and June 24, 2009,
the Company issued 10% promissory notes (the PCP Notes) payable in the aggregate amount of $2,875,000 to Paramount Credit Partners, LLC
(PCP), an entity whose managing member is a significant stockholder of the Company. Interest on this note is payable quarterly, in arrears,
and the principal matures on the earlier of (i) December 31, 2013, (ii) the completion of a Qualified Financing, and (iii) the completion of a Reverse
Merger (each, as defined below). In addition, PCP received five-year warrants (PCP Warrants) to purchase, at an exercise price of 110% of
the lowest price paid for securities in a Qualified Financing, a number of shares of the Companys common stock equal to 40% of the principal
amount of the Notes purchased divided by the lowest price paid for securities in a Qualified Financing prior to the two-year anniversary of the notes.
If the Qualified Financing does not occur on or before the two-year anniversary of the notes, the PCP Warrants will be exercisable for a number of
shares of the Companys common stock equal to 40% of the principal amount of the Notes purchased divided by $ 48,000, at a per share
exercise price of $ 48,000. As of December 31, 2010 and 2009, the principal amount outstanding under these notes , net of
discount, is $2,185,731 and $1,957,549, respectively. For purposes of the PCP Notes, Qualified Financing means the closing of an equity
financing or series of related equity financings by the Company resulting in aggregate gross cash proceeds (before brokers fees or other
transaction related expenses) of at least $10,000,000. For purposes of the PCP Notes, Reverse Merger means a merger, share exchange or
other transaction or series of related transactions in which (a) the Company merges into or otherwise becomes a wholly owned subsidiary of a company
subject to the public company reporting requirements of the Securities Exchange
F-30
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Act of 1934, as amended, and (b)
the aggregate consideration payable to the Company or its stockholders in such transaction(s) (the Reverse Merger Consideration) is greater
than or equal to $10,000,000.
The Company valued the PCP Warrants
issued in January 2009 at $1,093,725 and the PCP Warrants issued in June 2009 at $47,190 using the Black-Scholes option pricing model, assuming
that the warrants were presently exercisable in the aggregate for that number of shares of the Companys common stock equal to 40%
of the principal amount of the PCP Notes, divided by $48,000 (or 1,150), at an exercise price of $52,800, and the following additional
assumptions: (i) a risk-free interest rate of 3.39%; (ii) an expected volatility of 246.18%; (iii) an expected term (contractual term) of five
years; and (iv) an expected dividend yield of 0%.
The Company has paid interest owed
to PCP for the first quarter of 2009 and the first three quarters of 2010. For the second, third and fourth quarters of 2009 and the fourth
quarter of 2010, the Company had insufficient funds to pay the quarterly interest amount owed to PCP. Interest amounts for these four
quarterly periods were paid directly by Lindsay A. Rosenwald, M.D. to PCP, pursuant to certain guarantee obligations owed by Dr.
Rosenwald under PCPs operating agreement.
Paramount BioCapital, Inc.
(PCI) acted as placement agent for the private placement of the Companys senior convertible notes in the aggregate principal amount
of $4,340,000 during 2007. (See Note 8).
Line of Credit:
On December 3, 2008, the Company, PBS
and various other private pharmaceutical companies with common ownership by the sole member of PBS entered into a loan agreement with Bank of America,
N.A. for a line of credit of $2,000,000. PBS pledged collateral securing the Companys and the other borrowers obligations to Bank of
America, N.A. under the loan agreement. Interest on amounts borrowed under the line of credit accrues and is payable on a monthly basis at an annual
rate equal to the London Interbank Offered Rate (LIBOR) plus 1%. On November 10, 2009, the parties entered into Amendment No. 1 to the Loan Agreement,
which extended the initial one-year term for an additional year, such that it currently matures on November 5, 2010, and reduced the aggregate amount
available under the line of credit to $1,000,000. Under the loan agreement, the Companys liability under the line of credit is several, not
joint, with respect to the payment of all obligations thereunder. As of December 31, 2009, the amount borrowed by the Company that
were outstanding under this line of credit was $150,000.
On November 5, 2010, the Company
repaid the amounts outstanding under the line of credit with Bank of America, N.A. with the proceeds of a new line of credit the Company entered
into with Israel Discount Bank of New York (IDB Bank) in the amount of $150,000, which is evidenced by a promissory note the
Company issued to IDB Bank on such date. On December 23, 2010, the Company entered into an amendment with IDB Bank to increase the line
of credit to $325,000. The Companys obligations under the IDB Bank line of credit are secured by cash collateral pledged by Dr. Rosenwald
from an account maintained by Dr. Rosenwald at IDB Bank. The interest rate on loans under the IDB Bank line of credit is equal to the interest
rate that IDB Bank pays to Dr. Rosenwald on the cash account pledged to secure the loans, plus 1%. Amounts borrowed under the IDB Bank
line of credit are due upon the earlier to occur of a demand by IDB Bank or November 4, 2011. As of December 31, 2010, the amount borrowed by
the Company that was outstanding under this line of credit was $325,000.
Note 4 Income Taxes:
There was no net current or deferred
income tax provision for the years ended December 31, 2010 and 2009. The Companys deferred tax assets as of
December 31, 2010 and 2009 consist of the following:
|
|
|
|
2010
|
|
2009 (Restated see Note 9)
|
Net operating
loss carryforwards Federal |
|
|
|
|
$6,973,000 |
|
|
$ |
4,506,000 |
|
Net operating
loss carryforwards State |
|
|
|
|
1,230,000 |
|
|
|
796,000 |
|
F-31
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
|
|
|
|
2010
|
|
2009 (Restated see Note 9)
|
Totals |
|
|
|
|
8,203,000 |
|
|
|
5,302,000 |
|
Less
valuation allowance |
|
|
|
|
(8,203,000 |
) |
|
|
( 5,302,000 ) |
|
Deferred tax
assets |
|
|
|
|
$ |
|
|
$ |
|
|
At December 31, 2010 , the
Company had potentially utilizable Federal and state net operating loss tax carryforwards of approximately
$ 17,076,000 , expiring through 2029.
The utilization of the Companys
net operating losses may be subject to a substantial limitation due to the change of ownership provisions under Section 382 of the Internal
Revenue Code and similar state provisions. Such limitation may result in the expiration of the net operating loss carryforwards before their
utilization.
A valuation allowance is provided when
it is more likely than not that some portion or all of the deferred tax assets will not be realized. The net change in the total valuation allowance
for the years ended December 31, 2010 and 2009 and for the period from October 5, 2006 (inception) to December 31,
2010 was $ 2,901,000, $1,731,000 and $8,203,000, respectively. The tax benefit assumed the Federal statutory
tax rate of 34% and a state tax rate of 6% and has been fully offset by the aforementioned valuation allowance.
|
|
|
|
2010
|
|
2009 (Restated see Note 9)
|
Statutory
Federal tax rate |
|
|
|
|
(34.0 |
%) |
|
|
(34.0 |
%) |
State income
taxes (net of Federal) |
|
|
|
|
(6.0 |
%) |
|
|
(6.0 |
%) |
Debt discount
amortization |
|
|
|
|
22 |
% |
|
|
5 |
% |
Effect of
valuation allowance |
|
|
|
|
18 |
% |
|
|
35 |
% |
Effective tax
rate |
|
|
|
|
|
% |
|
|
|
% |
Management believes that
the Company does not have any tax positions that will result in a material impact on the Companys financial statements because of the adoption of
ASC 740. However, managements conclusion may be subject to adjustment at a later date based on factors including additional implementation
guidance from the Financial Accounting Standards Board and ongoing analyses of tax laws, regulations and related interpretations.
Note 5 Commitments:
Employment agreements:
An employment agreement with Matthew
Wikler, M.D., became effective as of February 28, 2010. Pursuant to that employment agreement, Dr. Wikler re-joined the Company as President and Chief
Executive Officer, for an initial term of two years, which term will extend automatically for additional one-year periods unless appropriate notice is
given by one of the parties. Pursuant to the employment agreement, Dr. Wikler will receive an annual base salary of $300,000, a guaranteed annual bonus
of $60,000 on each anniversary of the effective date of the employment agreement, and a one-time bonus of $100,000 upon consummation of an initial
public offering by the Company. In addition, in full and final consideration and settlement of any amount of compensation that may be claimed by or due
to Dr. Wikler with respect to his services to the Company during his earlier term of employment with the Company, the Company paid to Dr. Wikler
$25,000 within thirty days after effectiveness of his employment agreement, and is obligated to pay to Dr. Wikler an additional $75,000 upon the
earlier of thirty days after consummation of an initial public offering by the Company or December 31, 2010, regardless of whether Dr. Wikler remains
an employee of the Company upon the earlier of such events. In addition, Dr. Wikler will be entitled to receive certain market capitalization cash
bonuses, as follows: (i) $125,000, upon the market capitalization of the Company exceeding $125,000,000; (ii) $300,000, upon the
F-32
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
market capitalization of the
Company exceeding $300,000,000; (iii) $500,000, upon the market capitalization of the Company exceeding $500,000,000; (iv) $750,000, upon the market
capitalization of the Company exceeding $750,000,000; and (v) $1,000,000, upon the market capitalization of the Company exceeding $1,000,000,000. Each
of the market capitalization bonuses are subject to certain minimum trading days and minimum volume. Dr. Wikler is also entitled to receive that number
of options so that his total ownership, as defined, of the Company, together with shares of the Companys common stock held by him, equals 7.5% of
the outstanding common stock of the Company. These options will vest in full on February 28, 2011. In addition, Dr. Wikler is entitled to receive
additional options sufficient to maintain his ownership interest at 7.5% of the outstanding common stock of the Company, on a fully diluted basis for
in-the-money derivative securities, until such time as the Company has raised at least $15,000,000 through equity or debt securities. These
options will also vest in full on February 28, 2011. The Company has agreed to make certain severance payments to Dr. Wikler in the event his
employment with the Company is terminated by the Company without cause, if he resigns for good reason, or if his employment is terminated in connection
with a change of control, equal to six months of continued base salary and health benefits, and that portion of such years guaranteed bonus,
pro-rated through the date of termination. PBS has guaranteed the payment to Dr. Wikler of an amount equal to three months of continued base salary and
health benefits, plus that portion of such years guaranteed bonus, pro-rated through the date of termination, which may be owed by the Company to
Dr. Wikler pursuant to this severance obligation. PBS guarantee terminates upon the Companys initial public offering.
On January 19, 2007, the Company
entered into an employment agreement with James Rock, pursuant to which Mr. Rock serves as the Companys Director, New Product Development. The
term of employment commenced on January 19, 2007, and is on an at will basis. Mr. Rock receives an annual base salary of $135,000, and is
eligible to receive an annual discretionary bonus up to 15% of his base salary. In 2010, Mr. Rock received a bonus of $25,000. Pursuant to an addendum
dated August 18, 2008 to the employment agreement, dated January 19, 2007, the Company has agreed to make certain severance payments to Mr. Rock in the
event his employment with the Company is terminated by the Company without cause, as defined in the employment agreement, as addended, equal to up to
three months of continued base salary and health benefits. PBS has guaranteed in full the payment of this severance obligation to Mr. Rock, until such
time as the Company has raised $20,000,000 in aggregate gross proceeds through the issuance of equity or debt securities.
On May 17, 2007, the Company entered
into an employment agreement with Mark Lotz, pursuant to which Mr. Lotz serves as the Companys Vice President, Regulatory Affairs. The term of
employment commenced on May 28, 2007, and is on an at will basis. Mr. Lotz receives an annual base salary of $220,000, and is eligible to
receive an annual discretionary bonus up to 20% of his base salary. If Mr. Lotzs employment is terminated by the Company other than as a result
of Mr. Lotzs death or disability and for reasons unrelated to cause, then the Company agreed to continue to pay Mr. Lotz his base salary and
benefits for a period of four months following the termination of his employment and pay any expense reimbursements amounts owed Mr. Lotz through the
termination of his employment. In addition, all options that have vested as of the date of Mr. Lotzs termination will remain exercisable for a
period of ninety days.
Effective July 12, 2010, the Company
entered into an employment agreement with James W. Klingler, pursuant to which Mr. Klingler serves as the Companys Chief Financial
Officer. Mr. Klinglers employment is at-will, subject to certain severance payments payable to him. Mr. Klinglers employment
agreement provides for an annual base salary of $225,000. Effective as of July 12, 2010 through September 6, 2010, Mr. Klingler was
employed on a part-time basis and was eligible to receive 50% of his base salary. Since September 7, 2010, Mr. Klingler has been employed on
a full-time basis and receives 100% of his base salary. Mr. Klingler will also be eligible to receive an additional annual discretionary bonus
in an amount equal to up to 20% of the salary earned by Mr. Klingler in the prior year, and based upon corporate and Mr. Klinglers
individual performance on our behalf in the prior year, in the Board of Directors sole discretion. The annual discretionary bonus will
be payable in a lump-sum payment or in installments, in our sole discretion. As additional compensation, Mr. Klingler will also be
eligible to receive a $60,000 bonus upon our completion of an initial public offering, payable within thirty days of the closing of such initial
public offering. Pursuant to Mr. Klinglers employment
F-33
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
agreement, as amended on December 22, 2010, Mr. Klingler will be granted options
to purchase such number of shares of common stock equal to 2% of the common stock outstanding on a fully diluted basis upon the
completion of an initial public offering (which exact number will be determined by the Compensation Committee) in accordance with the terms
of the Companys 2007 Stock Incentive Plan. Such options will vest in three equal installments over a two-year period with the first
installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively.
On December 22, 2010, the Company
entered into amendments to the employment agreements with the Companys Chief Executive Officer and its Chief Financial Officer, which
replaced their existing equity incentive compensation provisions with an agreement to grant to them, upon consummation of the Companys
proposed initial public offering, options to purchase shares of common stock representing 5% and 2%, respectively, of the common stock
outstanding upon consummation of such offering on a fully diluted basis. Also on December 22, 2010, the Companys board of directors
approved the issuance, upon consummation of the Companys proposed initial public offering, of options to purchase shares of common stock
representing 1% of the common stock outstanding upon consummation of such offering on a fully diluted basis to each of the Companys
Director of New Product Development and its Vice President of Regulatory Affairs. All such options will have an exercise price equal to
the price at which shares of common stock are sold in such offering and will vest in three equal installments over a two-year period with the
first installment vesting on the grant date and the remaining two installments vesting on the first and second anniversaries of the grant date,
respectively. On such date, the Companys board of directors also approved the issuance, upon consummation of the Companys proposed
initial public offering, of options to purchase shares of common stock representing 0.25% of the common stock outstanding upon
consummation of such offering on a fully diluted basis to each of the Companys five non-employee directors, which options will have an exercise
price equal to the price at which shares of common stock are sold in such offering and will vest in two equal installments over a one-year
period with the first installment vesting on the grant date and the remaining installment vesting on the first anniversary of the grant
date.
On May 26, 2010, the Company entered
into a one-year consulting agreement with Timothy Hofer, the Companys former Corporate Secretary, pursuant to which Mr. Hofer provides the
Company with general consulting services focused on general business and company development. Under
the terms of the consulting agreement with Mr. Hofer and as compensation for his services thereunder, the Company granted Mr. Hofer a ten-year
warrant to purchase 2 shares of the Companys common stock, subject to adjustment as described below (the Hofer Consultant
Warrant). The Hofer Consultant Warrant will become exercisable upon the consummation of a Qualified Financing at a per share exercise
price equal to the price at which shares of the Companys common stock are issued in such Qualified Financing. If a Qualified Financing
does not occur on or before September 30, 2011 (extended from September 30, 2010 pursuant to an extension agreement dated as of September 16,
2010 and from December 31, 2010 pursuant to an amendment agreement dated as of December 23, 2010, and from March 31, 2011 pursuant to an
amendment agreement dated as of March 30, 2011), then the Hofer Consultant Warrant will be immediately exercisable at a per share exercise price
equal to the fair market value of the Companys common stock, as determined pursuant to a valuation performed by an independent appraisal
firm. Under the terms of the Hofer Consultant Warrant, if the Company consummates a Qualified Financing, the number of shares of common
stock issuable upon exercise of the Hofer Consultant Warrant will be automatically adjusted so that such number of shares is equal to 1.0% of
the Companys outstanding common stock on a fully diluted basis, after giving effect to such Qualified Financing (including the conversion
of all of the Companys convertible notes triggered by such Qualified Financing). This adjustment provision will terminate once the
Company consummates a Qualified Financing. For purposes of the Hofer Consultant Warrant, a Qualified Financing means the
Companys next equity financing (or series of related equity financings) sufficient to trigger conversion of all amounts then outstanding
under the Companys senior convertible promissory notes.
F-34
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 6 Stockholders
Deficiency:
Common Stock:
During March and April 2007, the
Company issued 93 shares of common stock to its founders for $4,480, or $ 48.00 per share, of which the Company received
$4,428 in 2007 and $52 in 2008.
Common stock options and warrants:
In 2007, the Company established a
stock incentive plan (the Plan), which was amended in January 2011, under which incentive stock and/or options may be granted to officers,
directors, consultants and key employees of the Company for the purchase of up to 1,500 shares of common stock. The options have a
maximum term of ten years, vest over a period to be determined by the Companys Board of Directors and have an exercise price at or above fair
market value on the date of grant.
There were no options or warrants
issued under the Plan for the period from October 5, 2006 to December 31, 2006 or in 2009 or 2010.
During 2007, the Company granted
2 options under the Plan to an employee with an exercise price of $ 45,600.00 per share. The options granted during 2007
vest ed equally over a three-year period and have a ten - year term. The Company recorded $ 6,058 and $14,539 of
compensation expense during 2010 and 2009, respectively.
During 2008, the Company granted
1 option under the Plan to employees with an exercise price of $ 45,600.00 per share. The options granted during 2008
vests equally over a three-year period and have a ten - year term. Such options subsequently were forfeited in
2008.
A summary of the Companys stock
options activity under the Plan and related information is as follows:
|
|
|
|
2010
|
|
2009
|
|
|
|
|
|
Shares |
|
Weighted Average Exercise Price
|
|
Shares
|
|
Weighted Average Exercise Price
|
Outstanding
at beginning of year |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
2 |
|
|
|
$45,600.00 |
|
Granted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at end of year |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
2 |
|
|
|
$45,600.00 |
|
Options
exercisable at end of year |
|
|
|
|
2 |
|
|
|
$45,600.00 |
|
|
|
1 |
|
|
|
$45,600.00 |
|
The weighted average remaining
contractual life of stock options outstanding at December 31, 2010 is 6.75 years. On September 27,
2007, the Company granted 6 warrants outside of the Plan in connection with a consulting agreement with one-third of the options vesting
immediately and the remainder vesting evenly from the issuance date through June 1, 2009. These warrants are fully vested and expire on September 27,
2012. Each warrant was issued with an exercise price of $ 45,600.00 and a five - year term. Such warrants were valued
using the Black-Scholes option pricing model and the following assumptions: risk-free interest rate of 4.22%; expected volatility of 74.7%; expected
term (contractual term) of five years; and expected dividend yield of 0%. During the years ended December 31, 2010 and
2009, the Company recorded $ 0 and $ 34,708, respectively, of consulting expense to research and development
expenses, in connection with the above mentioned warrants.
F-35
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Equity instruments summary:
The following table summarizes all
equity instruments issued or granted by the Company from inception through December 31, 2010 and sets forth for each issuance/grant date,
the number of options, warrants, or shares issued or granted, the exercise price, the estimated fair value of the common stock, and the intrinsic
value, if any, per equity instrument:
Issuance/Grant Date
|
|
|
|
No. of Shares / Shares Underlying Options/
Shares Underlying Warrants
|
|
Sales Price / Exercise Price
|
|
Estimated Fair Value Per Share of Common Stock
at Issuance/Grant Date(1)
|
|
Intrinsic Value at Issuance/Grant
Date(2)
|
Common
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/21/2007
|
|
|
|
|
93 |
(3) |
|
$ |
48.00 |
|
|
$ |
48.00 |
|
|
$ |
|
|
4/16/2007
|
|
|
|
|
|
(3) |
|
|
48.00 |
|
|
|
48.00 |
|
|
|
|
|
Stock
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
2 |
|
|
|
45,600.00 |
|
|
|
56,640.00 |
|
|
|
11,040.00 |
|
2/21/2008
|
|
|
|
|
1 |
(4) |
|
|
45,600.00 |
|
|
|
34,080.00 |
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9/27/2007
|
|
|
|
|
6 |
|
|
|
45,600.00 |
|
|
|
56,640.00 |
|
|
|
11,040.00 |
|
12/14/2007
|
|
|
|
|
9 |
(5) |
|
|
48,000.00 |
(5) |
|
|
43,680.00 |
|
|
|
N/A |
|
1/15/2009
|
|
|
|
|
23 |
(6) |
|
|
48,000.00 |
(6) |
|
|
45,120.00 |
|
|
|
N/A |
|
6/24/2009
|
|
|
|
|
1 |
(6) |
|
|
48,000.00 |
(6) |
|
|
44,640.00 |
|
|
|
N/A |
|
2/09/2010
|
|
|
|
|
|
(7) |
|
|
|
(7) |
|
|
25,920.00 |
|
|
|
N/A |
|
3/01/2010
|
|
|
|
|
|
(7) |
|
|
|
(7) |
|
|
28,320.00 |
|
|
|
N/A |
|
5/26/2010
|
|
|
|
|
2 |
(8) |
|
|
|
(8) |
|
|
|
(8) |
|
|
N/A |
|
(1) |
|
All determinations of estimated fair value were made by the
Companys management, retrospectively, utilizing the market approach which uses direct comparisons to other enterprises and their equity
securities to estimate the fair value of the common shares of privately issued securities, as described in more detail below. |
(2) |
|
Intrinsic value reflects the amount by which the estimated fair
value of the common stock (as of the issuance/grant date) exceeds the exercise price of the stock option or warrant. Items in this column marked
N/A represent equity instruments for which the intrinsic value was not determinable as of the issuance/grant date because the exercise
price of such instrument was not known at the issuance/grant date. |
(3) |
|
Represents founder shares of common stock issued for
cash. |
(4) |
|
Consists of options granted to former employees in February
2008. These options were forfeited in accordance with their terms upon the termination of these employees during 2008. |
(5) |
|
See Note 8 Private Placements Senior
convertible notes for a discussion of this warrant. Under the terms of this warrant, because a Qualified Financing (as defined therein) did not
take place by December 14, 2009, this warrant became exercisable on such date into 9 shares of common stock at a per share exercise price
of $ 48,000.00 ; however, due to the contingent exercisability of this warrant at the time it was issued, the number of shares issuable
upon exercise and the exercise price of this warrant could not be determined as of the issuance date. |
(6) |
|
See Note 3 Related Party Transactions Notes
payable for a discussion of these warrants. Due to the contingent exercisability of these warrants, the number of shares issuable upon exercise,
the exercise price per share and the intrinsic value, if any, of these warrants could not be determined as of the issuance date. |
(7) |
|
See Note 8 Private Placements 2010 senior
convertible notes for a discussion of these warrants. Due to the contingent exercisability of these warrants, the number of shares
issuable upon exercise, the |
F-36
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
NOTES TO FINANCIAL STATEMENTS
|
|
exercise price per share and the intrinsic value, if
any, of these warrants could not be determined as of the issuance date. |
(8) |
|
See Note 5 Commitments Hofer Consulting
Agreement and Warrant for a discussion of this warrant. Due to the contingent exercisability of this warrant, the number of shares
issuable upon exercise, the exercise price per share and the intrinsic value, if any, of this warrant could not be determined as of the issuance
date. In addition, because this warrant does not provide for a specific exercise price in the event a Qualified Financing is not
consummated, the fair value of this warrant could not be estimated. |
The fair values of the Companys
common stock set forth in the table above and used in the Black-Scholes pricing model for valuing the Companys options and warrants were
estimated using a market based approach, a guideline transaction analysis, and a binomial lattice model using a Qualified Financing as the exit event
scenario. The fair values of the common stock were estimated based on enterprise values either implied by capital raises (i.e., financing transactions)
as of their respective dates of issuances, or the trended enterprise values (using a guideline company analysis) from those enterprise values implied
by the capital raises to the respective valuation dates.
The trended enterprise value represents
the estimated enterprise value as of a particular date based on the changes in value from a date on which an enterprise value was otherwise determined,
which changes in value are estimated using a guideline company analysis. For this guideline company analysis the Company used publicly traded
comparable companies (which are referred to as guideline companies) that were selected because they were in similar stages of product development
within the pharmaceutical industry and therefore shared similar business and financial risks. This guideline company analysis involved an analysis of
the percentage changes of the guideline companies enterprise values from valuation dates when there were capital raises for the Company to the
valuation dates when there was not a capital raise. Based on the guideline companies percentage changes in enterprise value, together with
company specific and various market factors (i.e., achievement of product milestones for guideline companies and the Company), a percentage change in
enterprise value was estimated for the Company. This estimated percentage change was then applied to the Companys enterprise value as of the most
current valuation date on which there was a capital raise to estimate the fair value of the Company on the next valuation date when there was not a
capital raise. Considering the limited passage of time between valuation dates and the nature of the Companys operations, the Company believes
that the trended enterprise value using the guideline company analysis, as described above, is the most reasonable and reliable indicator of changes in
enterprise value for the Company, as it provides a market proxy for changes in investor expectations and perception.
The following table summarizes the
derivation of the Companys enterprise value as of each of the valuation dates set forth below.
Valuation Date
|
|
|
|
Method for Derivation of Enterprise Value
|
|
Transaction
|
|
Trended From
|
9/27/2007 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
12/14/07 |
12/14/2007 |
|
|
|
Transaction |
|
2007
Notes |
|
|
2/21/2008 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
12/14/07 |
1/15/2009 |
|
|
|
Transaction |
|
PCP Notes &
Warrants |
|
|
6/24/2009 |
|
|
|
Trended Using
Guideline Company Analysis |
|
|
|
1/15/09 |
2/9/2010 |
|
|
|
Transaction |
|
2010 Notes
& Warrants |
|
|
3/1/2010 |
|
|
|
Trended
Using Guideline Company Analysis |
|
|
|
2/9/2010 |
After arriving at an enterprise value
using the valuation methodologies described above, the enterprise values were then allocated, adjusting for cash and debt, to our different equity
securities using the binomial
F-37
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
lattice model. The binomial lattice
model provides a quantitative method to estimate the relative values of securities in a companys capital structure, including its common stock,
based on the implied enterprise value from a financing transaction undertaken by the Company.
The prices that were paid by the
investors for the respective transactions identified in the above table were utilized in the binomial lattice model to imply the enterprise values of
the Company as of those respective valuation dates. As described above, for those valuation dates that utilized a trended enterprise value from the
issuance of debt (and in some cases warrants), the implied enterprise values from the capital raises were trended to the applicable valuation dates
based on consideration of the changes in enterprise values of guideline companies between those same dates using the guideline company analysis
described above.
Using the binomial lattice model, the
concluded enterprise values were allocated among the securities given the capital structure of the Company to derive an estimate for the values of the
common stock as of the respective valuation dates. An incremental lack of marketability discount of 20%25% was then applied to the values of
common stock to estimate the fair values of the common stock at the respective valuation dates.
The concluded enterprise values were
then used to solve for the internal rates of return (IRR), or discount rates, based on the cash flow projections provided by management as
of each of the respective valuation dates. The resulting implied IRRs of 32%34% were then compared to certain market benchmarks, including
venture capital rates of return, to assess the reasonableness thereof from a market based perspective.
As described above, the guideline
transaction method was utilized as additional evidence for the reasonableness of the enterprise values implied by the Companys capital raises.
First, the guideline transactions were identified, using publicly traded guideline companies in similar stages of product development within the
pharmaceutical industry. Then, the implied enterprise values of the guideline transactions were compared with the derived enterprise values of the
Company as of the respective valuation dates to assess the reasonableness thereof from a market perspective.
Note 7 License Agreements:
In June 2007, the Company entered into
an exclusive, multinational license agreement with Dong Wha for PB-101. Specifically, the Company in-licensed several quinolone compounds (including
PB-101) for the treatment of various bacterial infections, and the corresponding United States and foreign patents and applications for all therapeutic
uses. Under the terms of the license agreement, the Company is permitted to develop and commercialize PB-101 in all of the countries of the world other
than Australia, New Zealand, India, Japan, Korea, China, Taiwan, Singapore, Indonesia, Thailand, Malaysia, Vietnam and Hong Kong. As consideration in
part for the aforementioned rights to PB-101, the Company paid to Dong Wha an initial license fee of $1,500,000 and was required to pay Dong Wha a
subsequent license fee of $1,500,000 by March 2008. A total of $3,000,000 was recorded in research and development expense during 2007 in connection
with this agreement.
An amendment, executed in April
2008, extended the deadline for the payment of the subsequent license fee and increased the amount of the subsequent license fee by $250,000 from
$1,500,000 to $1,750,000, and required the Company to make a milestone payment of $500,000 by September 12, 2008. A total of $750,000 in license fees
and milestone payments was recorded and expensed to research and development expense during 2008 in connection with this agreement. The Company did not
incur any license fee or milestone payments under this agreement during 2009. The Company incurred a milestone payment of $200,000 in 2010 to
compensate Dong Wha for a delay between the initiation of the Companys Phase 2 CAP trial in March 2010 and the first patient dosing
in such trial in May 2010 (see below).
In addition, the Company is
required to make substantial payments to Dong Wha upon the achievement of certain clinical, regulatory-based and net sales-based milestones, up to
$53,000,000 in the aggregate. In the event that PB-101 is commercialized, the Company is obligated to pay to Dong Wha annual royalties equal to 10% of
net sales. In the event that the Company sublicenses PB-101 to a third party, the Company is obligated to pay to Dong Wha a portion of the royalties,
sublicensing fees or other lump sum payments it receives from
F-38
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
the sublicensee. In addition,
pursuant to the license agreement, the Company is obligated to purchase 100% of its requirements for clinical supply of the licensed products and 75%
of its requirements for commercial supply of the licensed products from Dong Wha, in each case at a cost not to exceed Dong Whas cost of goods
sold, plus 25%.
Pursuant to the terms of the
license agreement, the Company was required to initiate a Phase 2 clinical trial for an oral formulation of PB-101 within nine months of execution of
the license agreement. In accordance with the license agreement, the Company purchased certain extension periods from Dong Wha, which
extended the deadline before which the Company needed to initiate the Phase 2 clinical trial, in return for certain cash payments. The Company has
purchased extension periods for the extension of such deadline until March 2010. For the years ended December 31, 2009 and 2008, the Company paid
$400,000 and $50,000, respectively, in extension payments under the terms of this agreement, which were expensed to research and development expense in
those periods. We initiated a Phase 2 clinical trial in the United States for the CAP indication in March 2010. PBS has guaranteed the full and prompt
payment to Dong Wha of all amounts due under the license agreement, until such time as the Company has net tangible assets of at least $10,000,000. The
license agreement terminates on the expiration of the Companys obligation to make payments to Dong Wha, unless earlier terminated in accordance
with the terms of the license agreement. The license agreement may be terminated by the Company, in its sole discretion, upon 30 days prior
written notice to Dong Wha. The license agreement may be terminated by Dong Wha upon or after the Companys breach of any material provision of
the agreement if the Company has not cured such breach within 90 days after receipt of express written notice thereof by Dong Wha. However, if any
default is not capable of being cured within such 90 day period and the Company is diligently undertaking to cure such default as soon as commercially
feasible thereafter under the circumstances, Dong Wha shall not have the right to terminate the license agreement. In addition Dong Wha may terminate
the license agreement upon not less than 60 days prior written notice if the Company fails to meet a development milestone, subject to the
Companys right to extend such development milestone as set forth in the agreement.
Following discussions with Dong Wha
regarding a delay between the initiation of the Companys Phase 2 CAP trial in March 2010 and the first patient dosing in such trial in May
2010, on November 4, 2010, the Company entered into an amendment to the Dong Wha License Agreement, pursuant to which the Company agreed
to pay Dong Wha $200,000 by February 28, 2011 to compensate Dong Wha for such delay. In connection with such amendment, the Company also agreed
to two additional milestones: A financing milestone requiring that the Company conduct an equity offering yielding at least $10 million in net
proceeds by February 28, 2011 and an additional development milestone requiring that the Company complete patient enrollment in the Phase 2
CAP trial by April 30, 2012 and deliver a draft clinical study report to Dong Wha by July 31, 2012. If the Company failed to achieve either
of these new milestones, Dong Wha had the right to terminate the license agreement at anytime within 90 days of such
failure.
On March 23, 2011, the Company
entered into an amendment to the Dong Wha License Agreement, pursuant to which (i) the deadline for the Companys obligation to pay
$200,000 to Dong Wha was extended from February 28, 2011 to March 28, 2011 and such payment was made on such date, (ii) the deadline for the
Companys obligation to consummate an equity offering yielding at least $10 million in net proceeds was extended from February 28, 2011
to June 30, 2011 and (iii) the Company was required to obtain by April 6, 2011 a financing commitment for $3 million to fund its operations and
clinical trials pending the consummation of the proposed equity offering, which requirement was satisfied by the Backstop Commitment Agreement
(as discussed below), and the Company is required to diligently continue its Phase 2 CAP trial without interruption or delay until the
completion of the proposed equity offering. The amendment also provides that if the Company fails to comply with these provisions, Dong Wha will
have the right to terminate the license agreement at anytime within 90 days of such failure. The Company does not expect to complete an
equity offering by June 30, 2011 and is in the process of negotiating with Dong Wha for an extension of such deadline. If the Company fails
to obtain an extension of such deadline, Dong Wha will have the right to terminate the license agreement at anytime within 90 days of the
Companys failure to meet such deadline.
F-39
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
In June 2007, the Company entered into
an exclusive, worldwide license agreement with UCB Celltech (UCB) for a platform of aniline derivative compounds including PB-200a.
Specifically, the Company in-licensed a series of compounds for the treatment of various fungal conditions, and the corresponding United States and
foreign patents and applications for all therapeutic uses. As consideration in part for the aforementioned rights, the Company paid to UCB an initial
license fee of $100,000, which was expensed to research and development expense during 2007. In addition, the Company is required to make substantial
payments to UCB upon the achievement of certain clinical and regulatory-based milestones, up to $12,000,000 in the aggregate. In the event that PB-200a
or another covered compound is commercialized, the Company and its sublicensees are obligated to pay to UCB annual royalties equal to a percentage of
net sales in the single-digit range. In June 2008 and each successive year, the Company paid to UCB an annual license maintenance fee of $100,000,
which is creditable against royalties otherwise due to the licensor. During the years ended December 31, 2008 and 2007, the Company expensed $100,000
in license fees under the terms of this agreement. The license agreement terminates on the expiration of the Companys obligation to pay royalties
to UCB, unless earlier terminated in accordance with the terms of the license agreement. The license agreement may be terminated by the Company, in its
sole discretion, upon 30 days prior written notice to UCB. The license agreement may be terminated by UCB immediately upon any material breach
and/or any breach capable of remedy by the Company if the Company has not cured such remediable breach within 90 days after notice thereof by UCB
requiring its remedy or any breach of any representation or warranty given by the Company to UCB.
In November 2009, the Company granted a
non-exclusive worldwide sublicense to Merck Sharp & Dohme Corp. (Merck) and in return Merck paid IASO an upfront sublicense fee of
$480,000, which did not meet the criteria for revenue recognition upon receipt since the license agreement provides for rights to the use of a patent
that extend through July 1, 2022. In addition, Merck paid the Company a milestone fee of $180,000 related to the initiation of a Phase II trial related
to this product. Since the Company had performed substantially all of the research and development necessary to initiate the Phase II clinical trial
prior to signing the agreement in November 2009, this milestone is without substance and the $180,000 has been treated in the same manner as the
upfront license fee. See Note 2 Summary of Significant Accounting Policies, for a discussion of the Companys revenue recognition policy
for upfront payments. Merck is also required to make additional payments, up to $540,000 in the aggregate, to the Company upon the achievement of
certain clinical and regulatory-based milestones. Under the terms of the original license agreement, $132,000 became due to UCB in connection with the
sublicense agreement with Merck. The Company has recorded deferred revenue for the cash received under the sublicense agreement in 2009 that is being
recognized as revenue over the term of the sublicense agreement at approximately $38,000 per annum.
In July 2007, the Company entered into
an exclusive sublicense agreement for North America and Europe with Santee Biosciences, Inc. (Santee) for use of PB-201, a formulation
technology (PB-201), in the development of azole-based antifungal drug formulations and the corresponding United States and foreign patents
and applications. Santee is a related party of the Company, in that significant stockholders of the Company, including Mr. Lobell, the Companys
sole director as of December 31, 2009, are also significant stockholders and/or directors of Santee. As consideration in part for the aforementioned
rights, the Company paid to Santee an upfront license fee of $50,000. In addition, the Company is required to make substantial payments, up to an
additional $10 million in total, to Santee upon the achievement of certain clinical and regulatory-based milestones. In the event that any drug the
Company formulates using the PB-201 technology is commercialized, the Company and its sublicensees are obligated to pay to Santee annual royalties
equal to a percentage of net sales in the single-digit range. In the event that the Company sublicenses PB-201 to a third party, the Company is
obligated to pay Santee a portion of the royalties it receives from the sublicensee. The license agreement terminates on the date of expiration of the
last to expire valid claim contained in the patent rights covering a licensed product in any country in North America and Europe, unless earlier
terminated in accordance with the license agreement. The license agreement may be terminated by the Company, for any reason or no reason, by giving 30
days prior written notice to Santee. The license agreement will automatically terminate if the Company becomes insolvent. Santee has the right to
terminate the license agreement (i) within 90 days after
F-40
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
giving written notice of
termination if the Company fails to make payment to Santee of royalties or other payments due in accordance with the terms of the agreement which are
not the subject of a bona fide dispute between Santee and the Company unless the Company pays Santee, within the 90-day period, all such royalties and
other payments due and payable and (ii) by giving 90 days prior written notice to the Company upon any material breach or default of the
agreement by the Company, subject to the Companys right to cure such breach or default during such 90-day period, unless the nature of the breach
is such that additional time is reasonably needed to cure it, and the Company has commenced with good faith efforts to cure such breach, then Santee
shall provide the Company with additional time to cure it.
Note 8 Private Placements:
2007 senior convertible
notes:
During 2007, the Company issued 8%
senior convertible notes in connection with a private placement in the aggregate principal amount of $4,340,000 (the Notes). The Notes were
originally scheduled to mature on December 14, 2008, but the Company exercised its option to extend the maturity date to December 14, 2009, at an
increased interest rate of 10%. The Company subsequently solicited the consent of the Noteholders to an additional extension of the maturity date of
the Notes to September 30, 2010, (which was subsequently further extended to December 31, 2010 pursuant to an extension agreement
dated as of September 16, 2010 , to March 31, 2011 pursuant to an amendment agreement dated as of December 23, 2010 and to June 30,
2011 pursuant to an amendment agreement dated as of March 23, 2011). After giving effect to such consent, the Notes, plus all accrued interest
thereon, would have automatically convert ed into the same securities issued in the Companys next Qualified Financing (as
defined below), at a conversion price equal to 70% of the lowest per unit price paid for such securities in cash by investors in such Qualified
Financing, and upon such other terms, conditions and agreements as may be applicable in such Qualified Financing. The Company valued the beneficial
conversion feature of the 2007 Notes at $1,860,000, which would have been recorded as interest expense only if a Qualified Financing
would have been completed.
The amount of the value of the
beneficial conversion feature would not have been dependent upon the IPO price. The number of shares to be issued upon conversion
would have been determined for the principal amount of the 2007 Notes and the accrued interest on such 2007 Notes if a Qualified
Financing (as defined below) would have been completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the 2007 Notes
and, therefore, the recording of the beneficial conversion feature, were contingent upon the completion of a Qualified Financing. The
value of the beneficial conversion feature for the 2007 Notes was determined based on the amount of the 2007 Notes and the discount at which such 2007
Notes convert, contingent on the occurrence of certain events (including a Qualified Financing), into common stock. Upon conversion of the 2007 Notes,
the Company would have record ed as interest expense a beneficial conversion charge of $1,860,000 for the principal amount of the
2007 Notes plus an additional beneficial conversion charge for the accrued interest on the 2007 Notes through the date of conversion. Specifically, the
beneficial conversion feature calculation is as follows:
Principal
amount of 2007 Notes |
|
|
|
$ |
4,340,000 |
|
Divided by
percentage of IPO Price at which 2007 Notes convert to common stock |
|
|
|
|
70 |
% |
Aggregate
value to investors |
|
|
|
|
6,200,000 |
|
Less
principal amount of 2007 Notes |
|
|
|
|
4,340,000 |
|
Amount of
beneficial conversion feature |
|
|
|
$ |
1,860,000 |
|
However, as a result of the
modifications to the 2007 Notes under the amendment agreement dated March 30, 2011 (see below), pursuant to which the 2007 Notes
automatically converted into the right to receive Milestone Payments upon the consummation of the Rights Offering on April 29, 2011,
the beneficial conversion feature associated with the 2007 Notes was eliminated
and the Company did not record any beneficial conversion charge to
interest expense in connection with the conversion of the 2007
Notes.
F-41
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
The Notes would have also
automatically convert ed into equity securities of the Company immediately prior to a sale or merger of the Company, as defined in the Notes. In
the event that the Notes would have become due and payable (whether on the due date or earlier) prior to the consummation by the Company of a
Qualified Financing, or a sale or merger of the Company which convert ed the Notes into equity securities of the Company, then in
connection with the repayment of the Notes, in addition to the payment of the unpaid principal amount and all accrued but unpaid interest on the Notes,
the Company would have been obligated to pay to the Noteholders, as a repayment premium, an amount in cash equal to 42.8571% of the
aggregate principal amount plus all accrued and unpaid interest on the Notes. The Company has recorded the repayment premium as a liability and
accrued it over the remaining term of the Notes as of December 14, 2009, the date the Notes were amended to include the
repayment premium feature. For purposes of the Notes, Qualified Financing means the sale of the Companys equity
securities in an equity financing or series of related equity financings in which the Company receives (minus the amount of aggregate gross cash
proceeds to the Company from our arms length sale of equity or debt securities, or incurrence of new loans, after December 14, 2009) aggregate
gross proceeds of at least $10,000,000 (before brokers fees or other transaction related expenses, and excluding any such proceeds resulting from
any conversion of the Notes).
In connection with the offering of the
Notes, PCI and the Company entered into a placement agency agreement dated September 18, 2007, pursuant to which the Company paid PCI cash commissions
of $198,800 (of which $38,500 was further allocated to third party agents) for their services. The Company also has agreed to pay to PCI a commission
on sales by the Company of securities during the 18-month period subsequent to December 14, 2007 to the purchasers of the Notes who were introduced to
the Company by PCI. The Company also granted PCI the right of first refusal to act as exclusive finder, placement agent or other similar agent in
relation to any securities offerings on its behalf during the 18-month period following December 14, 2007. This agreement has since expired. PCI is a
related party to the Company since it is an affiliate of a significant investor in the Company.
In addition, PCI received warrants (the
Placement Warrants) to purchase, at an exercise price of 110% of the lowest price paid for securities in a Qualified Financing, a number of
shares of the Companys common stock equal to 10% of the principal amount of the Notes purchased, less any amount used to repay the related party
notes, or amounts due to PBS or their affiliates or employees as finders fees, payments under the services agreement or other similar payments,
divided by the lowest price paid for securities in a Qualified Financing prior to December 14, 2009. If the Qualified Financing did not occur on or
before December 14, 2009, the Placement Warrants will be exercisable for a number of shares of the Companys common stock equal to 10% of the
principal amount of the Notes purchased, less any amount used to repay the related party notes, or amounts due to PBS or their affiliates or employees
as finders fees, payments under the services agreement or other similar payments, divided by $ 48,000.00 at a per share exercise
price of $ 48,000.00 and are exercisable for seven years. Since the Qualified Financing did not occur by such date, the Placement Warrants
are now exercisable into 9 shares of the Companys common stock, at a per share exercise price of $ 48,000.00. The
Company estimated the value of the Placement Warrants at approximately $358,000 using the Black-Scholes option pricing model
and the following assumptions: (i) a risk-free interest rate of 3.88%; (ii) an expected volatility of 98.94%; (iii) an expected term
(contractual term) of seven years; and (iv) an expected dividend yield of 0%. The Company recorded the value of the warrants as
deferred financing costs, which was amortized to interest expense over the term of the 2007
Notes.
2010 senior convertible
notes:
In February and March 2010, the Company
issued 8% senior convertible notes in connection with a private placement in the aggregate principal amount of $4,343,000 (the 2010 Notes).
The 2010 Notes were scheduled to mature on February 9, 2012. Upon the closing of a Qualified IPO (as defined below), the 2010 Notes plus any
accrued but unpaid interest thereon would have convert ed automatically into shares of the Companys common stock at 70% of
the price at which shares of common stock are sold in the Qualified IPO (the IPO Price), upon the terms and conditions on which such
securities are issued in the Qualified IPO. The
F-42
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Company valued the beneficial
conversion feature of the 2010 Notes at $1,861,000, which would have been recorded as interest expense only if a Qualified IPO
would have been completed.
The amount of the value of the
beneficial conversion feature would not have been dependent upon the price at which the 2010 Notes converted to common
stock. The number of shares to be issued upon conversion would have been determined for the principal amount of the 2010
Notes and the accrued interest on such 2010 Notes if a Qualified IPO (as defined below) would have been
completed. Accordingly, pursuant to ASC Topic 470-20-25, the conversion of the 2010 Notes and, therefore, the recording of the beneficial
conversion feature, were contingent upon the completion of a Qualified IPO . The value of the beneficial conversion feature
for the 2010 Notes was determined based on the amount of the 2010 Notes and the discount at which such 2010 Notes convert, contingent on the occurrence
of certain events (including a Qualified IPO ), into common stock. Upon conversion of the 2010 Notes, the Company would have
record ed as interest expense a beneficial conversion charge of $1,861,000 for the principal amount of the 2010 Notes plus an additional
beneficial conversion charge for the accrued interest on the 2010 Notes through the date of conversion. Specifically, the beneficial conversion feature
calculation is as follows:
Principal
amount of 2010 Notes |
|
|
|
$ |
4,343,000 |
|
Divided by
percentage of price at which 2010 Notes convert to common stock |
|
|
|
|
70 |
% |
Aggregate
value to investors |
|
|
|
|
6,204,000 |
|
Less
principal amount of 2010 Notes |
|
|
|
|
4,343,000 |
|
Amount of
beneficial conversion feature |
|
|
|
$ |
1,861,000 |
|
However, as a
result of the modifications to the 2010 Notes under the amendment agreement dated March 30, 2011 (see below), pursuant to which
the 2010 Notes automatically converted into the right to receive Milestone Payments upon the consummation of the Rights Offering on April 29,
2011, the beneficial conversion feature associated with the 2010 Notes was eliminated and the Company did not record
any beneficial conversion charge to interest expense in connection with the conversion of the 2010 Notes.
For purposes hereof,
Qualified IPO means the consummation of an initial public offering by the Company of equity securities resulting in aggregate gross cash
proceeds (before commissions or other expenses) to the Company of at least $10,000,000.
Each 2010 Noteholder also
held a warrant to purchase a number of shares of the Companys common stock equal to 70% of the principal amount of the 2010 Notes
purchased by it divided by the IPO Price at a per share exercise price equal to the exercise price of the warrants issued in the Qualified IPO, subject
to adjustment. Each of these warrants were scheduled to expire on February 9, 2015. Notwithstanding the foregoing, if a Qualified
IPO did not occur on or before February 9, 2012, then each warrant would have been exercisable for that number of shares of
the Companys common stock equal to 70% of the principal amount of the 2010 Note purchased by the original holder divided by
$ 48,000.00 , at a per share exercise price of $ 48,000.00 . In the event of a sale of the Company (whether my merger,
consolidation, sale or transfer of the Companys capital stock or assets or otherwise) prior to, but not in connection with, a Qualified IPO, each
of these warrants would have terminate d 90 days following such sale and the warrants would have continue d to
be exercisable pursuant to its terms during such 90-day period. The Company valued these warrants at $2,172,985 using the Black Scholes option
pricing model, assuming that the warrants were presently exercisable in the aggregate for that number of shares of the Companys common
stock equal to 70% of the principal amount of the 2010 Notes, divided by $48,000.00 (or $3,040,100), at an exercise price of $48,000.00, and the
following additional assumptions: (i) a risk-free interest rate of 2.32% (2.28% for warrants issued in March 2010); (ii) an expected volatility
of 110% (100% for warrants issued in March 2010); (iii) an expected term (contractual term) of five years; and (iv) an expected dividend
yield of 0%.
Lindsay A. Rosenwald, M.D., a
significant stockholder of the Company and a related party, purchased $500,000 in aggregate principal amount of 2010 Notes and related warrants in this
offering. In addition, a 2010 Note and related warrant in the aggregate principal amount of $1,000,000 were issued to PBS for the cancellation of
certain debt, discussed above.
F-43
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
In connection with the offering of the
2010 Notes and related warrants, Maxim Group LLC (Maxim) and the Company entered into a placement agency agreement dated October 13, 2009,
as amended on February 8, 2010, pursuant to which the Company paid Maxim cash commissions of $351,730 for its services.
The Company also granted Maxim the
right of first negotiation to co-manage any public underwriting or private placement of debt or equity securities, subject to customary exclusions, of
the Company or any subsidiary or successor of the Company, receiving the right to underwrite or place a minimum of 50% of the securities to be sold
therein, until eighteen months after completion of the offering of the 2010 Notes and related warrants.
Amendments to notes:
On December 23, 2010, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes, pursuant to which the holders
agreed to eliminate their 30% conversion discount if the Company consummate d a Qualified IPO by March 31, 2011 and the other
transactions contemplated by the amendment agreements, which are described below, were
consummated.
Under the amendment agreements, the
Company agreed to issue to the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes, upon the consummation of a Qualified IPO,
contingent promissory notes in an aggregate principal amount equal to 10% of the unpaid principal and accrued interest on the 2007 Notes,
the 2010 Notes and the Related Party Notes as of the date a Qualified IPO is consummated (the Contingent Notes). The Contingent
Notes would have become payable upon the occurrence of a Contingency Event (as defined below) together with interest thereon,
which would have accrued at the rate of 5% per annum. In addition, in the event the Company commence d commercial
sales of its products prior to the occurrence of a Contingency Event, the Company would have been required to pay to the holders
of the Contingent Notes an amount equal to 10% of the Companys net sales from its products for each calendar quarter, with such payment
being due within 60 days after the end of each calendar quarter, until the holders have received the full principal amount of the Contingent
Notes and all accrued interest thereon. For purposes of the Contingent Notes, Contingency Event means (i) the entry by the
Company into any agreement relating to the license, development, marketing or sale of PB-101 with any third party, other than its current
agreements with Dong Wha (ii) the sale of all or substantially all the Companys assets to a non-affiliate or the acquisition by a
non-affiliate of a majority of the Companys outstanding capital stock or the voting power to elect a majority of the Companys board
of directors (whether by merger, consolidation, sale or transfer of capital stock or otherwise) or (iii) the consummation by the Company,
at any time following approval by the FDA of an NDA for PB-101, of any equity or debt financing (or series of related equity or debt
financings) from non-affiliates yielding at least $10,000,000 in aggregate net cash proceeds (after commissions and transaction
expenses).
Under the amendment agreements with
the holders of the 2007 Notes and the Related Party Notes, the Company agreed to issue to the holders of the 2007 Notes and the Related Party
Notes, upon the consummation of a Qualified IPO, five-year warrants to purchase common stock equal to 70% of the original principal amount
of the 2007 Notes on similar terms as the warrants issued to the holders of the 2010 Notes.
In addition, under the amendment
agreements with the holders of the 2007 Notes and the 2010 Notes, Dr. Rosenwald and the holders of the Related Party Notes agreed to assign the
rights to receive the shares of the Companys common stock issuable upon conversion of the Related Party Notes to the holders of the 2007
Notes and the 2010 Notes on a pro rata basis.
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from December 31, 2010 to March 31,
2011.
On December 23, 2010, the Company
also entered into an amendment agreement with respect to the PCP Notes to provide that the Companys initial public offering would not
constitute a Qualified Financing and would not accelerate the maturity of the PCP Notes and an amendment agreement to extend the
exercise trigger date of the Hofer Consultant Warrant from December 31, 2010 to March 31, 2011.
On March 30, 2011, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the
Existing Convertible Notes), pursuant to
F-44
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
which the holders agreed to amend the Existing Convertible Notes so that all
principal and accrued interest on the Existing Convertible Notes automatically converted upon the consummation of the Rights Offering (as
defined below) into the right to receive a pro rata share (based on the aggregate original principal amount of the Existing Convertible
Notes) of the Milestone Payments (as defined below).
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The amendment agreement with the
holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would terminate and be of no
further force and effect upon the consummation of the Rights Offering.
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from March 31, 2011 to June 30,
2011.
Note 9 Restatement:
Subsequent to the issuance of the
Companys financial statements for the year ended December 31, 2009, the Companys management determined that the
repayment premiums associated with the 2007 Notes and the Related Party Notes should be recorded as
liabilities and accrued over the remaining term of the 2007 Notes and the Related Party Notes as of the respective
dates such notes were amended to include the repayment premium feature. As a result, the Companys balance sheet at December 31,
2009 and statements of operations and cash flows for the year ended December 31, 2009 have been restated to reflect adjustments
relating to the accrual of these repayment premiums. The impact of these adjustments on the Companys balance
sheet at December 31, 2009 and statements of operations and cash flows for the year then ended is as follows:
|
|
|
|
December 31, 2009 |
|
Balance Sheet |
|
|
|
As Previously Reported |
|
Effect of Adjustment |
|
As Restated |
Current
liabilities |
|
|
|
$ |
10,727,395 |
|
|
$ |
(364,096 |
) |
|
$ |
11,091,491 |
|
Total
liabilities |
|
|
|
|
13,300,944 |
|
|
|
(364,096 |
) |
|
|
13,665,040 |
|
Accumulated
deficit |
|
|
|
|
(15,212,388 |
) |
|
|
(364,096 |
) |
|
|
(15,576,484 |
) |
Stockholders deficiency |
|
|
|
|
(13,210,765 |
) |
|
|
(364,096 |
) |
|
|
(13,574,861 |
) |
|
|
|
|
Year Ended December 31, 2009 |
|
Statement of Operations |
|
|
|
As Previously Reported |
|
Effect of Adjustment |
|
As Restated |
Interest
expense |
|
|
|
$ |
1,089,846 |
|
|
$ |
364,096 |
|
|
$ |
1,453,942 |
|
Net
loss |
|
|
|
|
(4,184,511 |
) |
|
|
364,096 |
|
|
|
(4,548,607 |
) |
Net loss
per share |
|
|
|
|
(44,994.74 |
) |
|
|
|
|
|
|
(48,909.75 |
) |
|
|
|
|
Year Ended December 31, 2009 |
|
Statement of Cash
Flows |
|
|
|
As Previously Reported |
|
Effect of Adjustment |
|
As Restated |
Net loss |
|
|
|
|
$(4,184,511 |
) |
|
|
$364,096 |
|
|
|
$(4,548,607 |
) |
Repayment
Premium 2007 Notes |
|
|
|
|
|
|
|
|
102,210 |
|
|
|
102,210 |
|
Repayment
Premium Related Party Notes |
|
|
|
|
|
|
|
|
261,886 |
|
|
|
261,886 |
|
Net cash
used in operating activities |
|
|
|
|
(3,851,415 |
) |
|
|
|
|
|
|
(3,851,415 |
) |
F-45
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
Note 10 Subsequent Events:
The Company has evaluated subsequent
events through June 24 , 2011, the date at which the financial statements were available to be issued.
On January 19, 2011, the Company
effected a 1-for-48 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein
have been adjusted to reflect the effects of the 1-for-48 reverse stock split.
On March 23, 2011, the Company
entered into an amendment to the Dong Wha License Agreement, pursuant to which (i) the deadline for the Companys obligation to pay
$200,000 to Dong Wha was extended from February 28, 2011 to March 28, 2011 and such payment was made on such date, (ii) the deadline for the
Companys obligation to consummate an equity offering yielding at least $10 million in net proceeds was extended from February 28, 2011
to June 30, 2011 and (iii) the Company was required to obtain by April 6, 2011 a financing commitment for $3 million to fund its operations and
clinical trials pending the consummation of the proposed equity offering, which requirement was satisfied by the Backstop Commitment Agreement
(as discussed below), and the Company is required to diligently continue its Phase 2 CAP trial without interruption or delay until the
completion of the proposed equity offering. The amendment also provides that if the Company fails to comply with these provisions, Dong Wha will
have the right to terminate the license agreement at anytime within 90 days of such failure. The Company does not expect to complete an equity
offering by June 30, 2011 and is in the process of negotiating with Dong Wha for an extension of such deadline. If the Company fails to
obtain an extension of such deadline, Dong Wha will have the right to terminate the license agreement at anytime within 90 days of the
Companys failure to meet such deadline.
On March 30, 2011, the Company
entered into amendment agreements with the holders of the 2007 Notes, the 2010 Notes and the Related Party Notes (collectively, the
Existing Convertible Notes), pursuant to which the holders agreed to amend the Existing Convertible Notes so that all principal and
accrued interest on the Existing Convertible Notes will automatically convert upon the consummation of the Rights Offering (as discussed
below) into the right to receive a pro rata share (based on the aggregate original principal amount of the Existing Convertible Notes) of the
Milestone Payments (as discussed below).
Under the amendment agreements, the
term Milestone Payments means: (a) the following development milestone payments: (i) $2.5 million upon the achievement of a
successful Phase III trial for PB-101, (ii) $2.5 million upon the acceptance by the FDA of an NDA for PB-101 and (iii) $5.0 million upon the
receipt of FDA approval of PB-101, which payments are due within 30 days after the occurrence of the related development milestone; and (b)
following the first commercial sale of PB-101, net sales payments equal to 15% of the Companys net sales from PB-101 for each calendar
quarter, with such payment being due within 60 days after the end of each calendar quarter, until such time as the Companys cumulative net
sales from PB-101 have reached $150 million.
The amendment agreement with the
holders of the 2010 Notes also provided that the warrants issued to such holders in connection with the 2010 Notes would terminate and be of no
further force and effect upon the consummation of the Rights Offering (as discussed below).
The amendment agreements with the
holders of the 2007 Notes and the Related Party Notes also extended the maturity dates from March 31, 2011 to June 30,
2011.
On March 30, 2011, the Company also
entered into an amendment agreement to extend the exercise trigger date of the Hofer Consultant Warrant from March 31, 2011 to September 30,
2011.
On April 6, 2011, the Company
entered into a Backstop Commitment Agreement (the Backstop Agreement) with Manchester Securities Corp. (Manchester) and
Lindsay Rosenwald, M.D., the Chairman, Chief Executive Officer and sole stockholder of Paramount BioCapital, Inc. (together, the Backstop
Investors), in connection with the Companys rights offering to the holders of the Existing Convertible Notes to subscribe for
a pro rata share of a new issue of secured convertible notes (the Rights Offering Notes), in the aggregate
F-46
Table of Contents
IASO PHARMA INC.
(A Development Stage Company)
NOTES
TO FINANCIAL STATEMENTS
principal amount of $3,000,000 (the Rights Offering). Pursuant to
the Backstop Agreement, each Backstop Investor agreed to purchase an aggregate principal amount of Rights Offering Notes equal to 50% of the
difference between (i) $3,000,000 and (ii) the aggregate principal amount of Rights Offering Notes subscribed for in the Rights Offering. The
Rights Offering Notes to be purchased by Backstop Investors are to be purchased following the consummation of Rights Offering
based upon the request of the Company on up to three occasions. $602,730 in aggregate principal amount of such Rights Offering Notes was purchased by
the Backstop Investors on June 10, 2011.
As compensation for the commitments
provided in the Backstop Agreement, each Backstop Investor received warrants to purchase $1,500,000 of common stock at an exercise price equal
to the price at which the common stock is sold in an underwritten initial public offering of the Companys equity securities
(IPO) (the Backstop Warrants). The Backstop Warrants will become exercisable upon the consummation of an IPO and
have a term of five years. The Backstop Warrants issued to Manchester contain certain anti-dilution protections that were not in the Backstop
Warrants issued to Dr. Rosenwald. Pursuant to the amendment agreements with the holders of the 2007 Notes and 2010 Notes described above, Dr.
Rosenwald assigned his Backstop Warrants to all the holders of the 2007 Notes and 2010 Notes (other than the Backstop Investors and their
affiliates) on a pro rata basis.
In addition, pursuant to the
Backstop Agreement, following consummation of the Rights Offering, Manchester and Dr. Rosenwald each have the right to consent to
any material action taken by the Company prior to the consummation of an IPO and Manchester will have the right to designate one member of the
Companys board of directors.
In connection with the Rights
Offering, which commenced on April 8, 2011 and expired on April 22, 2011, holders of Existing Notes subscribed for $1,794,539 in aggregate
principal amount of Rights Offering Notes. Such amounts were received on or before April 29, 2011.
The Rights Offering Notes are
secured by all the Companys assets and accrue interest at the rate of 5% per annum with a maturity date of April 22, 2012. Under the terms
of the Rights Offering Notes, upon the consummation of a Qualified IPO, the outstanding principal amount of the Rights Offering Notes, and all
accrued interest thereon, will automatically convert into shares of common stock equal to 100% of the Companys common stock
outstanding immediately prior to the consummation of a Qualified IPO (other than restricted shares granted to the Companys employees with
the consent of each of the Backstop Investors) at a conversion price equal to the price at which shares of common stock are sold in a Qualified
IPO. However, the Company may, at its option, elect to prepay a portion of the unpaid principal and accrued interest of the Rights Offering
Notes, in an amount not to exceed $1,000,000 in the aggregate, out of the proceeds of a Qualified IPO in lieu of the conversion of such
amount, provided that such prepayment is made to all holders of Rights Offering Notes on a pro rata basis. In the event the Company exercises
such prepayment right, the Company must provide a written notice to the holders of the Rights Offering Notes at least 10 days prior to the
anticipated closing of a Qualified IPO setting forth the aggregate amount of principal and accrued interest of the Rights Offering Notes
that the Company will prepay out of the proceeds of a Qualified IPO. For purposes of the Rights Offering Notes, Qualified IPO
means the completion of an underwritten initial public offering of the Companys equity securities resulting in aggregate gross cash
proceeds (before commissions or other expenses) to the Company of at least $10,000,000.
Pursuant to an amendment agreement
dated as of June 10, 2011, the holders of the Rights Offering Notes agreed to amend the Rights Offering Notes to exclude restricted shares
granted to the Companys employees with the consent of the Backstop Investors from the calculation of the percentage of common stock
outstanding immediately prior to the consummation of a Qualified IPO.
On April 29, 2011, the Company
effected a 1-for-1,000 reverse stock split of all of its outstanding shares of common stock. All share and per share amounts referred to herein
have been adjusted to reflect the effects of the 1-for-1,000 reverse stock split.
F-47
Table of Contents
IASO PHARMA INC.
(A Development Stage
Company)
NOTES TO FINANCIAL STATEMENTS
On April 27, 2011, Mr. Mark Lotz
forfeited his ownership of an option to purchase 2 shares of the Companys common stock, with an exercise price of $45,600 (after giving
effect to a 1-for-48 reverse stock split effected on January 19, 2011 and a 1-for-1,000 reverse stock split effected on April 29,
2011).
On April 29, 2011, as a result of
the reverse stock split, the shares of common stock of each stockholder of the Company owning 999 or less shares immediately prior to the
effective time of the reverse stock split have been cancelled and converted into the right to receive from the Company cash consideration in the
amount of $0.10 per pre-split share (the Cash Out Price). Stockholders owning 1,000 or more shares prior to the reverse stock
split and the officers and directors of the Company entered into stock repurchase agreements with the Company under which the Company
repurchased their shares of common stock prior to the reverse stock split at the Cash Out Price for stockholders who were not affiliates and at
par value for officers, directors and stockholders who were affiliates, except that Lindsay A. Rosenwald, M.D. retained 1,000 shares of
common stock that converted into 1 share of common stock upon consummation of the reverse stock
split.
On June 10, 2011, the Company
entered into an offer letter with Michael S. Weiss setting forth certain terms and conditions pursuant to which Mr. Weiss would be appointed as
the Companys Executive Chairman of the Board upon the execution of a mutually agreeable definitive employment agreement with the
Company. Under the offer letter, Mr. Weiss agreed to join the Company as an unsalaried employee pending execution of such employment
agreement. Pursuant to the offer letter, the employment agreement will provide that Mr. Weiss will receive an annual base salary of $180,000,
payment of which will commence upon the completion of the Companys initial public offering, and will be eligible to receive an annual
discretionary bonus in an amount up to 100% of his base salary based on the achievement of certain annual goals and objectives, as
established annually by mutual agreement between the Board of Directors and Mr. Weiss. Mr. Weiss will also receive a onetime cash bonus
of $150,000 upon completion of the Companys initial public offering.
Pursuant to the offer
letter and as an inducement for Mr. Weiss to accept the position of Executive Chairman, the Company
granted Mr. Weiss 950,000 restricted shares of the Companys common stock on
a stand-alone basis, outside the Companys Amended and Restated 2007 Stock Incentive Plan, pursuant to a Stand-Alone Restricted Stock Award
Agreement. The restricted shares will be subject to a one-time vesting on the tenth anniversary of the grant date provided that Mr. Weiss
remains an officer or director of the Company on such date. However, the restricted shares may vest earlier upon the
achievement of the following market capitalization milestones: (a) 50% of the restricted shares will vest the first time that the Companys
fully diluted market capitalization exceeds $100,000,000 for a period of ten consecutive trading days during the term of Mr. Weisss
employment; and (b) 50% of the restricted shares will vest the first time that the Companys fully diluted market capitalization exceeds
$200,000,000 for a period of ten consecutive trading days during the term of Mr. Weisss employment.
Under the offer letter, the Company
will have the right to repurchase up to 150,000 of the restricted shares granted to Mr. Weiss, at a price of $0.01 per share, if the gross
proceeds of the Companys initial public offering are less than $20,000,000. The exact number of restricted shares subject to this
repurchase right will be equal to the product of (a) 150,000 multiplied by (b) the quotient of (i) the difference between $20,000,000 and
the actual gross proceeds of such offering divided by (ii) 3,500,000. This repurchase right may be exercised by the
Company at any time during the 30-day period following the completion of its initial public offering.
In addition, the offer letter
provides that following the completion of the Companys initial public offering and any subsequent equity financing until such time as the
Company has raised an aggregate of $25,000,000 in additional equity financings, Mr. Weiss will be granted options to purchase additional shares
of common stock so that the total number of restricted shares held by Mr. Weiss, plus all shares underlying options held by him, will
equal 10% of the common stock outstanding following the Companys initial public offering or such financing on a fully diluted basis. Any
such options granted to Mr. Weiss will vest in three equal installments on each of the first three anniversaries of the grant
date.
F-48
Table of Contents
Ladenburg Thalmann & Co. Inc.
Table of Contents
PART II
INFORMATION NOT REQUIRED IN
PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
The following table sets forth the
various expenses (other than selling commissions and other fees to be paid to the underwriters) which will be paid by the Registrant in connection with
the issuance and distribution of the securities being registered. With the exception of the SEC registration fee and the FINRA filing fee, all amounts
shown are estimates.
SEC registration
fee |
|
|
|
$ |
3,034 |
|
FINRA filing fee
|
|
|
|
|
2,876 |
|
NYSE Amex
listing fee and expenses |
|
|
|
|
60,000 |
|
Printing and
engraving expenses |
|
|
|
|
* |
|
Legal fees and
expenses |
|
|
|
|
* |
|
Accounting fees
and expenses |
|
|
|
|
* |
|
Transfer Agent
and Registrar fees and expenses |
|
|
|
|
* |
|
Miscellaneous
|
|
|
|
|
* |
|
Total
|
|
|
|
$ |
* |
|
* |
|
To be provided by amendment. |
Item 14. Indemnification of Directors and
Officers.
The amended and restated certificate of
incorporation of the Registrant to be effective upon the completion of the offering described in the prospectus filed herewith will provide that the
Registrant will indemnify, to the extent permitted by the DGCL, any person whom it may indemnify thereunder, including directors, officers, employees
and agents of the Registrant. In addition, the Registrants amended and restated certificate of incorporation will eliminate, to the extent
permitted by the DGCL, personal liability of directors to the Registrant and its stockholders for monetary damages for breach of fiduciary
duty.
The Registrants authority to
indemnify its directors and officers is governed by the provisions of Section 145 of the DGCL, as follows:
(a) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys fees), judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with such action, suit or proceeding if the person acted in good faith and in a manner the person reasonably believed to be
in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe
the persons conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which the
person reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding,
had reasonable cause to believe that the persons conduct was unlawful.
(b) A corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to
any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys
fees) actually and reasonably incurred by the person in connection with the defense or settlement of such action or suit if the person acted
in
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good faith and
in a manner the person reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the
Court of Chancery or such other court shall deem proper.
(c) To the extent that a present or former director or officer of a corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in subsections (a) and (b) of this section, or in defense of any claim, issue or
matter therein, such person shall be indemnified against expenses (including attorneys fees) actually and reasonably incurred by such person in
connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because the person has met the applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority
vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, or (2) by a committee of such directors
designated by majority vote of such directors, even though less than a quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that
such person is not entitled to be indemnified by the corporation as authorized in this section. Such expenses (including attorneys fees) incurred
by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate.
(f) The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this
section shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such persons official capacity and as to
action in another capacity while holding such office. A right to indemnification or to advancement of expenses arising under a provision of the
certificate of incorporation or a bylaw shall not be eliminated or impaired by an amendment to such provision after the occurrence of the act or
omission that is the subject of the civil, criminal, administrative or investigative action, suit or proceeding for which indemnification or
advancement of expenses is sought, unless the provision in effect at the time of such act or omission explicitly authorizes such elimination or
impairment after such action or omission has occurred.
(g) A corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such
person in any such capacity, or arising out of such persons status as such, whether or not the corporation would have the power to indemnify such
person against such liability under this section.
(h) For purposes of this section, references to the corporation shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or
was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
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Table of Contents
partnership,
joint venture, trust or other enterprise, shall stand in the same position under this section with respect to the resulting or surviving corporation as
such person would have with respect to such constituent corporation if its separate existence had continued.
(i) For purposes of this section, references to other enterprises shall include employee benefit plans;
references to fines shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to
serving at the request of the corporation shall include any service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by such director, officer, employee, or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a manner not opposed to the best interests of the corporation as
referred to in this section.
(j) The indemnification and advancement of expenses provided by, or granted pursuant to, this section shall, unless
otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to hear and determine all actions for
advancement of expenses or indemnification brought under this section or under any bylaw, agreement, vote of stockholders or disinterested directors,
or otherwise. The Court of Chancery may summarily determine a corporations obligation to advance expenses (including attorneys
fees).
Pursuant to the Underwriting Agreement
to be filed as Exhibit 1.1 to this Registration Statement, the Registrant will agree to indemnify the Underwriters and the Underwriters will agree to
indemnify the Registrant and its directors, officers and controlling persons against certain civil liabilities that may be incurred in connection with
the offering, including certain liabilities under the Securities Act.
The Registrant will enter into
indemnification agreements with each of its directors after the completion of the offering, whereby it will agree to indemnify each director and
officer from and against any and all judgments, fines, penalties, excise taxes and amounts paid in settlement or incurred by such director or officer
for or as a result of action taken or not taken while such director was acting in his capacity as a director or executive officer of the
Registrant.
Item 15. Recent Sales of Unregistered
Securities.
During the past three years, the
following securities were sold by the Registrant without registration under the Securities Act of 1933, as amended (the Securities Act).
All certificates representing the securities described herein and currently outstanding have been appropriately legended. The securities described
below were deemed exempt from registration under the Securities Act in reliance upon Section 4(2), Regulation D or Regulation S of the Securities Act.
There were no underwriters employed in connection with any of the transactions set forth in this Item 15. All of these securities, to the extent not
included in this registration statement, are deemed restricted securities for purposes of the Securities Act. The terms of these securities are
discussed in greater detail in the section of the prospectus entitled Description of Capital Stock.
1. |
|
On December 1, 2006, we issued the PBS Note. Pursuant to the PBS
Note, we borrowed an aggregate principal amount of $ 2,326,350 from December 1, 2006 through March 31, 2011. |
2. |
|
On December 1, 2006, we issued the Family Trusts Note. Pursuant
to the Family Trusts Note, we borrowed an aggregate principal amount of $660,000 from December 1, 2006 through March 31,
2011. |
3. |
|
During March and April 2007, we issued
93 shares of common stock to our founders for $4,480, or $ 48 per share, including
7 shares to Matthew A. Wikler, MD, our President and Chief Executive Officer, 1 share to
James Rock, our Director of New Product Development, 3 shares to Lindsay A. Rosenwald, M.D. ,
3 shares to the Family Trusts, and 45 shares to certain employees and affiliates of Paramount
BioSciences, LLC. |
II-3
Table of Contents
4. |
|
In September 2007, we issued to Robert Feldman, a former
employee of Paramount, as compensation for certain services provided in connection with the in-licensing of certain of our product candidates, the
Feldman Consultant Warrant, which is currently exercisable for 6 shares of common stock at a per share exercise price of
$ 45,600 . |
5. |
|
In December 2007, we issued the 2007 Notes, in the
aggregate principal amount of $4,340,000, to 23 accredited investors. |
6. |
|
In December 2007, we issued to Paramount, in partial
compensation for its services in connection with the offering of the 2007 Notes, the Placement Agent Warrant, which is currently
exercisable for 9 shares of common stock at a per share exercise price of $ 48,000 . |
7. |
|
On December 18, 2008, we issued the Capretti Note. Pursuant to
the Capretti Note, we borrowed an aggregate principal amount of $50,000 from December 18, 2008 through March 31, 2011. |
8. |
|
On each of January 15, 2009 and June 24, 2009, respectively, we
issued the PCP Notes, in the aggregate principal amount of $2,875,000, and the PCP Warrants, to PCP. |
9. |
|
In February and March 2010, we issued the 2010
Notes, in the aggregate principal amount of $3,343,000, and the 2010 Noteholder Warrants, to 45 accredited investors, including Lindsay
A. Rosenwald, M.D., the Chairman, Chief Executive Officer and sole stockholder of Paramount BioCapital, Inc., a FINRA-registered broker-dealer. In
addition, pursuant to the terms of the PBS Note, $1,000,000 of the principal amount outstanding under the PBS Note converted into an 2010
Note in February 2010 in connection with the 2010 Notes financing and PBS received a corresponding 2010 Noteholder
Warrant. |
10. |
|
In May 2010, we granted Timothy Hofer, our Corporate Secretary,
as compensation for his services under his consulting agreement, a ten-year warrant to purchase 2 shares of our common stock, subject to
adjustment. |
11. |
|
On April 29, 2011, we issued the Rights Offering Notes, in
the aggregate principal amount of $1,794,539, to 21 accredited investors, including Lindsay A. Rosenwald, M.D., the Chairman, Chief
Executive Officer and sole stockholder of Paramount BioCapital, Inc., a FINRA-registered broker-dealer. |
12. |
|
On April 29, 2011, we issued the Backstop Warrants to
Manchester Securities Corp. and Lindsay A. Rosenwald, M.D. |
13. |
|
On June 10, 2011, we granted 950,000 restricted shares of
common stock to Michael S. Weiss, our Executive Chairman-elect. |
14. |
|
On June 10, 2011, we issued Rights Offering Notes, in the
aggregate principal amount of $602,730 to two accredited investors, Lindsay A. Rosenwald, M.D. and Manchester Securities Corp. |
II-4
Table of Contents
Item 16. Exhibits and Financial
Statements.
Number
|
|
|
|
Description of Exhibit
|
1.1 |
|
|
|
Form
of Underwriting Agreement.* * |
3.1 |
|
|
|
Certificate of Incorporation.** |
3.2 |
|
|
|
Certificate of Amendment of Certificate of Incorporation dated April 12, 2010.** |
3.3 |
|
|
|
By-laws.** |
3.4 |
|
|
|
Certificate of Amendment of Certificate of Incorporation, dated January 19, 2011.** |
3.5 |
|
|
|
Form
of Amended and Restated Certificate of Incorporation, to be effective upon the completion of the offering.** |
3.6 |
|
|
|
Form
of Amended and Restated By-laws, to be effective upon the completion of the offering.** |
4.1 |
|
|
|
Specimen common stock certificate.** |
4.2 |
|
|
|
Form
of underwriters warrant.* * |
4.3 |
|
|
|
Form
of Note Purchase Agreement for 2007 Notes (filed as Exhibit 4.6 to the Registrants Registration Statement on Form S-1 filed on
April 15, 2010).** |
4.4 |
|
|
|
Form
of 2007 Note (filed as Exhibit 4.7 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.5 |
|
|
|
Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.8 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.6 |
|
|
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.9 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).** |
4.7 |
|
|
|
Common Stock Warrant, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.10 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).** |
4.8 |
|
|
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.11 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.9 |
|
|
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.12 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).** |
4.10 |
|
|
|
Common Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.13 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).** |
4.11 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Paramount Biosciences, LLC (filed as Exhibit 4.14 to
the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.12 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated
December 15, 2000 (filed as Exhibit 4.15 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.13 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Capretti Grandi, LLC (filed as Exhibit 4.16 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.14 |
|
|
|
Form
of Note and Warrant Purchase Agreement for 2010 Notes (filed as Exhibit 4.17 to the Registrants Registration Statement on Form S-1
filed on April 15, 2010).** |
4.15 |
|
|
|
Form
of 2010 Note (filed as Exhibit 4.18 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.16 |
|
|
|
Form
of 8% Warrant (filed as Exhibit 4.19 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.17 |
|
|
|
Placement Agent Warrant (filed as Exhibit 4.20 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
II-5
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
4.18 |
|
|
|
Feldman Consultant Warrant (filed as Exhibit 4.21 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.19 |
|
|
|
Hofer Consultant Warrant (filed as Exhibit 4.22 to the Registrants Registration Statement on Form S-1 filed on July 9 ,
2010).** |
4.20 |
|
|
|
2007 Note Extension Agreement, dated September 16, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.21 |
|
|
|
PBS
Note Extension Agreement, dated as of September 16, 2010, between the Registrant and PBS.** |
4.22 |
|
|
|
Family Trusts Note Extension Agreement, dated as of September 16, 2010, between the Registrant and the Family Trusts.** |
4.23 |
|
|
|
Capretti Note Extension Agreement, dated as of September 16, 2010, between the Registrant and Capretti.** |
4.24 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of September 16, 2010, between the Registrant and Timothy Hofer.** |
4.25 |
|
|
|
2007 Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.26 |
|
|
|
2010 Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.27 |
|
|
|
PBS
Note Amendment Agreement, dated December 23, 2010, between the Registrant and PBS.** |
4.28 |
|
|
|
Family Trusts Note Amendment Agreement, dated December 23, 2010, between the Registrant and the Family Trusts.** |
4.29 |
|
|
|
Capretti Note Amendment Agreement, dated December 23, 2010, between the Registrant and Capretti.** |
4.30 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of December 23, 2010, between the Registrant and Timothy Hofer.** |
4.31 |
|
|
|
PCP
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and PCP.** |
4.32 |
|
|
|
2007 Notes Amendment Agreement, dated as of March 30, 2011, between the Registrant and the noteholders listed on the signature pages
thereto.* |
4.33 |
|
|
|
2010 Notes Amendment Agreement, dated as of March 30, 2011, between the Registrant and the noteholders listed on the signature pages
thereto.* |
4.34 |
|
|
|
PBS Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and PBS.* |
4.35 |
|
|
|
Family Trusts Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and the Family
Trusts.* |
4.36 |
|
|
|
Capretti Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and Capretti.* |
4.37 |
|
|
|
Manchester Securities Corp. Backstop Warrant.* |
4.38 |
|
|
|
Form of Lindsay A. Rosenwald, M.D. Backstop Warrant.* |
4.39 |
|
|
|
Form of Rights Offering Note.* |
4.40 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of March 30, 2011, between the Registrant and Timothy
Hofer. * |
4.41 |
|
|
|
Rights Offering Notes Amendment Agreement, dated as of June 10, 2011, between the Registrant and the noteholders listed on the
signature pages thereto.* |
5.1 |
|
|
|
Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.** * |
10.1 |
|
|
|
License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the Registrant.** |
10.2 |
|
|
|
Amendment No. 1, effective as of April 22, 2008, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.** |
10.3 |
|
|
|
License Agreement, dated as of June 12, 2007, between UCB Celltech and the Registrant.** |
10.4 |
|
|
|
Non-Exclusive Patent License Agreement, effective as of November 4, 2009, by and between the Registrant and Merck Sharp & Dohme
Corp.** |
II-6
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
10.5 |
|
|
|
Exclusive Sublicense Agreement, effective as of July 10, 2007, by and between Santee Biosciences, Inc. and the
Registrant.** |
10.6 |
|
|
|
Amended and Restated 2007 Stock Incentive Plan.** |
10.7 |
|
|
|
Employment Agreement, effective as of February 28, 2010, by and between the Registrant and Matthew A. Wikler, M.D.** |
10.8 |
|
|
|
Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James Rock.** |
10.9 |
|
|
|
Amendment, dated August 18, 2008, to Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James
Rock.** |
10.10 |
|
|
|
Employment Agreement, dated May 17, 2007, by and between the Registrant and Mark Lotz.** |
10.11 |
|
|
|
Employment Agreement, effective as of July 12, 2010, by and between the Registrant and James W. Klingler.** |
10.12 |
|
|
|
Amendment No. 2, effective as of November 4, 2010, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.** |
10.13 |
|
|
|
Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New York.** |
10.14 |
|
|
|
First Amendment, dated as of December 23, 2010, to Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New
York.** |
10.15 |
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of February 28, 2010, by and between the Registrant and
Matthew A. Wikler, M.D.** |
10.16 |
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of July 12, 2010, by and between the Registrant and
James W. Klingler.** |
10.17 |
|
|
|
Form
of Indemnification Agreement between the Company and each of its directors and executive officers.** |
10.18 |
|
|
|
Form
of Lock-up Agreement for directors, executive officers and 5% stockholders of the Company.** |
10.19 |
|
|
|
Amendment No. 3, effective as of March 23, 2011, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co.
Ltd. and the Registrant.* |
10.20 |
|
|
|
Backstop Commitment Agreement, dated as of April 6, 2011, by and among the Registrant, Manchester Securities Corp. and Lindsay A.
Rosenwald, M.D.* |
10.21 |
|
|
|
Subscription Agreement, by and among the Registrant, Wells Fargo Bank, National Association and the subscribers listed on the
signature pages thereto.* |
10.22 |
|
|
|
Security Agreement, dated as of April 29, 2011, by and between the Registrant and Wells Fargo Bank, National
Association.* |
10.23 |
|
|
|
Form of Stock Repurchase Agreement.* |
10.24 |
|
|
|
Subscription Agreement, by and among the Registrant, Wells Fargo Bank, National Association, Manchester Securities Corp. and Lindsay
A. Rosenwald, M.D.* |
23.1 |
|
|
|
Consent of J.H. Cohn LLP.* |
23.2 |
|
|
|
Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit 5.1).** * |
24.1 |
|
|
|
Powers of Attorney.** |
*** |
|
To be filed by amendment. |
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed separately with the SEC. |
II-7
Table of Contents
Item 17. Undertakings.
(a) The undersigned
registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement, certificates in such denominations
and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
(b) Insofar as
indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
(c) The undersigned
registrant hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-8
Table of Contents
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the Registrant has duly caused this Amendment No. 6 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of San Diego, State of California on the 24th day of June ,
2011.
IASO PHARMA
INC.
By: |
|
/s/ Matthew A. Wikler
Name: Matthew A. Wikler Title: President and Chief Executive Officer |
Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been signed below by the following persons in the capacities and on the
dates indicated.
Signature
|
|
|
|
Title
|
|
Date
|
|
/s/ Matthew A. Wikler Matthew A. Wikler |
|
|
|
President,
Chief Executive Officer and Director (Principal Executive Officer) |
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June
24, 2011 |
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/s/ James W.
Klingler James W. Klingler |
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Executive Vice
President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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June
24, 2011 |
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* J. Jay Lobell |
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Director |
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June
24, 2011 |
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* Jai Jun (Matthew) Choung |
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Director |
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June
24, 2011 |
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* Michael L. Corrado |
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Director |
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June
24, 2011 |
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* Gary G. Gemignani |
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Director |
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June
24, 2011 |
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* Michael Rice |
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Director |
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June
24, 2011 |
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*By: /s/ Matthew
A. Wikler Matthew A. Wikler Attorney-in-Fact |
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II-9
Table of Contents
EXHIBIT INDEX
Number
|
|
|
|
Description of Exhibit
|
1.1 |
|
|
|
Form
of Underwriting Agreement.* * |
3.1 |
|
|
|
Certificate of Incorporation.** |
3.2 |
|
|
|
Certificate of Amendment of Certificate of Incorporation, dated April 12, 2010.** |
3.3 |
|
|
|
By-laws.** |
3.4 |
|
|
|
Certificate of Amendment of Certificate of Incorporation, dated January 19, 2011.** |
3.5 |
|
|
|
Form
of Amended and Restated Certificate of Incorporation, to be effective upon the completion of the offering.** |
3.6 |
|
|
|
Form
of Amended and Restated By-laws, to be effective upon the completion of the offering.** |
4.1 |
|
|
|
Specimen common stock certificate.** |
4.2 |
|
|
|
Form
of underwriters warrant.* * |
4.3 |
|
|
|
Form
of Note Purchase Agreement for 2007 Notes (filed as Exhibit 4.6 to the Registrants Registration Statement on Form S-1 filed on
April 15, 2010).** |
4.4 |
|
|
|
Form
of 2007 Note (filed as Exhibit 4.7 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.5 |
|
|
|
Note
and Warrant Purchase Agreement, dated as of January 15, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.8 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.6 |
|
|
|
10%
Senior Promissory Note, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.9 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).** |
4.7 |
|
|
|
Common Stock Warrant, dated January 15, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.10 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).** |
4.8 |
|
|
|
Note
and Warrant Purchase Agreement, dated as of June 24, 2009, between the Registrant and Paramount Credit Partners, LLC (filed as Exhibit 4.11 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.9 |
|
|
|
10%
Senior Promissory Note, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.12 to the Registrants Registration
Statement on Form S-1 filed on April 15, 2010).** |
4.10 |
|
|
|
Common Stock Warrant, dated June 24, 2009, issued to Paramount Credit Partners, LLC (filed as Exhibit 4.13 to the Registrants
Registration Statement on Form S-1 filed on April 15, 2010).** |
4.11 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Paramount Biosciences, LLC (filed as Exhibit 4.14 to
the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.12 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to The Lindsay A. Rosenwald 2000 Family Trusts Dated
December 15, 2000 (filed as Exhibit 4.15 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.13 |
|
|
|
Amended and Restated Future Advance Promissory Note, dated September 30, 2009, issued to Capretti Grandi, LLC (filed as Exhibit 4.16 to the
Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.14 |
|
|
|
Form
of Note and Warrant Purchase Agreement for 2010 Notes (filed as Exhibit 4.17 to the Registrants Registration Statement on Form S-1
filed on April 15, 2010).** |
4.15 |
|
|
|
Form
of 2010 Note (filed as Exhibit 4.18 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.16 |
|
|
|
Form
of 8% Warrant (filed as Exhibit 4.19 to the Registrants Registration Statement on Form S-1 filed on April 15, 2010).** |
4.17 |
|
|
|
Placement Agent Warrant (filed as Exhibit 4.20 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
II-10
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
4.18 |
|
|
|
Feldman Consultant Warrant (filed as Exhibit 4.21 to the Registrants Registration Statement on Form S-1 filed on April 15,
2010).** |
4.19 |
|
|
|
Hofer Consultant Warrant (filed as Exhibit 4.22 to the Registrants Registration Statement on Form S-1 filed on July 9 ,
2010).** |
4.20 |
|
|
|
2007 Note Extension Agreement, dated September 16, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.21 |
|
|
|
PBS
Note Extension Agreement, dated as of September 16, 2010, between the Registrant and PBS.** |
4.22 |
|
|
|
Family Trusts Note Extension Agreement, dated as of September 16, 2010, between the Registrant and the Family Trusts.** |
4.23 |
|
|
|
Capretti Note Extension Agreement, dated as of September 16, 2010, between the Registrant and Capretti.** |
4.24 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of September 16, 2010, between the Registrant and Timothy Hofer.** |
4.25 |
|
|
|
2007 Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.26 |
|
|
|
2010 Notes Amendment Agreement, dated December 23, 2010, between the Registrant and the noteholders listed on the signature
pages thereto.** |
4.27 |
|
|
|
PBS
Note Amendment Agreement, dated December 23, 2010, between the Registrant and PBS.** |
4.28 |
|
|
|
Family Trusts Note Amendment Agreement, dated December 23, 2010, between the Registrant and the Family Trusts.** |
4.29 |
|
|
|
Capretti Note Amendment Agreement, dated December 23, 2010, between the Registrant and Capretti.** |
4.30 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of December 23, 2010, between the Registrant and Timothy Hofer.** |
4.31 |
|
|
|
PCP
Notes Amendment Agreement, dated December 23, 2010, between the Registrant and PCP.** |
4.32 |
|
|
|
2007 Notes Amendment Agreement, dated as of March 30, 2011, between the Registrant and the noteholders listed on the signature pages
thereto.* |
4.33 |
|
|
|
2010 Notes Amendment Agreement, dated as of March 30, 2011, between the Registrant and the noteholders listed on the signature pages
thereto.* |
4.34 |
|
|
|
PBS Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and PBS.* |
4.35 |
|
|
|
Family Trusts Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and the Family
Trusts.* |
4.36 |
|
|
|
Capretti Note Amendment Agreement, dated as of March 30, 2011, between the Registrant and Capretti.* |
4.37 |
|
|
|
Manchester Securities Corp. Backstop Warrant.* |
4.38 |
|
|
|
Form of Lindsay A. Rosenwald, M.D. Backstop Warrant.* |
4.39 |
|
|
|
Form of Rights Offering Note.* |
4.40 |
|
|
|
Hofer Consultant Warrant Amendment Agreement, dated as of March 30, 2011, between the Registrant and Timothy
Hofer. * |
4.41 |
|
|
|
Rights Offering Notes Amendment Agreement, dated as of June 10, 2011, between the Registrant and the noteholders listed on the
signature pages thereto.* |
5.1 |
|
|
|
Opinion of Olshan Grundman Frome Rosenzweig & Wolosky LLP.** * |
10.1 |
|
|
|
License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and the Registrant.** |
10.2 |
|
|
|
Amendment No. 1, effective as of April 22, 2008, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.** |
10.3 |
|
|
|
License Agreement, dated as of June 12, 2007, between UCB Celltech and the Registrant.** |
II-11
Table of Contents
Number
|
|
|
|
Description of Exhibit
|
10.4 |
|
|
|
Non-Exclusive Patent License Agreement, effective as of November 4, 2009, by and between the Registrant and Merck Sharp & Dohme
Corp.** |
10.5 |
|
|
|
Exclusive Sublicense Agreement, effective as of July 10, 2007, by and between Santee Biosciences, Inc. and the
Registrant.** |
10.6 |
|
|
|
Amended and Restated 2007 Stock Incentive Plan.** |
10.7 |
|
|
|
Employment Agreement, effective as of February 28, 2010, by and between the Registrant and Matthew A. Wikler, M.D.** |
10.8 |
|
|
|
Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James Rock.** |
10.9 |
|
|
|
Amendment, dated August 18, 2008, to Employment Agreement, dated as of January 19, 2007, by and between the Registrant and James
Rock.** |
10.10 |
|
|
|
Employment Agreement, dated May 17, 2007, by and between the Registrant and Mark Lotz.** |
10.11 |
|
|
|
Employment Agreement, effective as of July 12, 2010, by and between the Registrant and James W. Klingler.** |
10.12 |
|
|
|
Amendment No. 2, effective as of November 4, 2010, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co. Ltd. and
the Registrant.** |
10.13 |
|
|
|
Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New York.** |
10.14 |
|
|
|
First Amendment, dated as of December 23, 2010, to Demand TD Promissory Note, dated November 5, 2010, issued to Israel Discount Bank of New
York.** |
10.15 |
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of February 28, 2010, by and between the Registrant and
Matthew A. Wikler, M.D.** |
10.16 |
|
|
|
Amendment No. 1, dated as of December 22, 2010, to Employment Agreement, effective as of July 12, 2010, by and between the Registrant and
James W. Klingler.** |
10.17 |
|
|
|
Form
of Indemnification Agreement between the Company and each of its directors and executive officers.** |
10.18 |
|
|
|
Form
of Lock-up Agreement for directors, executive officers and 5% stockholders of the Company.** |
10.19 |
|
|
|
Amendment No. 3, effective as of March 23, 2011, to License Agreement, dated as of June 12, 2007, between Dong Wha Pharm. Ind. Co.
Ltd. and the Registrant.* |
10.20 |
|
|
|
Backstop Commitment Agreement, dated as of April 6, 2011, by and among the Registrant, Manchester Securities Corp. and Lindsay A.
Rosenwald, M.D.* |
10.21 |
|
|
|
Subscription Agreement, by and among the Registrant, Wells Fargo Bank, National Association and the subscribers listed on the
signature pages thereto.* |
10.22 |
|
|
|
Security Agreement, dated as of April 29, 2011, by and between the Registrant and Wells Fargo Bank, National
Association.* |
10.23 |
|
|
|
Form of Stock Repurchase Agreement.* |
10.24 |
|
|
|
Subscription Agreement, by and among the Registrant, Wells Fargo Bank, National Association, Manchester Securities Corp. and Lindsay
A. Rosenwald, M.D.* |
23.1 |
|
|
|
Consent of J.H. Cohn LLP.* |
23.2 |
|
|
|
Consent of Olshan Grundman Frome Rosenzweig & Wolosky LLP (included in Exhibit 5.1).** * |
24.1 |
|
|
|
Powers of Attorney.** |
*** |
|
To be filed by amendment. |
|
|
Confidential treatment has been requested for portions of this
document. The omitted portions of this document have been filed separately with the SEC. |
II-12