United States

Securities and Exchange Commission

Washington, DC 20549

 

FORM 10-Q

 

þ Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2014

 

¨ Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ___________________ to __________________.

 

Commission file number 001-15070

 

RegeneRx Biopharmaceuticals, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware	52-1253406
(State of Incorporation)	(IRS Employer I.D. Number)

 

15245 Shady Grove Road

Suite 470

Rockville, Maryland 20850

(Address of Principal Executive Offices)

 

(301) 208-9191

(Registrant's Telephone Number, Including Area Code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  þ

No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes þ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “accelerated filer,” “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act. (Check one):

 

Large accelerated filer  ¨		Accelerated filer ¨
Non-accelerated filer ¨		Smaller reporting company þ
(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨ No  þ

 

92,983,247 shares of common stock, par value $0.001 per share, were outstanding as of August 14, 2014.

 

  

RegeneRx Biopharmaceuticals, Inc.

Form 10-Q

Quarterly Period Ended June 30, 2014

 

Index

 

			Page No.
Part I.	Financial Information
	Item 1.	Financial Statements
		Balance Sheets at June 30, 2014
		(unaudited) and December 31, 2013	3
		Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)	4
		Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	5
		Notes to Financial Statements (unaudited)	6-16
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	17
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
	Item 4.	Controls and Procedures	28
Part II.	Other Information
	Item 1.	Legal Proceedings	29
	Item 1A.	Risk Factors	29
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
	Item 3.	Defaults Upon Senior Securities	45
	Item 4.	Mine Safety Disclosures	45
	Item 5.	Other Information	45
	Item 6.	Exhibits	46-48
	Signatures		49

 

 

Part I – Financial Information

 

Item 1.

Financial Statements

 

RegeneRx Biopharmaceuticals, Inc.

Balance Sheets

 

		June 30,				December 31,
		2014				2013
		(Unaudited)				(See Note 1)
ASSETS
Current assets
Cash and cash equivalents		$	674,729			$	6,306
Prepaid expenses and other current assets			79,575				26,299
Total current assets			754,304				32,605
Property and equipment, net of accumulated depreciation of  $123,530 and $121,727			2,570				4,373
Other assets			5,752				5,752
Total assets		$	762,626			$	42,730
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable		$	359,946			$	577,211
Accrued expenses			104,861				39,049
Convertible promisory note, net of discount of $4,135 and $10,854			295,865				289,146
Total current liabilities			760,672				905,406
Long-Term liabilities
Unearned revenue			400,000				400,000
Convertible promisory notes, net of derivative liability			204,099				143,399
Fair value of derivative liability			1,752,502				215,334
Total liabilities			3,117,273				1,664,139
Commitments and contingencies			-				-
Stockholders' deficit
Preferred stock, $.001 par value per share, 1,000,000 shares authorized; no shares issued			-				-
Common stock, par value $.001 per share, 200,000,000 shares authorized,  92,983,247 and 81,733,247  issued and outstanding			92,983				81,733
Additional paid-in capital			96,946,965				95,347,571
Accumulated deficit			(99,394,595	)			(97,050,713	)
Total stockholders' deficit			(2,354,647	)			(1,621,409	)
Total liabilities and stockholders' deficit		$	762,626			$	42,730

 

The accompanying notes are an integral part of these financial statements.

 

  

RegeneRx Biopharmaceuticals, Inc.

Statements of Operations

 

		Three Months ended June 30,								Six Months ended June 30,
		2014				2013				2014				2013
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenue
Sponsored research revenue		$	-			$	-			$	-			$	29,484
Operating expenses
Research and development			149,066				62,293				223,766				155,387
General and administrative			256,947				184,188				545,804				445,952
Total operating expenses			406,013				246,481				769,570				601,339
Loss from operations			(406,013	)			(246,481	)			(769,570	)			(571,855	)
Interest and other income			39				2				42				10
Interest expense			(46,479	)			(21,205	)			(92,186	)			(28,245	)
Change in fair value of derivative			233,666				37,500				(1,482,168	)			37,500
Net loss		$	(218,787	)		$	(230,184	)		$	(2,343,882	)		$	(562,590	)
Basic and diluted net loss per common share		$	(0.00	)		$	(0.00	)		$	(0.03	)		$	(0.01	)
Weighted average number of common shares outstanding			92,983,247				81,733,247				87,637,943				81,733,247

 

The accompanying notes are an integral part of these financial statements.

 

  

RegeneRx Biopharmaceuticals, Inc.

Statements of Cash Flows

 

		For the Six months ended June 30,
		2014				2013
		(Unaudited)				(Unaudited)
Operating activities:
Net loss		$	(2,343,882	)		$	(562,590	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization			1,803				2,751
Share-based compensation			110,644				39,838
Non-cash interest expense			67,419				17,939
Change in fair value of derivative			1,482,168				(37,500	)
Changes in operating assets and liabilities:
Grant receivable			-				177,350
Prepaid expenses and other current assets			(53,276	)			14,494
Accounts payable			(217,265	)			(2,255	)
Accrued expenses			65,812				(10,951	)
Net cash used in operating activities			(886,577	)			(360,924	)
Financing activities:
Proceeds from sale of common stock and issuance of warrants			1,500,000				-
Proceeds from issuance of debt			55,000				225,000
Cash provided by financing activities			1,555,000				225,000
Net increase in cash and cash equivalents			668,423				(135,924	)
Cash and cash equivalents at beginning of period			6,306				141,905
Cash and cash equivalents at end of period		$	674,729			$	5,981
Supplemental Disclosure of Non-Cash Operating and Financing Activities
Fair value of derivative liability at issuance		$	55,000			$	225,000

 

The accompanying notes are an integral part of these financial statements.

 

 

RegeneRx Biopharmaceuticals, Inc.

Notes to Financial Statements

For the three and six months ended June 30, 2014 and 2013 (Unaudited)

 

1.

organization, business overview and basis of presentation

 

Organization and Nature of Operations.

 

RegeneRx Biopharmaceuticals, Inc. (“RegeneRx”, the “Company”, “We”, “Us”, “Our”), a Delaware corporation, was incorporated in 1982. We are focused on the discovery and development of novel molecules to accelerate tissue and organ repair. Our operations are confined to one business segment: the development and marketing of product candidates based on Thymosin Beta 4 (“Tβ4”), an amino acid peptide.

 

Management Plans.

 

On March 28, 2014 we received the proceeds from the first equity purchase in the amount of $1,350,000 from G-treeBNT Co., Ltd. (“G-treeBNT”) formally known as Digital Aria Co., Ltd., pursuant to the March 2014 execution of two licensing agreements and an associated common stock purchase agreement with G-treeBNT. We had previously received $150,000 in the first quarter in connection with these agreements. As of June 30, 2014 we had cash on hand of approximately $675,000. We believe that we could maintain operations for the next twelve months with the cash on hand plus the proceeds of $1,000,000 from the second common stock purchase closing with G-treeBNT that is scheduled to occur on or before August 31, 2014. Our current operating objectives include the development of RGN-259 for certain ophthalmic indications, including pursuing clinical development for the treatment of dry eye syndrome, and neurotrophic keratopathy (NK), for which we received orphan designation at the end of 2013. We continue evaluating the potential for an accelerated development strategy for RGN-259 under the orphan drug designation and plan to meet with the US FDA in the third quarter of this year to discuss our objective of conducting a phase 3 clinical trial with RGN-259 in patients with neurotrophic keratopathy. If we are able to proceed with this strategy we will need to raise additional capital to fund the trial and also for the preparation of clinical material in accordance with FDA regulations for use in the phase 3 trial. Accordingly, we are in the process of exploring various funding alternatives, including, without limitation, a public or private placement of our securities, debt financing, corporate collaboration and additional licensing arrangements. If we are not able to secure additional capital through the capital markets or a strategic partnership, or can only secure such capital on unreasonable terms, we could decide to postpone internal development of RGN-259 and await results from clinical studies conducted by our licensees in Asia (China and Korea), expected to produce data in the 2015-2016 timeframe. In addition to the RGN-259 development activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.

 

We anticipate incurring additional losses in the future as we continue our RGN-259 development activities while seeking partners to explore the potential clinical benefits of Tβ4-based product candidates over multiple indications. Although we intend to continue to seek additional financing or a strategic partner, we may not be able to complete a financing or corporate transaction, either on favorable terms or at all. If we are unable to complete a financing or strategic transaction, we may not be able to continue as a going concern after our funds have been exhausted, and we could be required to significantly curtail or cease operations, file for bankruptcy or liquidate and dissolve. There can be no assurance that we will be able to obtain any sources of funding. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should we be forced to take any such actions.

 

Additionally, we continually refine our operating strategy and will continue to evaluate potential orphan indication clinical uses of Tβ4. However, substantial additional resources will be needed before we will be able to achieve sustained profitability.

 

  

To achieve profitability we, and/or a partner, must successfully conduct pre-clinical studies and clinical trials, obtain required regulatory approvals and successfully manufacture and market those pharmaceuticals we wish to commercialize. The time required to reach profitability is highly uncertain, and there can be no assurance that we will be able to achieve sustained profitability, if at all.

 

These factors could significantly limit the ability to continue as a going concern. The accompanying financial do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

 

Basis of Presentation.

 

The accompanying unaudited interim financial statements reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our financial position, results of operations and cash flows for each period presented. These statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the rules and regulations of the SEC, for interim financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP. The accounting policies underlying our unaudited interim financial statements are consistent with those underlying our audited annual financial statements. These unaudited interim financial statements should be read in conjunction with the audited annual financial statements as of and for the year ended December 31, 2013, and related notes thereto, included in our Annual Report on Form 10-K for the year ended December 31, 2013 (the “Annual Report”).

 

The accompanying December 31, 2013 financial information was derived from our audited financial statements included in the Annual Report. Operating results for the three and six month period ended June 30, 2014 are not necessarily indicative of the results to be expected for the year ending December 31, 2014 or any other future period.

 

References in this Quarterly Report on Form 10-Q to “authoritative guidance” are to the Accounting Standards Codification issued by the Financial Accounting Standards Board (“FASB”).

 

Use of Estimates.

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Critical accounting policies involved in applying our accounting policies are those that require management to make assumptions about matters that are highly uncertain at the time the accounting estimate was made and those for which different estimates reasonably could have been used for the current period. Critical accounting estimates are also those which are reasonably likely to change from period to period, and would have a material impact on the presentation of our financial condition, changes in financial condition or results of operations. Our most critical accounting estimates relate to accounting policies for fair value measurements in connection with derivative liabilities, clinical trial accruals and share-based arrangements. Management bases its estimates on historical experience and on various other assumptions that it believes are reasonable under the circumstances. Actual results could differ from those estimates.

 

Convertible Notes with Detachable Warrants.

 

In accordance with Accounting Standards Codification (ASC) 470-20, Debt with Conversion and Other Options, the proceeds received from convertible notes are allocated between the convertible notes and the detachable warrants based on the relative fair value of the convertible notes without the warrants and the relative fair value of the warrants. The portion of the proceeds allocated to the warrants is recognized as additional paid-in capital and a debt discount. The debt discount related to warrants is accreted into interest expense through maturity of the notes.

 

  

Derivative Financial Instruments

 

Derivative financial instruments consist of financial instruments or other contracts that contain a notional amount and one or more underlying variables (e.g. interest rate, security price or other variable), which require no initial net investment and permit net settlement. Derivative financial instruments may be free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially, and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.

 

The Company does not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-currency risks. However, the Company has issued financial instruments including warrants that are either (i) not afforded equity classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled by the counterparty. In certain instances, these instruments are required to be carried as derivative liabilities, at fair value, in the Company’s financial statements. In other instances these instruments are classified as equity instruments in the Company’s financial statements.

 

The Company estimates the fair values of its derivative financial instrument using the Black-Scholes option pricing model because it embodies all of the requisite assumptions (including trading volatility, estimated terms and risk free rates) necessary to fair value these instruments. Estimating fair values of derivative financial instruments requires the development of significant and subjective estimates that may, and are likely to, change over the duration of the instrument with related changes in internal and external market factors. In addition, option-based techniques are highly volatile and sensitive to changes in the trading market price of the Company’s common stock, which has a high-historical volatility. Since derivative financial instruments are initially and subsequently carried at fair values, the Company’s operating results reflect the volatility in these estimate and assumption changes in each reporting period.

 

Revenue Recognition.

 

We recognize revenue in accordance with the authoritative guidance for revenue recognition. We recognize revenue when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) delivery (or passage of title) has occurred or services have been rendered, (iii) the seller's price to the buyer is fixed or determinable, and (iv) collectability is reasonably assured. We also comply with the authoritative guidance for revenue recognition regarding arrangements with multiple deliverables. Multiple-element arrangements are analyzed to determine whether the deliverables, which may include a license together with performance obligations such as providing a clinical supply of product and steering committee services, can be separated or whether they must be accounted for as a single unit of accounting. Revenue associated with licensing agreements consists of non-refundable upfront license fees and milestone payments. Non-refundable upfront license fees received under license agreements, whereby continued performance or future obligations are considered inconsequential to the relevant license technology, are recognized as revenue upon delivery of the technology.

 

Whenever we determine that an arrangement should be accounted for as a single unit of accounting, we must determine the period over which the performance obligations will be performed and revenue will be recognized. Revenue will be recognized using either a relative performance or straight-line method. We recognize revenue using the relative performance method provided that the we can reasonably estimate the level of effort required to complete our performance obligations under an arrangement and such performance obligations are provided on a best-efforts basis. Revenue recognized is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the relative performance method, as of each reporting period.

 

If we cannot reasonably estimate the level of effort required to complete our performance obligations under an arrangement, the performance obligations are provided on a best-efforts basis and we can reasonably estimate when the performance obligation ceases or the remaining obligations become inconsequential and perfunctory, then the total payments under the arrangement, excluding royalties and payments contingent upon achievement of substantive milestones, would be recognized as revenue on a straight-line basis over the period we expect to complete our performance obligations. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the straight-line basis, as of the period ending date.

 

  

If we cannot reasonably estimate when our performance obligation either ceases or becomes inconsequential and perfunctory, then revenue is deferred until we can reasonably estimate when the performance obligation ceases or becomes inconsequential. Revenue is then recognized over the remaining estimated period of performance.

 

We recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone is substantive in its entirety. A milestone is considered substantive when it meets all of the following criteria:

 

·

The consideration is commensurate with either the entity's performance to achieve the milestone or the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity's performance to achieve the milestone;

 

·

The consideration relates solely to past performance; and

 

·

The consideration is reasonable relative to all of the deliverables and payment terms within the arrangement.

 

A milestone is defined as an event (i) that can only be achieved based in whole or in part on either the entity's performance or on the occurrence of a specific outcome resulting from the entity's performance, (ii) for which there is substantive uncertainty at the date the arrangement is entered into that the event will be achieved and (iii) that would result in additional payments being due to us.

 

We account for non-refundable grants as “Sponsored research revenues” in the accompanying statements of operations. Revenue from non-refundable grants is recognized when the following criteria are met; persuasive evidence of an arrangement exists, services have been rendered and the underlying costs incurred, the contract price is fixed or determinable, and collectability is reasonably assured. For the three and six months ended June 30, 2014 we did not record any grant revenues and for the year ended December 31, 2013, all of our revenues were received from one NIH grant which was substantially completed during the quarter ended March 31, 2013. No future revenues are expected to be earned from this grant.

 

Amounts received prior to satisfying the above revenue recognition criteria are recorded as deferred revenue in our accompanying balance sheets.

 

Research and Development.

 

Research and development (“R&D”) costs are expensed as incurred and include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include: manufacturing Tβ4; formulation of Tβ4 into the various product candidates; stability for both Tβ4 and the various formulations; pre-clinical toxicology; safety and pharmacokinetic studies; clinical trial management; medical oversight; laboratory evaluations; statistical data analysis; regulatory compliance; quality assurance; and other related activities. R&D includes cash and non-cash compensation, payroll taxes, travel and other miscellaneous costs of our internal R&D personnel, who are part-time hourly employees dedicated to R&D efforts. R&D also includes a pro-ration of our common infrastructure costs for office space and communications.

 

Cost of Preclinical Studies and Clinical Trials.

 

We accrue estimated costs for preclinical studies based on estimates of work performed. We estimate expenses incurred for clinical trials that are in process based on patient enrollment and based on clinical data collection and management. Costs based on clinical data collection and management are recognized based on estimates of unbilled goods and services received in the reporting period. We monitor the progress of the trials and their related activities and adjust the accruals accordingly. Adjustments to accruals are charged to expense in the period in which the facts that give rise to the adjustment become known. In the event of early termination of a clinical trial, we would accrue an amount based on estimates of the remaining non-cancelable obligations associated with winding down the clinical trial.

 

  

Recent Accounting Pronouncements.

 

For a discussion of recent accounting pronouncements please refer to Note 2, "Summary of Significant Accounting Policies—Recent Accounting Pronouncements," in the Annual Report. We did not adopt any new accounting pronouncements during the three months ended June 30, 2014 that had or are expected to have a material impact on our financial statements.

 

2.

Net Loss per Common Share

 

Net loss per common share for the three and six month periods ended June 30, 2014 and 2013, respectively, is based on the weighted-average number of shares of common stock outstanding during the periods. Basic and diluted loss per share are identical for all periods presented as potentially dilutive securities have been excluded from the calculation of the diluted net loss per common share because the inclusion of such securities would be antidilutive. The potentially dilutive securities include 45,374,121 shares and 23,238,500 shares in 2014 and 2013, respectively, reserved for the conversion of convertible debt or exercise of outstanding options, warrants, including 13,833,333 (of the 45,374,121 potentially dilutive shares in 2014) that related to G-treeBNT’s expected second equity purchase (8,333,333) and purchase option (5,500,000).

 

3.

Stock-Based Compensation

 

We measure stock-based compensation expense based on the grant date fair value of the awards, which is then recognized over the period which service is required to be provided. We estimate the value of our stock option awards on the date of grant using the Black-Scholes option pricing model and amortize that cost over the expected term of the grant. We recognized $27,077 and $19,919 in stock-based compensation expense for the three months and $110,644 and $39,838 for the six months ended June 30, 2014 and 2013, respectively. We expect to recognize the compensation cost related to non-vested options as of June 30, 2014 of $138,076 over the weighted average remaining recognition period of 1.80 years.

 

We did not grant any stock options during the three months ended June 30, 2013. We used the following forward-looking range of assumptions to value the 25,000 stock options granted to a consultant during the three months ended June 30, 2014:

 

Dividend yield			0.0	%
Risk-free rate of return			1.70	%
Expected life in years			4.00
Volatility			94	%
Forfeiture rate			2.6	%

 

4.

Income Taxes

 

As of June 30, 2014, there have been no material changes to our uncertain tax positions disclosures as provided in Note 9 of the Annual Report. The tax returns for all years in the Company’s major tax jurisdictions are not settled as of January 1, 2014; no changes in settled tax years have occurred through June 30, 2014. Due to the existence of tax attribute carryforwards (which are currently offset by a full valuation allowance), the Company treats all years’ tax positions as unsettled due to the taxing authorities’ ability to modify these attributes.

 

  

5.

Fair Value Measurements

 

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or the most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact, and (iv) willing to transact. The guidance describes a fair value hierarchy based on the levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:

 

•

Level 1 — Quoted prices in active markets for identical assets and liabilities.

 

•

Level 2 — Observable inputs other than quoted prices in active markets for identical assets and liabilities.

 

•

Level 3 — Unobservable inputs.

 

As of June 30, 2014 and 2013, our only qualifying assets that required measurement under the foregoing fair value hierarchy were money market funds included in Cash and Cash Equivalents valued at $675,000 and $6,000, respectively, using Level 1 inputs. Our June 30, 2014 and December 31, 2013 balance sheets reflect qualifying liabilities resulting from the price protection provision in the convertible promissory notes issued in March, July and September of 2013 and January 2014 (see Note 6). We evaluated the derivative liability embedded in the series of convertible notes to determine if an adjustment to the carrying value of the liability was required at June 30, 2014 using the following assumptions.

 

		March 2013				July 2013				Sept 2013				Jan 2014
Dividend yield			0.00	%			0.00	%			0.00	%			0.00	%
Risk-free rate of return			1.62	%			1.62	%			1.62	%			1.62	%
Expected life in years			3.75				4				4.2				4.5
Volatility			96.8	%			94.2	%			95.7	%			92.0	%

 

Given the conditions surrounding the trading of the Company’s equity securities, the Company values its derivative instruments related to embedded conversion features from the issuance of convertible debentures in accordance with the Level 3 guidelines.  For the period ended June 30, 2014, the following table reconciles the beginning and ending balances for financial instruments that are recognized at fair value in these financial statements.

 

  

		Balance at												Balance at
		March 31,				New				Change in				June 30,
		2014				Issuances				Fair Values				2014
Level 3 -
Derivative liabilities from:
Conversion features
March 2013		$	637,500			$	-			$	(75,000	)		$	562,500
July 2013			283,334				-				(33,333	)			250,001
September 2013			909,500				-				(107,000	)			802,500
January 2014			155,834				-				(18,333	)			137,501
Derivative instruments		$	1,986,168			$	-			$	(233,666	)		$	1,752,502

 

6.

Convertible Notes

 

2012 Convertible Note

 

On October 19, 2012 we completed a private placement of convertible notes (the “2012 Notes”) raising an aggregate of $300,000 in gross proceeds. The 2012 Notes bear interest at a rate of five percent (5%) per annum, mature twenty-four (24) months after their date of issuance and are convertible into shares of our common stock at a conversion price of fifteen cents ($0.15) per share (subject to adjustment as described in the 2012 Notes) at any time prior to repayment, at the election of the Investors. In the aggregate, the 2012 Notes are initially convertible into up to 2,000,000 shares of our common stock if held to maturity, excluding interest.

 

At any time prior to maturity of the 2012 Notes, with the consent of the holders of a majority in interest of the 2012 Notes, we may prepay the outstanding principal amount of the 2012 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the 2012 Notes will accelerate and automatically become immediately due and payable.

 

In connection with the issuance of the 2012 Notes we also issued warrants to each Investor. The warrants are exercisable for an aggregate of 400,000 shares of common stock with an exercise price of fifteen cents ($0.15) per share for a period of five years. The relative fair value of the warrants issued is $27,097, calculated using the Black-Scholes-Merton valuation model value of $0.07 with an expected and contractual life of 5 years, an assumed volatility of 74.36%, and a risk-free interest rate of 0.77%. The warrants were recorded as additional paid-in-capital and a discount on the 2012 Notes of $27,097. Non-cash interest expense related to the debt discount during the three and six months ended June 30, 2014 and 2013 each totaled $3,378 and $6,719, respectively.

 

The Investors, and the principal amount of their respective 2012 Notes and number of shares of common stock issuable upon exercise of their respective warrants, are as set forth below:

 

Investor		Note Principal				Warrants
Sinaf S.A.		$	200,000				266,667
Joseph C. McNay		$	50,000				66,667
Allan L. Goldstein		$	35,000				46,666
J.J. Finkelstein		$	15,000				20,000

 

  

Sinaf S. A. is a direct wholly-owned subsidiary of Aptafin S.p.A., or Aptafin. Aptafin is owned directly by Paolo Cavazza and members of his family, who directly and indirectly own 38% of Sigma-Tau, our largest stockholder. The other Investors are members of our Board of Directors including Mr. Finkelstein who serves as our CEO and also the Chairman of our Board of Directors and Dr. Goldstein who also serves as our Chief Scientific Advisor.

 

2013 Convertible Notes

 

On March 29, 2013, we completed a private placement of convertible notes (the “March 2013 Notes”) raising an aggregate of $225,000 in gross proceeds. The March 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the March 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate, the March 2013 Notes are initially convertible into up to 3,750,000 shares of our common stock.

 

At any time prior to maturity of the March 2013 Notes, with the consent of the holders of a majority in interest of the March 2013 Notes, we may prepay the outstanding principal amount of the March 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the March 2013 Notes will accelerate and automatically become immediately due and payable.

 

The investors in the offering included two directors of the Company, Dr. Goldstein and Joseph C. McNay, an outside director. The principal amounts of their respective March 2013 Notes are as set forth below:

 

Investor		Note Principal
Joseph C. McNay		$	50,000
Allan L. Goldstein		$	25,000

 

The Company has evaluated the terms of the March 2013 Notes which contain a down round provision under which the conversion price could be decreased as a result of future equity offerings, as defined in the March 2013 Notes.  The adjustment would reduce the conversion price of the March 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related March 2013 Notes have been settled. The bifurcated liability of $225,000 was recorded on the date of issuance which resulted in a residual debt value of $0. The Company determined that an adjustment to decrease the derivative liability by $75,000 was required at June 30, 2014. The Company had previously determined that an adjustment to increase the derivative liability by $562,500 was required at March 31, 2014. For the six months ended June 30, 2014 the net increase in derivative liability associated with the March 2013 notes equaled $487,500. The Company had determined that an adjustment to decrease the derivative liability by $37,500 was required at June 30, 2013 there was no adjustment to the derivative liability balance at March 31, 2013. Non-cash interest expense recorded during the three and six months ended June 30, 2014 totaled $11,219 and $22,315, respectively. Non-cash interest expense recorded during the three and six months ended June 30, 2013 totaled $11,220 and $11,220, respectively. The discount related to the embedded feature will be accreted back to debt through the maturity of the notes.

 

On July 5, 2013, we completed a private placement of convertible notes (the “July 2013 Notes”) raising an aggregate of $100,000 in gross proceeds. The July 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the July 2013 Notes) at any time prior to repayment, at the election of the investor. In the aggregate, the July 2013 Notes are initially convertible into up to 1,666,667 shares of our common stock.

 

  

At any time prior to maturity of the July 2013 Notes, with the consent of the holders of a majority in interest of the July 2013 Notes, we may prepay the outstanding principal amount of the July 2013 Notes plus unpaid accrued interest without penalty. Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the Federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the July 2013 Notes will accelerate and automatically become immediately due and payable.

 

The investors in the offering included four directors of the Company, Mr. Finkelstein, Dr. Goldstein, Mr. McNay and L. Thompson Bowles, an outside director. The principal amounts of their respective July 2013 Notes are as set forth below:

 

Investor		Note Principal
Joseph C. McNay		$	50,000
Allan L. Goldstein		$	10,000
J.J. Finkelstein		$	5,000
L. Thompson Bowles		$	5,000

 

The Company has evaluated the terms of the July 2013 Notes which contain a down round provision under which the conversion price could be decreased as a result of future equity offerings, as defined in the July 2013 Notes.  The adjustment would reduce the conversion price of the July 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related July 2013 Notes have been settled.  The bifurcated liability of $66,667 was recorded on the date of issuance which resulted in a residual debt value of $33,333. The Company determined that an adjustment to decrease the derivative liability by $33,333 was required at June 30, 2014. The Company had previously determined that an adjustment to increase the derivative liability by $250,000 was required at March 31, 2014. For the six months ended June 30, 2014 the net increase in derivative liability associated with the July 2013 notes equaled $216,667.The accretion of the derivative liability recorded as interest expense during the three and six months ended June 30, 2014 totaled $3,324 and $6,612, respectively. The discount related to the embedded feature will be accreted back to debt through the maturity of the notes.

 

On September 11, 2013, we completed a private placement of convertible notes raising an aggregate of $321,000 in gross proceeds (the “September 2013 Notes”).  The September 2013 Notes bear interest at a rate of five percent (5%) per annum, mature sixty (60) months after their date of issuance and are convertible into shares of our common stock at a conversion price of six cents ($0.06) per share (subject to adjustment as described in the September 2013 Notes) at any time prior to repayment, at the election of the investor.  In the aggregate, the September 2013 Notes are initially convertible into up to 5,350,000 shares of our common stock.  

 

At any time prior to maturity of the September 2013 Notes, with the consent of the holders of a majority in interest of the September 2013 Notes, we may prepay the outstanding principal amount of the September 2013 Notes plus unpaid accrued interest without penalty.  Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of ninety (90) days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the September 2013 Notes will accelerate and automatically become immediately due and payable.

 

The investors in the offering included an affiliate and four directors of the Company. The principal amounts of the affiliate and directors respective September 2013 Notes are as set forth below:

 

  

Investor		Note Principal
SINAF S.A.		$	150,000
Joseph C. McNay		$	100,000
Allan L. Goldstein		$	11,000
L. Thompson Bowles		$	5,000
R. Don Elsey		$	5,000

 

The Company has evaluated the terms of the September 2013 Notes which contain a down round provision under which the conversion price could be decreased as a result of future equity offerings, as defined in the September 2013 Notes.  The adjustment would reduce the conversion price of the September 2013 Notes to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related September 2013 Notes have been settled.  The bifurcated liability of $267,500 was recorded on the date of issuance which resulted in a residual debt value of $53,500. The Company determined that an adjustment to decrease the derivative liability by $107,000 was required at June 30, 2014. The Company had previously determined that an adjustment to increase the derivative liability by $802,500 was required at March 31, 2014. For the six months ended June 30, 2014 the net increase in derivative liability associated with the September 2013 notes equaled $695,500. The accretion of the derivative liability recorded as interest expense during the three and six months ended June 30, 2014 totaled $13,338 and $26,530, respectively. The discount related to the embedded feature will be accreted back to debt through the maturity of the notes.

 

2014 Convertible Notes

 

On January 7, 2014, we completed a private placement of convertible notes raising an aggregate of $55,000 in gross proceeds (the “January 2014 Notes”).   The January 2014 Notes bear interest at a rate of 5% per annum, mature 60 months after their date of issuance and are convertible into shares of our common stock at a conversion price of $0.06 per share (subject to adjustment as described in the January 2014 Notes) at any time prior to repayment, at the election of the Investor.  In the aggregate, the Notes are initially convertible into up to 916,667 shares of our common stock.  

 

At any time prior to maturity of the January 2014 Notes, with the consent of the holders of a majority in interest of the January 2014 Notes, we may prepay the outstanding principal amount of the January 2014 Notes plus unpaid accrued interest without penalty.  Upon the commission of any act of bankruptcy by the Company, the execution by the Company of a general assignment for the benefit of creditors, the filing by or against the Company of a petition in bankruptcy or any petition for relief under the federal bankruptcy act or the continuation of such petition without dismissal for a period of 90 days or more, or the appointment of a receiver or trustee to take possession of the property or assets of the Company, the outstanding principal and all accrued interest on the January 2014 Notes will accelerate and automatically become immediately due and payable.

 

The Investors in the offering included three directors of the Company. The principal amounts of their respective Notes are as set forth below:

 

Investor		Note Principal
Joseph C. McNay		$	25,000
Allan L. Goldstein		$	10,000
L. Thompson Bowles		$	5,000

 

 

The Company has evaluated the terms of the January 2014 Notes which contain a down round provision under which the conversion price could be decreased as a result of future equity offerings, as defined in the January 2014 Notes.  The adjustment would reduce the conversion price of the January 2014 Notes to be equivalent to that of the newly issued stock or stock-related instruments.  As a result, the Company concluded that the conversion feature represented an embedded conversion feature for accounting purposes and should be recognized as a derivative liability, requiring a mark-to-market adjustment at the end of each reporting period until the related January 2014 Notes have been settled.  The bifurcated liability of $55,000 was recorded on the date of issuance which resulted in a residual debt value of $0. The Company determined that an adjustment to decrease the derivative liability by $18,333 was required at June 30, 2014. The Company had previously determined that an adjustment to increase the derivative liability by $100,834 was required at March 31, 2014. For the six months ended June 30, 2014 the net increase in derivative liability associated with the January 2014 notes equaled $82,500. The accretion of the derivative liability recorded as interest expense during the three and six months ended June 30, 2014 totaled $2,742 and $5,243, respectively. The discount related to the embedded feature will be accreted back to debt through the maturity of the notes.

 

7.

Stockholders’ Equity

 

On March 7, 2014, the Company signed securities purchase and licensing agreements with G-treeBNT. Under the securities purchase agreement, G-treeBNT invested $1,350,000 million for the issuance of 11,250,000 common shares at $0.12 per share and will invest an additional $1,000,000 and the Company will issue an additional 8,333,333 shares of common stock at $0.12 per share on or before August 31, 2014. Under the terms of the security purchase agreement, G-treeBNT also obtained the right to make an optional investment to acquire an additional 5.5 million shares of common stock at $0.15 per share. Such optional investment right expires on January 31, 2015. If this optional investment right is exercised the Company will receive additional proceeds of $825,000.

 

The licensing agreements for development and commercialization rights in certain territories to two of the Company’s product development candidates, RGN-259 and RGN-137, included upfront payments of $150,000.

 

In addition, G-treeBNT agreed to pay the Company milestone payments upon the achievement of certain commercial sales milestones, as well as with royalties on commercial sales. These license rights are conditioned upon the completion of the $1.35 million and $1.0 million security purchases described above and should both security purchases not occur, G-tree BNT will forfeit all license rights as well as the $150,000 payment.

 

As the security purchase and licensing agreements were signed in contemplation of each other and the execution of performance under the securities purchase agreement was stipulated as a condition for the retention of the rights granted under the licensing agreements, the three agreements were treated as a multiple-elements arrangement. Following the closing of the agreements, the Company determined that the total consideration received under the three agreements, totaling $1,500,000, should be allocated to identifiable elements within this multiple-elements arrangement (1) the equity investment in the Company’s common shares, including the purchase option and (2) the licensed development and commercialization rights under the two licensing agreements. The optional investment right was considered an equity instrument reduced from the Company’s equity, and its fair value of approximately $725,000 was calculated using the Black Scholes option pricing model at the issuance of this right. As the common shares were issued at a discount to the then market price of the Company’s common stock of $0.20 on the date of closing, all of the proceeds received were absorbed by the allocation to the common shares and the optional investment right leaving no allocation of proceeds to the licensed rights.

 

8.

Commitments

 

We were previously committed under an office space lease through January 2013 and continued to occupy the space on a month to month basis through May 2014. Beginning in June 2014 we consolidated our office space and amended our lease agreement for the reduced space. The new lease commitment is for 36 months and our rental payments for this period will be approximately $4,500 per month.

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This Quarterly Report on Form 10-Q, including this Part I., Item 2., “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding us and our business, financial condition, results of operations and prospects within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the words “project,” “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “should,” “would,” “could,” “will,” “may” or other similar expressions. In addition, any statements that refer to projections of our future financial performance, our clinical development programs and schedules, our future capital resources and funding requirements, our anticipated growth and trends in our business and other characterizations of future events or circumstances are forward-looking statements. We cannot guarantee that we will achieve the plans, intentions or expectations expressed or implied in our forward-looking statements.  There are a number of important factors that could cause actual results, levels of activity, performance or events to differ materially from those expressed or implied in the forward-looking statements we make, including those described under “Risk Factors” set forth below in Part II., Item 1A. In addition, any forward-looking statements we make in this document speak only as of the date of this report, and we do not intend to update any such forward-looking statements to reflect events or circumstances that occur after that date.

 

Business Overview

 

We are a biopharmaceutical company focused on the development of a novel therapeutic peptide, Thymosin beta 4, or Tß4, for tissue and organ protection, repair, and regeneration. We have formulated Tß4 into three distinct product candidates in clinical development:

 

•   RGN-259, a preservative-free topical eye drop for regeneration of corneal tissues damaged by injury, disease or other pathology;

 

•   RGN-352, an injectable formulation to treat cardiovascular diseases, central and peripheral nervous system diseases, and other medical indications that may be treated by systemic administration; and

 

•   RGN-137, a topical gel for dermal wounds and reduction of scar tissue.

 

We are continuing strategic partnership discussions with biotechnology and pharmaceutical companies regarding the further clinical development of all of our product candidates.

 

In addition to our three pharmaceutical product candidates, we are also pursuing the potential use of peptide fragments and derivatives of Tß4 for cosmeceutical and other personal care uses. These fragments are select amino acid sequences, and variations thereof, within the Tß4 molecule that have demonstrated activity in several in vitro preclinical research studies that we have sponsored. We believe the biological activities of these fragments may be useful, for example, in developing novel cosmeceutical products for the anti-aging market. Our strategy is to collaborate with another company to develop cosmeceutical formulations based on these peptides.

 

Future Plans

 

On March 7, 2014, we entered into two licensing agreements and one securities purchase agreement with G-treeBNT Co., Ltd. (“G-treeBNT”) formally known as Digital Aria Co., Ltd. under which G-treeBNT agreed to purchase $2,350,000 of our common stock and receive an option to purchase an additional $825,000 of our common stock over the next eleven months. On March 28, 2014 we received the proceeds from the first equity purchase in the amount of $1,350,000 from G-treeBNT.   We believe that we could maintain operations for the next twelve months with the cash on hand of $675,000, as of June 30, 2014, plus the proceeds of $1,000,000 from the second common stock purchase closing with G-treeBNT that is scheduled to occur on or before August 31, 2014.

 

Our current operating objectives include the development of RGN-259 for certain ophthalmic indications, including pursuing clinical development for the treatment of dry eye syndrome, and neurotrophic keratopathy (NK), for which we received orphan designation at the end of 2013. We continue evaluating the potential for an accelerated development strategy for RGN-259 under the orphan drug designation and plan to meet with the US FDA in the third quarter of this year to discuss our objective of conducting a phase 3 clinical trial with RGN-259 in patients with neurotrophic keratopathy.

 

 

If we are able to proceed with this strategy we will need to raise additional capital to fund the trial and also for the preparation of clinical material in accordance with FDA regulations for use in the phase 3 trial. Accordingly, we are in the process of exploring various funding alternatives, including, without limitation, a public or private placement of our securities, debt financing, corporate collaboration and additional licensing arrangements. If we are not able to secure additional capital through the capital markets or a strategic partnership, or can only secure such capital on unreasonable terms, we could decide to postpone internal development of RGN-259 and await results from clinical studies conducted by our licensees in Asia (China and Korea), expected to produce data in the 2015-2016 timeframe. In addition to the RGN-259 development activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.

 

Development of Product Candidates

 

RGN-259

 

RGN-259 is our proprietary preservative-free eye drop formulation of Thymosin beta 4. In September 2011, we completed a Phase 2a exploratory clinical trial evaluating the safety and efficacy of RGN-259 in 72 patients with moderate dry eye syndrome. Patients were randomly assigned to receive either RGN-259 or placebo in this double-masked, placebo-controlled trial. All patients received either RGN-259 (0.1% concentration) or placebo, twice daily for 30 days. Various signs and symptoms of dry eye, such as the degree of ocular surface damage, ocular itching, burning and grittiness, among others, were graded periodically during and following the treatment period. The trial was conducted by Ora Inc., an ophthalmic contract research organization that specializes in dry eye research and clinical trials, and utilized Ora’s Controlled Adverse Environment (CAE^sm) chamber, which is a model that exacerbates dry eye signs and symptoms in the dry eye patient.

 

In November 2011, we reported preliminary safety and efficacy results from the trial. RGN-259 was deemed safe and well-tolerated, with no observed drug-related adverse events.

 

The co-primary outcome measures evaluated in the trial were inferior corneal fluorescein staining and decreased ocular discomfort on day 29, 24 hours after CAE challenge. Various secondary outcome efficacy measures were also evaluated in the trial. While the study did not meet statistical significance for reducing inferior corneal fluorescein staining, it did show a positive trend in this exploratory trial. RGN-259 did, however, show a statistically significant efficacy result in the other co-primary endpoint of decreased ocular discomfort.

 

Key outcome measures are as follows:

 

Patients receiving RGN-259 experienced a 325% greater reduction from baseline in central corneal fluorescein staining compared to placebo at the 24 hour recovery period (p = 0.0075). Reduction of fluorescein staining is indicative of a reduction in ocular surface damage of the central cornea;

 

Patients receiving RGN-259 experienced a 257% greater reduction from baseline in exacerbation of superior corneal fluorescein staining in the CAE chamber as compared to the placebo (p = 0.0210); and

 

Patients receiving RGN-259 experienced a 27.3% greater reduction in exacerbation of ocular discomfort at day 28 during a 75-minute challenge in the CAE chamber compared to the placebo group (p = 0.0244). Reduction indicates that RGN-259 can slow progression of ocular symptoms in patients with dry eye syndrome.

 

Other CAE-related findings, such as superior corneal staining reduction and peripheral (combination of the average of superior and inferior) corneal staining reduction, were observed having statistical significance, while others had positive trends after treatment with RGN-259. These observations are in line with the known biological properties and mechanisms of action of RGN-259 reported in various nonclinical studies.

 

With respect to inferior corneal fluorescein staining, we did see a trend toward improvement, meaning that we observed reduced staining, at day 28 during exposure to adverse conditions in the CAE chamber in patients receiving RGN-259 compared to placebo, although this improvement was not deemed to be statistically significant (p = 0.0968).

 

 

Statistical significance (p value) of ≤ 0.05 is the generally accepted threshold for showing an outcome did not happen merely by chance.

 

The co-primary outcome measures, selected at the outset of this initial exploratory trial, were based on the best available animal data at the time but without the benefit of any actual human clinical experience in dry eye. Therefore, we believe that our not having met one of the two co-primary outcome measures at this stage is not as important as identifying statistically significant outcomes that could potentially serve as approvable endpoints in later stage or in pivotal Phase 3 clinical trials. We believe that the statistically significant observation of reduction in central corneal staining, as well as symptom improvements observed in the trial and described above, reflect actual patient benefits and would represent acceptable outcome measures to the FDA for possible use in follow-up Phase 2 or confirmatory pivotal Phase 3 trials. We are currently preparing a clinical study report for submission to the FDA that will describe the results of the exploratory Phase 2 clinical trial.

 

In June 2012, we reported preliminary results from a double-masked, vehicle-controlled, physician-sponsored Phase 2 clinical trial evaluating RGN-259 for the treatment of severe dry eye. RGN-259 was observed to be safe and well-tolerated and met key efficacy objectives with statistically significant sign and symptom improvements, compared to vehicle control, at various time intervals, including 28 days post-treatment.

 

In the trial, nine patients with severe dry eye (18 eyes) were treated with RGN-259 or vehicle control six times daily over a period of 28 days. They were evaluated upon entering the study after a two week washout period, at weekly intervals during the treatment phase, at the end of the 28-day treatment period, and at a follow-up visit 28 days after treatment. Statistically significant differences in sign and symptom assessments, such as ocular discomfort and corneal fluorescein staining, were seen at various time points throughout the study. Of particular note were the differences between RGN-259 and vehicle control 28 days post-treatment, or the follow-up period. The RGN-259-treated group had a 35.1% reduction of ocular discomfort compared to vehicle control (p = 0.0141), and a 59.1% reduction of total corneal fluorescein staining compared to vehicle control (p = 0.0108).

 

Consistent with the reduction of ocular discomfort and fluorescein staining at the 28-day follow-up visit, other improvements seen in the RGN-259-treated patients included tear film breakup time and increased tear volume production. Likewise, these improvements were seen at other time points in the study.

 

Lee’s Pharmaceuticals. In July 2012, we entered into a License Agreement with Lee’s Pharmaceutical (HK) Limited, headquartered in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. Lee’s has filed an investigational new drug application IND with the Chinese FDA to begin clinical development with RGN-259 in China for dry-eye. Lee’s is an affiliate of Sigma-Tau, which collectively with its affiliates is our largest stockholder.

 

G-treeBNT. In March 2014, we entered into a License Agreement with G-treeBNT Co., Ltd., headquartered in Gyeonggi-do, Korea for the license of RGN-259. G-treeBNT licensed certain development and commercialization rights for RGN-259 in Asia (excluding China, Hong Kong, Macau and Taiwan). G-treeBNT simultaneously committed to purchase approximately 19.6 million shares of our common stock in two closings and, after closing the initial purchase on March 28, 2014, is currently our second largest shareholder. G-treeBNT also holds an option to purchase an additional 5.5 million shares of common stock at $0.15 per share until January 31, 2015.

 

Future Clinical Plans. We are in the process of evaluating the best path to reinitiate clinical activity for the treatment of dry eye while also evaluating the use and development of RGN-259 for patients with neurotrophic keratopathy (NK) pursuant to the orphan designation received at year-end.

 

Based on the results of the Phase 2 clinical trials in patients with moderate and severe dry eye syndrome, we are designing a Phase 2b clinical trial that we believe could confirm previous findings and generate important data for future marketing approval. This trial will also likely be a physician-sponsored trial for which we will supply regulatory support and clinical material. If we proceed with support of the trial we expect that the trial will be initiated in the first half of 2015. With the orphan drug designation received from the FDA Office of Orphan Products on December 31, 2013, we are now evaluating the potential for accelerating development of RGN-259 in patients with non-healing NK. Based on the safety profile of RGN-259 and our clinical experience in treating ophthalmic patients, we are considering moving directly into Phase 3 clinical trials. In this event, we will likely need to raise additional capital to complete the trial. Subject to our raising additional capital to fund the trial, we believe a Phase 3 trial in patients with NK could be initiated in late 2014 or early 2015 and completed in 2015.

 

 

RGN-352

 

During 2009, we completed a Phase 1 clinical trial evaluating the safety, tolerability and pharmacokinetics of the intravenous administration of RGN-352 in 60 healthy subjects. Based on the results of this Phase 1 trial and extensive preclinical efficacy data published in peer-reviewed journals, in the second half of 2010, we began start-up activities for a Phase 2 study to evaluate RGN-352 (Tß4 Injectable Solution) in patients who had suffered an acute myocardial infarction (AMI). We had planned to begin enrolling patients in this clinical trial near the beginning of the second quarter of 2011. However, in March 2011, we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply with the current Good Manufacturing Practice (cGMP) regulations. We have since learned that the manufacturer has closed its manufacturing facility and filed for bankruptcy protection. Since the FDA has prohibited us from using any of the active drug or placebo formulated by this manufacturer in human trials, we must have study drug (RGN-352 and RGN-352 placebo) manufactured by a new cGMP-compliant manufacturer in the event we seek to move forward with this trial. Therefore, we have elected to postpone activities on this trial until the requisite funding or a partner is secured.

 

In addition to the potential application of RGN-352 for the treatment of cardiovascular disease, preclinical research published in the scientific journals Neuroscience and the Journal of Neurosurgery indicates that RGN-352 may also prove useful for patients with multiple sclerosis, or MS, as well as patients suffering a stroke or traumatic brain injury. In these preclinical studies, the administration of Tß4 resulted in regeneration of neuronal tissue by promoting remyelination of axons and stimulating oligodendrogenesis, resulting in improvement of neurological functional activity. Based on this preclinical research, depending on our capital resources, we may in the future support a proposed physician-sponsored Phase 1/2 clinical trial to be conducted at a major U.S. medical center to evaluate the therapeutic potential of RGN-352 in patients with MS, stroke or traumatic brain injury.

 

In 2012, researchers studying Tß4 under a material transfer agreement (MTA) found that Tß4 had beneficial effects in animal models of peripheral neuropathy, one of the major complications of diabetes. This research was published in the journal of Neurobiology of Disease in December 2012 and appears to corroborate previous findings using Tß4 for repair of central nervous system disorders.

 

RGN-137

 

Clinical Development — Epidermolysis Bullosa (EB).  In 2005, we began enrolling patients in a Phase 2 clinical trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with EB. EB is a genetic disease of approximately 10 gene mutations that results in fragile skin and other epithelial structures (e.g., cornea and GI tract) that can blister spontaneously or separate at the slightest trauma or friction, creating a wound that at times does not heal or heals poorly. In severe cases, recurrent blistering and tissue loss may be life threatening. EB has been designated as an “orphan” indication by the FDA’s Office of Orphan Drugs. A portion of this trial was funded by a grant of $681,000 received from the FDA. In this randomized, double-blind, placebo-controlled, dose-response trial, nine U.S. clinical sites evaluated the safety, tolerability, and wound healing effectiveness of three different concentrations of RGN-137 compared to placebo. RGN-137 was applied topically to the skin, once daily for up to 56 consecutive days. We completed enrollment of 30 out of the original target of 36 patients and closed the Phase 2 trial in late 2011 as the availability of eligible patients had been exhausted. We engaged a consultant to draft the final report which has been submitted to the FDA.

 

 

Clinical Development — Pressure Ulcers.  In late 2005, we began enrolling patients in a Phase 2 clinical trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with chronic pressure ulcers, commonly known as bedsores. In this randomized, double-blind, placebo-controlled, dose-response trial, 15 clinical sites in the United States enrolled a total of 72 patients to evaluate the safety, tolerability, and wound healing effectiveness of three different concentrations of RGN-137 compared to placebo. RGN-137 was applied topically to patients’ ulcers, once daily for up to 84 consecutive days. Patients in the trial were between 19 and 85 years old and had at least one stable Stage III or IV pressure ulcer with a surface area between 5 and 70 cm². Stage III and IV pressure ulcers are full thickness wounds that penetrate through the skin and muscle, sometimes completely to the bone.

 

In January 2009, we reported final data from this trial. RGN-137 was well-tolerated at all three dose levels studied, with no dose-limiting adverse events, which achieved the primary objective of the study. As for efficacy, all Tß4 doses performed similarly compared to placebo, with no statistically significant efficacy results. However, patients treated with the middle dose showed a 17% rate of wound healing, which was the highest rate among the three active doses evaluated. The improvement in ulcer healing in this middle dose group following nine weeks of treatment was equal to the improvement in patients treated with placebo after 12 weeks of treatment. A follow-on evaluation, reported at the 3rd International Symposium on the Thymosins in Health and Disease in March 2012, showed that for those pressure ulcer patients’ wounds that healed, RGN-137 mid dose (0.02% Tβ4 gel product) accelerated wound closure with a median time to healing of 22 days as compared to 57 days for the placebo. Although those results are clinically significant, they were not statistically significant.

 

Clinical Development — Venous Stasis Ulcers. In mid-2006 we began enrolling patients in a Phase 2 clinical trial designed to assess the safety and effectiveness of RGN-137 for the treatment of patients with venous stasis ulcers. Venous stasis ulcers are a common type of chronic wound that develops on the ankle or lower leg in patients with chronic vascular disease. In these patients blood flow in the lower extremities is impaired leading to venous hypertension, edema (swelling) and mild redness and scaling of the skin that gradually progresses to ulceration. In this double-blind, placebo-controlled, dose-response study, 8 European sites in Italy (N=5) and Poland (N=3) make up the 72 patients randomized to receive three different concentrations of RGN-137 or placebo. RGN-137 or placebo was applied topically to patients’ ulcers once daily for consecutive days. A patient’s ulcer size and ulcer stability for enrollment were between 3 and 30 cm² and at least 6 weeks in duration, respectively.

 

In 2009, we reported final data from that trial. All doses of RGN-137 were well tolerated. More patients achieved healing in the RGN-137 mid dose (0.03% Tβ4 gel product) than in any other dose group. The mid dose showed both an increased incidence of wound healing and a faster healing time compared to placebo. The mid dose decreased the median time to healing by 45% among those wounds that completely healed. A follow-on evaluation, reported at the 3rd International Symposium on the Thymosins in Health and Disease in March 2012, showed that for those venous stasis ulcer patients’ wounds greater than 3 cm² that healed, the RGN-137 mid dose (0.03% Tβ4 gel product) accelerated wound closure with a median time to healing of 49 days as compared to 78 days for the placebo. Those results were both clinically and statistically significant.

 

G-treeBNT. In March 2014, we entered into a License Agreement with G-treeBNT Co., Ltd., to license certain development and commercialization rights for RGN-137 in the U.S. G-treeBNT also committed to purchase an aggregate of approximately 19.6 million shares of our common stock in two closings and, after closing the initial purchase on March 28, 2014, is currently our second largest shareholder. G-treeBNT also holds an option to purchase an additional 5.5 million shares of common stock at $0.15 per share until January 31, 2015.

 

Peptide Fragments for Cosmeceutical Applications

 

We have identified and evaluated several Tß4 peptide fragments and derivatives that may be useful as novel components in cosmeceutical and consumer products. We have identified several amino acid sequences, and variations thereof, within the Tß4 molecule that have demonstrated in vitro activity in preclinical research studies that we have sponsored, and we have filed a number of patent applications related to this research. We believe the biological activities of these fragments may be useful, for example, in developing novel cosmeceutical products for the anti-aging and, more broadly, the personal care markets. To date, research has suggested that these fragments suppress inflammation, accelerate the deposition of certain types of collagen, promote the production of elastin, and inhibit programmed cell death, among other activities. Our development and commercialization strategy is to identify suitable commercial partners to license these novel fragments for various cosmeceutical applications. We have held discussions with several multinational cosmetics and consumer products companies focused on potential collaborations to further develop and commercialize these fragments.

 

 

Our Strategy

 

We seek to maximize the value of our product candidates by advancing their clinical development and then identifying suitable partners for further development, regulatory approval, and marketing. We intend to engage in strategic partnerships with companies with clinical development and commercialization strengths in desired pharmaceutical therapeutic fields. We are actively seeking partners with suitable infrastructure, expertise and a long-term initiative in our medical fields of interest.

 

On March 8, 2014, we announced that we had signed a two License Agreements with G-treeBNT Co., Ltd., headquartered in Gyeonggi-do, Korea for certain licenses to our RGN-259 and RGN-137 product candidates. G-treeBNT licensed the development and commercialization rights for RGN-259 in Asia (excluding China, Hong Kong, Macau and Taiwan), while also licensing the development and commercialization rights for RGN-137 in the U.S.

 

We have entered into a strategic partnership with Defiante Farmaceutica S.A., or Defiante, a subsidiary and one of several entities affiliated with Sigma-Tau Group, a leading international pharmaceutical company which collectively comprise our largest shareholder, or Sigma-Tau, for development and marketing of RGN-137 and RGN-352 for specified indications in Europe and other contiguous countries. Defiante merged with Sigma-Tau Industrie Farmaceutiche Riunite S. P. A. in 2013.

 

We have entered into a License Agreement with Lee’s Pharmaceutical (HK) Limited, headquartered in Hong Kong, for the license of Thymosin Beta 4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates, in China, Hong Kong, Macau and Taiwan. Lee’s is an affiliate of Sigma Tau, which collectively with its affiliates is our largest stockholder.

 

Financial Operations Overview

 

We have never generated product revenues, and we do not expect to generate product revenues until the FDA approves one of our product candidates, if ever, and we begin marketing and selling it. Subject to the availability of financing, we expect to invest increasingly significant amounts in the furtherance of our current clinical stage programs and may add additional nonclinical studies and new clinical trials as we explore the potential of our current product candidates in target indications and explore the potential use of our Tß4-based product candidates in rare disease and orphan indications. As we expand our clinical development initiatives, we expect to incur substantial and increasing losses. Accordingly, we will need to generate significant product revenues in order to ultimately achieve and then maintain profitability. Also, we expect that we will need to raise substantial additional capital in order to meet product development requirements. We cannot assure investors that such capital will be available when needed, on acceptable terms, or at all.

 

Most of our expenditures to date have been for research and development, or R&D, activities and general and administrative, or G&A, activities. R&D costs include all of the wholly-allocable costs associated with our various clinical programs passed through to us by our outsourced vendors. Those costs include manufacturing Tß4 and peptide fragments, formulation of Tß4 into our product candidates, stability studies for both Tß4, and the various formulations, preclinical toxicology, safety and pharmacokinetic studies, clinical trial management, medical oversight, laboratory evaluations, statistical data analysis, regulatory compliance, quality assurance and other related activities. R&D includes cash and non-cash compensation, payroll taxes, travel and other miscellaneous costs of our internal R&D personnel, who are dedicated on a part-time hourly basis to R&D efforts. R&D also includes a proration of our common infrastructure costs for office space and communications. We expense our R&D costs as they are incurred.

 

 

R&D expenditures are subject to the risks and uncertainties associated with clinical trials and the FDA review and approval process. As a result, these expenses could exceed our expectations, possibly materially. We are uncertain as to what we will incur in future research and development costs for our clinical studies, as these amounts are subject to, management's continuing assessment of the economics of each individual research and development project and the internal competition for project funding. In May 2010 we were awarded a grant from the NIH to support the development of RGN-352. Subject to our compliance with the terms and conditions of the grant, we were eligible to receive up to $3.0 million over a three-year period in cost reimbursements related to the purposes set forth in the grant. We have used proceeds from the grant for the payment of research and development staff in connection with our grant related research and development activities and heavily relied on this grant for purposes of funding our R&D employees’ reduced salaries. Proceeds from the grant have been used for animal studies supporting our clinical work to develop RGN-352 for myocardial infarction, as well as to manufacture additional quantities of Tβ4. In the first quarter of 2013 we substantially completed all of the work under the grant and have exhausted the grant as a financing source.

 

G&A costs include outside professional fees for legal, business development, audit and accounting services. G&A also includes cash and non-cash compensation, payroll taxes, travel and other miscellaneous costs of our internal G&A personnel, three in total, who are dedicated to G&A efforts. G&A also includes a proration of our common infrastructure costs for office space, and communications. Our G&A expenses also include costs to maintain our intellectual property portfolio. We have expanded our patent prosecution activities and have been reviewing our pending patent applications in the United States, Europe and other countries with the advice of outside legal counsel. In some cases, we have filed patent applications for non-critical strategic purposes intended to prevent others from filing similar patent claims. We continue to closely monitor our patent applications to determine if they will continue to provide strategic benefits. In cases where we believe the benefit has been realized or it becomes unnecessary due to the issuance of other patents, or for other reasons that will not affect the strength of our intellectual property portfolio, we will abandon these patent applications in order to reduce our costs of prosecution.

 

Critical Accounting Policies 

 

In Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of our Annual Report on Form 10-K for the year ended December 31, 2013, which was filed with the SEC on April 4, 2014, which we refer to as the Annual Report, we included a discussion of the most significant accounting policies and estimates used in the preparation of our financial statements. There has been no material change in the policies and estimates used in the preparation of our financial statements since the filing of our Annual Report.

 

Results of Operations

 

Comparison of the three months ended June 30, 2014 and 2013

 

Revenues. We did not record any revenue in the three months ended June 30, 2014. We also did not record any revenue in the three months ended June 30, 2013, as we completed work under the NIH grant in the first quarter of 2013.

 

R&D Expenses. For the three months ended June 30, 2014, our R&D expenses increased by approximately $87,000, or 139%, to $149,000 from $62,000 for the same period in 2013. The increase from 2013 reflects reinitiating of R&D activities related to evaluating the feasibility of initiating a phase 3 clinical trial under the orphan designation received in December 2013 in addition to the R&D costs incurred associated with our support of G-TreeBNT pursuant to our obligations under the license agreements signed on March 7, 2014. The increase included a significant increase in outside consulting services of $94,000 offset by a decrease in overhead allocation of $7,000. The 2013 R&D expenses reflect our limited operating activity during that period as we completed the work under the NIH grant in the first quarter of 2013. We expect our R&D expenses will continue to increase as we continue to evaluate and execute on our current development objectives.

 

 

G&A Expenses. For the three months ended June 30, 2014, our G&A expenses increased by approximately $73,000, or 40%, to $257,000, from $184,000 for the same period in 2013. The increase primarily reflects the reinitiating of operating activities as a result of the cash proceeds from the initial stock sale to G-treeBNT. Increases in personnel related expenses of $72,000 reflect increases in compensation levels along with the appointment of the CFO. Stock option expense for the 3 months increased $10,000 and the increased activity resulted in higher costs for investor relations and sponsorship (increase of $10,000), travel (increase of $3,000) and overhead allocation (increase of $12,000). These increases were partially offset by a decrease in professional services of $38,000 including consulting fees.

 

Net Income. We incurred a net loss of $219,000 for the quarter ended June 30, 2014, which reflects our quarterly evaluation of the derivative liability associated with the conversion feature of the convertible debt instruments which reduced the loss by approximately $234,000 as a result of a decrease in the value of the conversion feature. The value of this conversion feature is indexed to the share price of our common stock and increases as our share price increases and decreases as our share price decreases. The share price of our common stock decreased from $0.20 on March 31, 2014 to $0.18 on June 30, 2014.

 

Comparison of the six months ended June 30, 2014 and 2013

 

Revenues. We did not record any revenue in the six months ended June 30, 2014. During the six months ended June 30, 2013 we recognized grant revenue of $29,000 based on costs incurred related to this grant.

 

R&D Expenses. For the six months ended June 30, 2014, our R&D expenses increased by approximately $69,000, or 45%, to $224,000 from $155,000 for the same period in 2013. The increase from 2013 reflects reinitiating of R&D activities related to evaluating the feasibility of initiating a phase 3 clinical trial under the orphan designation received in December 2013 in addition to the R&D costs incurred associated with our support of G-treeBNT pursuant to our obligations under the license agreements signed on March 7, 2014. The increase includes a significant increase in outside consulting services of $121,000 plus an increase in stock option expense of $13,000 offset by decreases in personnel related (decrease of $22,000), overhead allocation (decrease of $19,000) and outside services (decrease of $29,000). We expect our R&D expenses to increase as we continue to evaluate and execute on our current development objectives.

 

G&A Expenses. For the six months ended June 30, 2014, our G&A expenses increased by approximately $100,000, or 22%, to $546,000, from $446,000 for the same period in 2013. The increase, most of which occurred in the past three months, reflects the reinitiating of operating activities as a result of the cash proceeds from the initial stock sale to G-treeBNT. Increases in personnel related expenses of $82,000 reflect increases in compensation levels along with the appointment of the CFO. Stock option expense for the six months increased $57,000 and the increased activity resulted in higher costs for investor relations and sponsorship (increase of $13,000), facility and related (increase of $5,000), insurance (increase of $5,000), travel (increase of $8,000) and overhead allocation (increase of $19,000). These increases were partially offset by a decrease in professional services of $89,000, primarily in patent costs. We also expect that our G&A expenses will increase as we have increased cash compensation paid to our employees.

 

Net Loss. We incurred a net loss of $2,344,000 for the six months ending June 30, 2014, primarily as a result of our evaluation of the derivative liability associated with the conversion feature of the debt instruments issued over the past year. The value of this conversion feature is indexed to the share price of our common stock and increases as our share price increases. The share price of our common stock increased from $0.05 December 31, 2013 to $0.18 on June 30, 2014, which resulted in an increase in valuation of our convertible debt derivative component and the recording of an unrealized loss of $1,482,168.

 

Liquidity and Capital Resources

 

Overview

 

We have not commercialized any of our product candidates to date and have incurred significant losses since inception. We have primarily financed our operations through the issuance of common stock and common stock warrants in private and public financings and most recently through the sale of a series of convertible promissory notes through private placements with accredited investors and the March 2014 private placement of common stock with G-TreeBNT. The report of our independent registered public accounting firm regarding our financial statements for the year ended December 31, 2013 contained an explanatory paragraph regarding our ability to continue as a going concern based upon our history of net losses and dependence on future financing in order to meet our planned operating activities.

 

 

We had cash and cash equivalents of $675,000 at June 30, 2014. We believe that we could maintain operations for the next twelve months with the cash on hand plus the proceeds of $1,000,000 from the second common stock purchase closing with G-treeBNT that is scheduled to occur on or before August 31, 2014. Our current operating objectives include the development of RGN-259 for certain ophthalmic indications, including pursuing clinical development for the treatment of dry eye syndrome, and neurotrophic keratopathy (NK), for which we received orphan designation at the end of 2013. We continue evaluating the potential for an accelerated development strategy for RGN-259 under the orphan drug designation and plan to meet with the US FDA in the third quarter of this year to discuss our objective of conducting a phase 3 clinical trial with RGN-259 in patients with neurotrophic keratopathy. If we are able to proceed with this strategy we will need to raise additional capital to fund the trial and also for the preparation of clinical material in accordance with FDA regulations for use in the phase 3 trial. Accordingly, we are in the process of exploring various funding alternatives, including, without limitation, a public or private placement of our securities, debt financing, corporate collaboration and additional licensing arrangements. If we are not able to secure additional capital through the capital markets or a strategic partnership, or can only secure such capital on unreasonable terms, we could decide to postpone internal development of RGN-259 and await results from clinical studies conducted by our licensees in Asia (China and Korea), expected to produce data in the 2015-2016 timeframe. In addition to the RGN-259 development activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.

 

Cash Flows for the Six Months Ended June 30, 2014 and 2013

 

Net cash used in operating activities was approximately $887,000 for the six months ended June 30, 2014 as compared to $361,000 used in operating activities for the same six months in 2013. In 2014 our net loss for the period of $2,344,000 was primarily comprised of several significant non-cash items including non-cash compensation and non-cash interest expense of $111,000 and $67,000, respectively, and a non-cash loss of $1,482,000 associated with valuation of our convertible debt derivative component. In 2013 the net cash used in operating activities was primarily the result of our net loss during the period mitigated by collection of the year end grant receivable in the amount $177,000. During the first half of 2014 we received $1,500,000 pursuant to the sale of common stock to G-treeBNT and the associated licensing agreements and $55,000 in January 2014, representing the net proceeds of the sale of convertible notes as described in Note 6 to our unaudited financial statements included in this report. We did not sell any equity securities during the six months ended March 31, 2013 although we raised net proceeds from the sale of convertible notes of $225,000.

 

Future Funding Requirements

 

The expenditures that will be necessary to execute our business plan are subject to numerous uncertainties that may adversely affect our liquidity and capital resources. We are not currently enrolling patients in any clinical trials. As a result of our financial and strategic discussions over the past two years, coupled with the December 2013 grant of orphan drug status by the FDA and the recent combined licensing and equity sale transaction with G-treeBNT, we have refined our forward-looking strategy to leverage our resources and focus on four potential clinical opportunities with RGN-259 that we feel could provide important results in 2015 and 2016. The clinical opportunities include:

 

·

a potential Company-sponsored phase 3 pivotal clinical trial for the treatment for neurotrophic keratopathy (NK),

 

·

a phase 2b investigator-sponsored clinical trial for patients with severe dry eye,

 

·

the anticipated initiation of phase 2 clinical trials in China by our licensee, Lee’s Pharmaceuticals, and

 

·

The initiation of phase 2/3 clinical trials in Korea by our licensee, G-treeBNT.

 

 

With the December 2013 orphan drug status granted to RGN-259, coupled with the capital received in conjunction with the G-treeBNT strategic transaction, we are evaluating a potential accelerated product development opportunity for RGN-259 as a treatment for NK. While the plans associated with the respective clinical trials are not finalized, we believe that there may be an opportunity to go directly into a Phase 3 pivotal clinical trial under the orphan designation. We also believe that the support for an investigator-sponsored clinical trial in severe dry-eye would primarily consist of drug product, as well as time and consultation by RegeneRx staff. If we proceed with this strategy we will need to raise additional capital to fund the NK trial and also for the preparation of clinical material (for use in both the NK and severe dry eye) in accordance with FDA regulations for use in the phase 3 trial. If we are not able to secure additional capital through the capital markets or a strategic partnership, or can only secure such capital on unreasonable terms, we could decide to postpone internal development of RGN-259 and await results from clinical studies conducted by our licensees in Asia (China and Korea), expected to produce data in the 2015-2016 timeframe. In addition to the RGN-259 development activities, we intend to continue to pursue additional partnering activities, particularly for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications.

 

Some of the factors that could impact our liquidity and capital needs include, but are not limited to:

  

·

the progress of our clinical trials;

 

·

the progress of our research activities;

 

·

the number and scope of our research programs;

 

·

the progress of our preclinical development activities;

 

·

the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent and other intellectual property claims;

 

·

the costs related to development and manufacture of preclinical, clinical and validation lots for regulatory purposes and commercialization of drug supply associated with our product candidates;

 

·

our ability to enter into corporate collaborations and the terms and success of these collaborations;

 

·

the costs and timing of regulatory approvals; and

 

·

the costs of establishing manufacturing, sales and distribution capabilities.

 

In addition, the duration and the cost of clinical trials may vary significantly over the life of a project as a result of differences arising during the clinical trial protocol, including, among others, the following:

 

·

the number of patients that ultimately participate in the trial;

 

·

the duration of patient follow-up that seems appropriate in view of the results;

 

·

the number of clinical sites included in the trials; and

 

·

the length of time required to enroll suitable patient subjects.

 

Also, we test our product candidates in numerous preclinical studies to identify indications for which they may be efficacious. We may conduct multiple clinical trials to cover a variety of indications for each product candidate. As we obtain results from trials, we may elect to discontinue clinical trials for certain product candidates or for certain indications in order to focus our resources on more promising product candidates or indications.

 

  

Our proprietary product candidates also have not yet achieved FDA regulatory approval, which is required before we can market them as therapeutic products. In order to proceed to subsequent clinical trial stages and to ultimately achieve regulatory approval, the FDA must conclude that our clinical data establish safety and efficacy. Historically, the results from preclinical studies and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals.

 

We are not currently conducting clinical trials and therefore do not have any significant financial commitments for research and development activities. We were previously committed under an office space lease through January 2013 and continued to occupy the space on a month to month basis through May 2014. Beginning in June 2014 we consolidated our office space and amended our lease agreement for the reduced space. The new lease commitment is for 36 months and our rental payments for this period will be approximately $4,500 per month.

 

Sources of Liquidity

 

We have not commercialized any of our product candidates to date and have primarily financed our operations through the issuance of common stock and common stock warrants in private and public financings in addition to a series of five convertible debt placements from October 2012 to January 2014. In March 2014 we entered into a strategic transaction with G-treeBNT which includes the purchase of approximately 19.6 million shares of common stock by G-treeBNT in two tranches. The first closed on March 28, 2014 in the amount of $1,350,000 and the second, in the amount of $1,000,000 is scheduled to close on or before August 31, 2014. G-treeBNT also holds an option to purchase an additional 5.5 million shares of common stock on or before January 31, 2015, if elected the option would result in proceeds of $825,000. We also received $150,000 from G-treeBNT pursuant to two associated licensing agreements and as a result of the initial common stock purchase, G-treeBNT is now our second largest stockholder. Our largest stockholder group, which we refer to as Sigma-Tau, has historically provided significant equity capital to us, including $200,000 pursuant to the convertible debt placement in October 2012 and $150,000 pursuant to the convertible debt placement in September 2013.

 

Licensing Agreements

 

As noted above, we have entered into two license agreements with G-treeBNT. G-treeBNT licensed the development and commercialization rights for RGN-259, in Asia (excluding China, Hong Kong, Macau and Taiwan) while also licensing the development and commercialization rights for RGN-137 in the U.S. Both licenses provide for the opportunity for us to receive milestone payments upon specified commercial events and royalty payments in connection with any commercial sales of the licensed products in the respective territories. However, there are no assurances that we will be able to attain any such milestones or generate any such royalty payments under the agreements.

 

We have a license agreement with Sigma-Tau that provides the opportunity for us to receive milestone payments upon specified events and royalty payments in connection with commercial sales of Tß4 in Europe. However, we have not received any milestone payments to date, and there can be no assurance that we will be able to attain such milestones and generate any such payments under the agreement.

 

We also have entered into a license agreement with Lee’s Pharmaceuticals that provides for the opportunity for us to receive milestone payments upon specified events and royalty payments in connection with any commercial sales of Tß4-based products in China, Hong Kong, Macau and Taiwan. However, there are no assurances that we will be able to attain any such milestones or generate any such royalty payments under the agreement.

 

Government Grants

 

In May 2010, we were awarded a grant from the NIH’s National Heart, Lung and Blood Institute to support the requisite nonclinical development of RGN-352 for patients who have suffered a heart attack. These nonclinical activities were completed while our pending Phase 2 clinical trial of RGN-352 was on clinical hold. Subject to our compliance with the terms and conditions of the grant, we are eligible to receive up to $3.0 million over a three-year period in cost reimbursements related to the purposes set forth in the grant. We have used proceeds from the grant for the payment of research and development staff in connection with our grant related research and development activities and we have relied on this grant for purposes of funding our R&D employees’ reduced salaries. In the first quarter of 2013 we substantially completed all of the work under the grant and have exhausted the grant as a financing source. Revenue from the grant was recorded during the same periods when we incurred eligible expenses.

 

  

Other Financing Sources

 

Other potential sources of outside capital include entering into strategic business relationships, additional issuances of equity securities or debt financing or other similar financial instruments. If we raise additional capital through a strategic business relationship, we may have to give up valuable rights to our intellectual property. If we raise funds by selling additional shares of our common stock or securities convertible into our common stock, the ownership interest of our existing stockholders may be significantly diluted. In addition, if additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants and the granting of security interests in our assets.

 

Our failure to successfully address ongoing liquidity requirements would have a materially negative impact on our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials, or ceasing operations. There can be no assurance that we will be able to obtain additional capital in sufficient amounts, on acceptable terms, or at all.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, as such term is defined in Item 303(a)(4) of Regulation S-K.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk.

 

Our cash equivalents, which are generally comprised of Federally-insured bank deposits, are subject to default, changes in credit rating and changes in market value. These investments are also subject to interest rate risk and will decrease in value if market interest rates increase. As of June 30, 2014, these cash equivalents were $675,000. Due to the short-term nature of these investments, if market interest rates differed by 10% from their levels as of June 30, 2014, the change in fair value of our financial instruments would not have been material.

 

Item 4.

Controls and Procedures

 

a) Evaluation of Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of June 30, 2014. Based upon this evaluation, management has concluded that, as of June 30, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed is recorded, processed, summarized and reported within the time periods specified under applicable rules of the SEC, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

 

b) Changes in Internal Controls

 

There were no changes in our internal control over financial reporting during the three months ended June 30, 2014 that have materially affected, or which are reasonably likely to materially affect, our internal control over financial reporting. .

 

  

Part II – Other Information

 

Item 1.

Legal Proceedings

 

None.

 

Item 1A.

Risk Factors

 

Set forth below and elsewhere in this report and in other documents we file with the SEC are risks and uncertainties that could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this report. The descriptions below include any material changes to and supersede the description of the risk factors affecting our business previously disclosed in “Part II, Item 1A. Risk Factors” of the Annual Report.

 

Risks Related to Our Liquidity and Need for Financing

 

Before giving effect to any potential additional sales of our securities, we estimate that our existing capital resources and G-treeBNT’s committed equity purchase will only be sufficient to fund our operations for the next 12 months.

 

As of June 30, 2014 we had cash on hand of approximately $675,000, We estimate that this cash on hand coupled with the proceeds of $1,000,000 from the second common stock purchase closing with G-treeBNT that is scheduled to occur on or before August 31, 2014, will be sufficient to extend our operations for the next twelve months. If the Company is able to proceed with its current objective of accelerating its development of RGN-259 under the orphan designation, this estimate will change and we will need additional capital in less than 12 months. In addition to the RGN-259 development activities we intend to continue to pursue additional partnering activities, most notably for RGN-352, our injectable systemic product candidate for cardiac and central nervous system indications. Therefore, we could need to complete an additional financing or strategic transaction within the next twelve months to continue as a going concern, or we may be forced to cease or wind down operations, seek protection under the provisions of the U.S. Bankruptcy Code, or liquidate and dissolve our company.

 

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this report. 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.

 

In addition to our current development objectives, we will need substantial additional capital for the continued development of product candidates through marketing approval and for our longer-term future operations.

 

Beyond our current liquidity needs, we anticipate that substantial new capital resources will be required to continue our longer-term independent product development efforts, including any and all follow-on trials that will result from our current clinical programs beyond those currently contemplated, and to scale up manufacturing processes for our product candidates. However, the actual amount of funds that we will need will be determined by many factors, some of which are beyond our control. These factors include, without limitation: 

·

the scope of our clinical trials, which is significantly influenced by the quality of clinical data achieved as trials are completed and the requirements established by regulatory authorities;

·

the speed with which we complete our clinical trials, which depends on our ability to attract and enroll qualifying patients and the quality of the work performed by our clinical investigators and contract research organizations chosen to conduct the studies;

 

  

·

the time required to prosecute, enforce and defend our intellectual property rights, which depends on evolving legal regimes and infringement claims that may arise between us and third parties;

·

the ability to manufacture at scales sufficient to supply commercial quantities of any of our product candidates that receive regulatory approval, which may require levels of effort not currently anticipated; and

·

the successful commercialization of our product candidates, which will depend on our ability to either create or partner with an effective commercialization organization and which could be delayed or prevented by the emergence of equal or more effective therapies.

 

Emerging biotechnology companies like us may raise capital through corporate collaborations and by licensing intellectual property rights to other biotechnology or pharmaceutical enterprises. We intend to pursue this strategy, but there can be no assurance that we will be able to license our intellectual property or product development programs on commercially reasonable terms, if at all. There are substantial challenges and risks that will make it difficult to successfully implement any of these alternatives. If we are successful in raising additional capital through such a license or collaboration, we may have to give up valuable rights to our intellectual property. In addition, the business priorities of a strategic partner may change over time, which creates the possibility that the interests of the strategic partner in developing our technology may diminish and could have a potentially material negative impact on the value of our interest in the licensed intellectual property or product candidates.

 

Further, if we raise additional funds by selling shares of our common stock or securities convertible into our common stock the ownership interest of our existing stockholders may be significantly diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock and may involve significant fees, interest expense, restrictive covenants or the granting of security interests in our assets.

 

Our failure to successfully address our long-term liquidity requirements would have a material negative impact on our business, including the possibility of surrendering our rights to some technologies or product opportunities, delaying our clinical trials or ceasing our operations.

 

We have incurred losses since inception and expect to incur significant losses in the foreseeable future and may never become profitable.

 

We have not commercialized any product candidates to date and incurred net operating losses every year since our inception in 1982. We believe these losses will continue for the foreseeable future, and may increase, as we pursue our product development efforts related to Tß4. As of June 30, 2014, our accumulated deficit totaled approximately $99 million.

 

As we expand our research and development efforts and seek to obtain regulatory approval of our product candidates to make them commercially viable, we anticipate substantial and increasing operating losses. Our ability to generate revenues and to become profitable will depend largely on our ability, alone or through the efforts of third-party licensees and collaborators, to efficiently and successfully complete the development of our product candidates, obtain necessary regulatory approvals for commercialization, scale-up commercial quantity manufacturing capabilities either internally or through third-party suppliers, and market our product candidates. There can be no assurance that we will achieve any of these objectives or that we will ever become profitable or be able to maintain profitability. Even if we do achieve profitability, we cannot predict the level of such profitability. If we sustain losses over an extended period of time and are not otherwise able to raise necessary funds to continue our development efforts and maintain our operations, we may be forced to cease operations.

 

  

Our common stock is quoted on the over-the-counter market, which subjects us to the SEC’s penny stock rules and decreases the liquidity of our common stock.

 

Our common stock is traded over-the-counter on the OTC Bulletin Board. Over-the-counter markets are generally considered to be less efficient than, and not as broad as, a stock exchange. There may be a limited market for our stock now that it is quoted on the OTC Bulletin Board, trading in our stock may become more difficult and our share price could decrease. Specifically, you may not be able to resell your shares of common stock at or above the price you paid for such shares or at all.

 

In addition, our ability to raise additional capital may be impaired because of the less liquid nature of the over-the-counter markets. While we cannot guarantee that we would be able to complete an equity financing on acceptable terms, or at all, we believe that dilution from any equity financing while our shares are quoted on an over-the-counter market would likely be substantially greater than if we were to complete a financing while our common stock is traded on a national securities exchange. Further, we are unable to use short-form registration statements on Form S-3 for the registration of our securities, which could impair our ability to raise additional capital as needed.

 

Our common stock is also subject to penny stock rules, which impose additional sales practice requirements on broker-dealers who sell our common stock. The SEC generally defines “penny stock” as an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. The ability of broker-dealers to sell our common stock and the ability of our stockholders to sell their shares in the secondary market will be limited and, as a result, the market liquidity for our common stock will likely be adversely affected. We cannot assure you that trading in our securities will not be subject to these or other regulations in the future.

 

The report of our independent registered public accounting firm contains explanatory language that substantial doubt exists about our ability to continue as a going concern.

 

The report of our independent registered public accounting firm on our financial statements for the year ended December 31, 2013 contains explanatory language that substantial doubt exists about our ability to continue as a going concern, without raising additional capital. As described in this report, we estimate that our existing capital resources, including the money received from G-treeBNT in March 2014 coupled with the contractual equity purchase on or before August 31, 2014 could fund our operations for the next twelve months. If the Company is able to proceed with its current objective of accelerating its development of RGN-259 under the orphan designation, this estimate will change and we will need additional capital in less than 12 months. Therefore, we continue to seek other sources of capital, but if we are unable to obtain sufficient financing to support and complete these activities, then we would, in all likelihood, experience severe liquidity problems and may have to curtail our operations. If we curtail our operations, we may be placed into bankruptcy or undergo liquidation, the result of which will adversely affect the value of our common shares.

 

  

Risks Related to Our Business and Operations

 

Our planned Phase 2 clinical trial of RGN-352 was placed on clinical hold by the FDA in March 2011 and we are unsure when, if ever, we will be able to resume this trial.

 

In the second half of 2010, we implemented the development plans for our phase 2 clinical trial to evaluate RGN-352 in patients who have suffered an acute myocardial infarction, or AMI. We had planned to begin enrolling patients near the end of the first quarter of 2011. However, in March 2011, we were notified by the FDA that the trial was placed on clinical hold as a result of our contract manufacturer’s alleged failure to comply with current Good Manufacturing Practice regulations. The FDA has prohibited us from using any of the active drug or placebo manufactured by this manufacturer in human trials, which will require us to identify a cGMP-compliant manufacturer and to have new material produced in the event that we seek to resume this trial. We have also learned that the contract manufacturer has closed its manufacturing facility and has filed for bankruptcy protection. Significant preparatory time and procedures will be required before any new suitable manufacturer would be able to manufacture RGN-352 for the AMI trial. Since we are unable to estimate the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might be secured. Consequently, there can be no assurance that we will be able to timely initiate trial activities or complete this trial, if at all.

 

All of our drug candidates are based on a single compound.

 

Our current primary business focus is the development of Tß4, and its analogues, derivatives and fragments, for the regeneration and accelerated repair of damaged tissue from non-healing dermal and corneal wounds, cardiac injury, central/peripheral nervous system diseases and other conditions, as well as an improvement in various functions, such as, but not limited to, cardiac and neurological. Unlike many pharmaceutical companies that have a number of unique chemical entities in development, we are dependent on a single molecule, formulated for different routes of administration and different clinical indications, for our potential commercial success. As a result, any common safety or efficacy concerns for Tß4-based products that cross formulations would have a much greater impact on our business prospects than if our product pipeline were more diversified.

 

We may never be able to commercialize our product candidates.

 

Although Tß4 has shown biological activity in in vitro studies and in vivo animal models and while we observed clinical activity and efficacious outcomes in our recent RGN-259 Phase 2a trial and earlier Phase 2 dermal trials, we cannot assure you that our product candidates will exhibit activity or importance in humans in large-scale trials. Our drug candidates are still in research and development, and we do not expect them to be commercially available for the foreseeable future, if at all. Only a small number of research and development programs ultimately result in commercially successful drugs. Potential products that appear to be promising at early stages of development may not reach the market for a number of reasons. These include the possibility that the potential products may:

 

·

be found ineffective or cause harmful side effects during preclinical studies or clinical trials;

·

fail to receive necessary regulatory approvals;

·

be precluded from commercialization by proprietary rights of third parties;

·

be difficult to manufacture on a large scale; or

·

be uneconomical or otherwise fail to achieve market acceptance.

 

If any of these potential problems occurs, we may never successfully market Tß4-based products.

 

We are subject to intense government regulation, and we may not receive regulatory approvals for our drug candidates.

 

Our product candidates will require regulatory approvals prior to sale. In particular, therapeutic agents are subject to stringent approval processes, prior to commercial marketing, by the FDA and by comparable agencies in most foreign countries. The process of obtaining FDA and corresponding foreign approvals is costly and time-consuming, and we cannot assure you that such approvals will be granted. Also, the regulations we are subject to change frequently and such changes could cause delays in the development of our product candidates.

 

  

Three of our drug candidates are currently in the clinical development stage, and we cannot be certain that we or our collaborators will successfully complete the clinical trials necessary to receive regulatory product approvals. The regulatory approval process is lengthy, unpredictable and expensive. To obtain regulatory approvals in the United States, we or a collaborator must ultimately demonstrate to the satisfaction of the FDA that our product candidates are sufficiently safe and effective for their proposed administration to humans. Many factors, known and unknown, can adversely impact clinical trials and the ability to evaluate a product candidate’s safety and efficacy, including:

 

·

the FDA or other health regulatory authorities, or institutional review boards, or IRBs, do not approve a clinical trial protocol or place a clinical trial on hold;

·

suitable patients do not enroll in a clinical trial in sufficient numbers or at the expected rate, for reasons such as the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the perceptions of investigators and patients regarding safety, and the availability of other treatment options;

·

clinical trial data is adversely affected by trial conduct or patient withdrawal prior to completion of the trial;

·

there may be competition with ongoing clinical trials and scheduling conflicts with participating clinicians;

·

patients experience serious adverse events, including adverse side effects of our drug candidates, for a variety of reasons that may or may not be related to our product candidates, including the advanced stage of their disease and other medical problems;

·

patients in the placebo or untreated control group exhibit greater than expected improvements or fewer than expected adverse events;

·

third-party clinical investigators do not perform the clinical trials on the anticipated schedule or consistent with the clinical trial protocol and good clinical practices, or other third-party organizations do not perform data collection and analysis in a timely or accurate manner;

·

service providers, collaborators or co-sponsors do not adequately perform their obligations in relation to the clinical trial or cause the trial to be delayed or terminated;

·

we are unable to obtain a sufficient supply of manufactured clinical trial materials;

·

regulatory inspections of manufacturing facilities, which may, among other things, require us or a co-sponsor to undertake corrective action or suspend the clinical trials, such as the clinical hold with respect to our Phase 2 clinical trial of RGN-352;

·

the interim results of the clinical trial are inconclusive or negative;

·

the clinical trial, although approved and completed, generates data that is not considered by the FDA or others to be clinically relevant or sufficient to demonstrate safety and efficacy; and

·

changes in governmental regulations or administrative actions affect the conduct of the clinical trial or the interpretation of its results.

 

There can be no assurance that our clinical trials will in fact demonstrate, to the satisfaction of the FDA and others, that our product candidates are sufficiently safe or effective. The FDA or we may also restrict or suspend our clinical trials at any time if it is believed that subjects participating in the trials are being exposed to unacceptable health risks.

 

  

Clinical trials for product candidates such as ours are often conducted with patients who have more advanced forms of a particular condition or other unrelated conditions. For example, in clinical trials for our product candidate RGN-137, we have studied patients who are not only suffering from chronic epidermal wounds but who are also older and much more likely to have other serious adverse conditions. During the course of treatment with our product candidates, patients could die or suffer other adverse events for reasons that may or may not be related to the drug candidate being tested. Further, and as a consequence that all of our drug candidates are based on Tß4, crossover risk exists such that a patient in one trial may be adversely impacted by one drug candidate, and that adverse event may have implications for our other trials and other drug candidates. However, even if unrelated to our product candidates, such adverse events can nevertheless negatively impact our clinical trials, and our business prospects would suffer.

 

These factors, many of which may be outside of our control, may have a negative impact on our business by making it difficult to advance product candidates or by reducing or eliminating their potential or perceived value. As a consequence, we may need to perform more or larger clinical trials than planned. Further, if we are forced to contribute greater financial and clinical resources to a study, valuable resources will be diverted from other areas of our business. If we fail to complete or if we experience material delays in completing our clinical trials as currently planned, or we otherwise fail to commence or complete, or experience delays in, any of our other present or planned clinical trials, including as a result of the actions of third parties upon which we rely for these functions, our ability to conduct our business as currently planned could materially suffer.

 

We may not successfully establish and maintain development and testing relationships with third-party service providers and collaborators, which could adversely affect our ability to develop our product candidates.

 

We have only limited resources, experience with and capacity to conduct requisite testing and clinical trials of our drug candidates. As a result, we rely and expect to continue to rely on third-party service providers and collaborators, including corporate partners, licensors and contract research organizations, or CROs, to perform a number of activities relating to the development of our drug candidates, including the design and conduct of clinical trials, and potentially the obtaining of regulatory approvals. For example, we currently rely on several third-party contractors to manufacture and formulate Tß4 into the product candidates used in our clinical trials, develop assays to assess Tß4’s effectiveness in complex biological systems, recruit clinical investigators and sites to participate in our trials, manage the clinical trial process and collect, evaluate and report clinical results.

 

We may not be able to maintain or expand our current arrangements with these third parties or maintain such relationships on favorable terms. Our agreements with these third parties may also contain provisions that restrict our ability to develop and test our product candidates or that give third parties rights to control aspects of our product development and clinical programs. In addition, conflicts may arise with our collaborators, such as conflicts concerning the interpretation of clinical data, the achievement of milestones, the interpretation of financial provisions or the ownership of intellectual property developed during the collaboration. If any conflicts arise with our existing or future collaborators, they may act in their self-interest, which may be adverse to our best interests. Any failure to maintain our collaborative agreements and any conflicts with our collaborators could delay or prevent us from developing our product candidates. We and our collaborators may fail to develop products covered by our present and future collaborations if, among other things:

 

·

we do not achieve our objectives under our collaboration agreements;

·

we or our collaborators are unable to obtain patent protection for the products or proprietary technologies we develop in our collaborations;

·

we are unable to manage multiple simultaneous product development collaborations;

·

our collaborators become competitors of ours or enter into agreements with our competitors;

·

we or our collaborators encounter regulatory hurdles that prevent commercialization of our product candidates; or

 

  

·

we develop products and processes or enter into additional collaborations that conflict with the business objectives of our other collaborators.

 

We also have less control over the timing and other aspects of our clinical trials than if we conducted the monitoring and supervision entirely on our own. Third parties may not perform their responsibilities for our clinical trials on our anticipated schedule or consistent with a clinical trial protocol or applicable regulations. We also rely on clinical research organizations to perform much of our data management and analysis. They may not provide these services as required or in a timely manner. If any of these parties do not meet deadlines or follow proper procedures, including procedures required by law, the preclinical studies and clinical trials may take longer than expected, may be delayed or may be terminated, which would have a materially negative impact on our product development efforts. If we were forced to find a replacement entity to perform any of our preclinical studies or clinical trials, we may not be able to find a suitable entity on favorable terms or at all. Even if we were able to find a replacement, resulting delays in the tests or trials may result in significant additional expenditures and delays in obtaining regulatory approval for drug candidates, which could have a material adverse impact on our results of operations and business prospects.

 

G-treeBNT Co., Ltd. has limited drug development experience.

 

We recently completed two licensing agreements, for the development and commercialization of RGN-259 and RGN-137 in certain territories, with G-treeBNT Co., Ltd., headquartered outside of Seoul, Korea. G-treeBNT’s current business focus is the IT software industry in Korea with strong IP positions addressing specific software tools and apps such as optimized multimedia software for smart phones. G-treeBNT made a strategic decision last November to expand into the biopharmaceutical business through selected strategic alliances with biopharmaceutical companies in the US and EU. The collaboration with RegeneRx is the first strategic investment in this initiative. While G-treeBNT has recently hired executives and staff with significant pharmaceutical experience, the company has no internal drug development experience. As a result, G-treeBNT may face more and different challenges in the development of these product candidates than would more established pharmaceutical companies.

 

We are subject to intense competition from companies with greater resources and more mature products, which may result in our competitors developing or commercializing products before or more successfully than we do.

 

We are engaged in a business that is highly competitive. Research and development activities for the development of drugs to treat indications within our focus are being sponsored or conducted by private and public research institutions and by major pharmaceutical companies located in the United States and a number of foreign countries. Most of these companies and institutions have financial and human resources that are substantially greater than our own and they have extensive experience in conducting research and development activities and clinical trials and in obtaining the regulatory approvals necessary to market pharmaceutical products that we do not have. As a result, they may develop competing products more rapidly that are safer, more effective, or have fewer side effects, or are less expensive, or they may develop and commercialize products that render our product candidates non-competitive or obsolete.

 

With respect to our product candidate RGN-259, there are also numerous ophthalmic companies developing drugs for corneal wound healing and other outside-of-the-eye diseases and injuries. Amniotic membranes have been successfully used to treat corneal wounds in certain cases, as have topical steroids and antibacterial agents.

 

We have initially targeted our product candidate RGN-352 for cardiovascular indications. Most large pharmaceutical companies and many smaller biomedical companies are vigorously pursuing the development of therapeutics to treat patients after heart attacks and for other cardiovascular indications.

 

  

With respect to our product candidate RGN-137 for wound healing, Johnson & Johnson has previously marketed Regranex™ for this purpose in patients with diabetic foot ulcers. Other companies, such as Novartis, are developing and marketing artificial skins, which we believe could also compete with RGN-137. Moreover, wound healing is a large and highly fragmented marketplace attracting many companies, large and small, to develop products for treating acute and chronic wounds, including, for example, honey-based ointments, hyperbaric oxygen therapy, and low frequency cavitational ultrasound.

 

We are also developing potential cosmeceutical products, which are loosely defined as products that bridge the gap between cosmetics and pharmaceuticals, for example, by improving skin texture and reducing the appearance of aging. This industry is intensely competitive, with potential competitors ranging from large multinational companies to very small specialty companies. New cosmeceutical products often have a short product life and are frequently replaced with newer products developed to address the latest trends in appearance and fashion. We may not be able to adapt to changes in the industry as quickly as larger and more experienced cosmeceutical companies. Further, larger cosmetics companies have the financial and marketing resources to effectively compete with smaller companies like us in order to sell products aimed at larger markets.

 

Even if approved for marketing, our technologies and product candidates are unproven and they may fail to gain market acceptance.

 

Our product candidates, all of which are based on the molecule Tß4, are new and unproven and there is no guarantee that health care providers or patients will be interested in our product candidates, even if they are approved for use. If any of our product candidates are approved by the FDA, our success will depend in part on our ability to demonstrate sufficient clinical benefits, reliability, safety, and cost effectiveness of our product candidates relative to other approaches, as well as on our ability to continue to develop our product candidates to respond to competitive and technological changes. If the market does not accept our product candidates, when and if we are able to commercialize them, then we may never become profitable. Factors that could delay, inhibit or prevent market acceptance of our product candidates may include:

 

·

the timing and receipt of marketing approvals;

·

the safety and efficacy of the products;

·

the emergence of equivalent or superior products;

·

the cost-effectiveness of the products; and

·

ineffective marketing.

 

It is difficult to predict the future growth of our business, if any, and the size of the market for our product candidates because the markets are continually evolving. There can be no assurance that our product candidates will prove superior to products that may currently be available or may become available in the future or that our research and development activities will result in any commercially profitable products.

 

We have no marketing experience, sales force or distribution capabilities. If our product candidates are approved, and we are unable to recruit key personnel to perform these functions, we may not be able to commercialize them successfully.

 

Although we do not currently have any marketable products, our ability to produce revenues ultimately depends on our ability to sell our product candidates if and when they are approved by the FDA and other regulatory authorities. We currently have no experience in marketing or selling pharmaceutical products, and we do not have a marketing and sales staff or distribution capabilities. Developing a marketing and sales force is also time-consuming and could delay the launch of new products or expansion of existing product sales. In addition, we will compete with many companies that currently have extensive and well-funded marketing and sales operations. If we fail to establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our ability to generate revenues will suffer.

 

  

If we enter markets outside the United States our business will be subject to political, economic, legal and social risks in those markets, which could adversely affect our business.

 

There are significant regulatory and legal barriers to entering markets outside the United States that we must overcome if we seek regulatory approval to market our product candidates in countries other than the United States. We would be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Any sales and operations outside the United States would be subject to political, economic and social uncertainties including, among others:

 

·

changes and limits in import and export controls;

·

increases in custom duties and tariffs;

·

changes in currency exchange rates;

·

economic and political instability;

·

changes in government regulations and laws;

·

absence in some jurisdictions of effective laws to protect our intellectual property rights; and

·

currency transfer and other restrictions and regulations that may limit our ability to sell certain product candidates or repatriate profits to the United States.

 

Any changes related to these and other factors could adversely affect our business if and to the extent we enter markets outside the United States. Additionally, we have entered into license agreements with Sigma-Tau Spa, Lee’s Pharmaceutical Limited and G-treeBNT Co, Ltd. for the development of certain of our product candidates in international markets. As a result, these development activities will be subject to compliance in all respects with local laws and regulations and may be subject to many of the risks described above.

 

Governmental and third-party payors may subject any product candidates we develop to sales and pharmaceutical pricing controls that could limit our product revenues and delay profitability.

 

The successful commercialization of our product candidates, if they are approved by the FDA, will likely depend on our ability to obtain reimbursement for the cost of the product and treatment. Government authorities, private health insurers and other organizations, such as health maintenance organizations, are increasingly seeking to lower the prices charged for medical products and services. Also, the trend toward managed health care in the United States, the growth of healthcare maintenance organizations, and recently enacted legislation reforming healthcare and proposals to reform government insurance programs could have a significant influence on the purchase of healthcare services and products, resulting in lower prices and reducing demand for our product candidates. The cost containment measures that healthcare providers are instituting and any healthcare reform could reduce our ability to sell our product candidates and may have a material adverse effect on our operations. We cannot assure you that reimbursement in the United States or foreign countries will be available for any of our product candidates, and that any reimbursement granted will be maintained, or that limits on reimbursement available from third-party payors will not reduce the demand for, or the price of, our product candidates. The lack or inadequacy of third-party reimbursements for our product candidates would decrease the potential profitability of our operations. We cannot forecast what additional legislation or regulation relating to the healthcare industry or third-party coverage and reimbursement may be enacted in the future, or what effect the legislation or regulation would have on our business.

 

  

We have no manufacturing or formulation capabilities and are dependent upon third-party suppliers to provide us with our product candidates. If these suppliers do not manufacture our product candidates in sufficient quantities, at acceptable quality levels and at acceptable cost, or if we are unable to identify suitable replacement suppliers if needed, our clinical development efforts could be delayed, prevented or impaired.

 

We do not own or operate manufacturing facilities and have little experience in manufacturing pharmaceutical products. We currently rely, and expect to continue to rely, primarily on peptide manufacturers to supply us with Tß4 for further formulation into our product candidates. We have historically engaged three separate smaller drug formulation contractors for the formulation of clinical grade product candidates, one for each of our three product candidates in clinical development, although, as described in this report, the contractor we engaged for RGN-352 has filed for bankruptcy and closed its manufacturing facility, and our clinical trial involving RGN-352 has been placed on clinical hold. We currently do not have an alternative source of supply for either Tß4 or the individual drug candidates. If these suppliers, together or individually, are not able to supply us with either Tß4 or individual product candidates on a timely basis, in sufficient quantities, at acceptable levels of quality and at a competitive price, or if we are unable to identify a replacement manufacturer to perform these functions on acceptable terms as needed, our development programs could be seriously jeopardized.

 

The clinical hold on our RGN-352 trial will require us to have new material manufactured by a cGMP-compliant manufacturer in the event that we seek to resume this trial. Significant preparatory time and procedures will be required before any new manufacturer would be able to manufacture RGN-352 for the AMI trial, due to the time required for revalidation of processes and assays related to such production that were already in place with the original manufacturer. Since we are unable to estimate the length of time that the trial will be on clinical hold, we have elected to cease activities on this trial until the FDA clinical hold is resolved and the requisite funding might be secured.

 

Other risks of relying solely on single suppliers for each of our product candidates include:

 

·

the possibility that our other manufacturers, and any new manufacturer that we may identify for RGN-352, may not be able to ensure quality and compliance with regulations relating to the manufacture of pharmaceuticals;

·

their manufacturing capacity may not be sufficient or available to produce the required quantities of our product candidates based on our planned clinical development schedule, if at all;

·

they may not have access to the capital necessary to expand their manufacturing facilities in response to our needs;

·

commissioning replacement suppliers would be difficult and time-consuming;

·

individual suppliers may have used substantial proprietary know-how relating to the manufacture of our product candidates and, in the event we must find a replacement or supplemental supplier, our ability to transfer this know-how to the new supplier could be an expensive and/or time-consuming process;

·

an individual supplier may experience events, such as a fire or natural disaster, that force it to stop or curtail production for an extended period;

·

an individual supplier could encounter significant increases in labor, capital or other costs that would make it difficult for them to produce our products cost-effectively; or

·

an individual supplier may not be able to obtain the raw materials or validated drug containers in sufficient quantities, at acceptable costs or in sufficient time to complete the manufacture, formulation and delivery of our product candidates.

 

  

Our suppliers may use hazardous and biological materials in their businesses. Any claims relating to improper handling, storage or disposal of these materials could be time-consuming and costly to us, and we are not insured against such claims.

 

Our product candidates and processes involve the controlled storage, use and disposal by our suppliers of certain hazardous and biological materials and waste products. We and our suppliers and other collaborators are subject to federal, state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental contamination or injury from hazardous materials cannot be completely eliminated. In the event of an accident, we could be held liable for any damages that result, and we do not carry insurance for this type of claim. We may also incur significant costs to comply with current or future environmental laws and regulations.

 

We face the risk of product liability claims, which could adversely affect our business and financial condition.

 

We may be subject to product liability claims as a result of our testing, manufacturing, and marketing of drugs. In addition, the use of our product candidates, when and if developed and sold, will expose us to the risk of product liability claims. Product liability may result from harm to patients using our product candidates, such as a complication that was either not communicated as a potential side effect or was more extreme than anticipated. We require all patients enrolled in our clinical trials to sign consents, which explain various risks involved with participating in the trial. However, patient consents provide only a limited level of protection, and it may be alleged that the consent did not address or did not adequately address a risk that the patient suffered. Additionally, we will generally be required to indemnify our clinical product manufacturers, clinical trial centers, medical professionals and other parties conducting related activities in connection with losses they may incur through their involvement in the clinical trials.

 

Our ability to reduce our liability exposure for human clinical trials and commercial sales, if any, of Tß4 is dependent in part on our ability to obtain sufficient product liability insurance or to collaborate with third parties that have adequate insurance. Although we intend to obtain and maintain product liability insurance coverage if we gain approval to market any of our product candidates, we cannot guarantee that product liability insurance will continue to be available to us on acceptable terms, or at all, or that its coverage will be sufficient to cover all claims against us. A product liability claim, even one without merit or for which we have substantial coverage, could result in significant legal defense costs, thereby potentially exposing us to expenses significantly in excess of our revenues, as well as harm to our reputation and distraction of our management.

 

If any of our key employees discontinue their services with us, our efforts to develop our business may be delayed.

 

We are highly dependent on the principal members of our management team. The loss of our chairman and chief scientific advisor, Allan Goldstein, or chief executive officer, J.J. Finkelstein could prevent or significantly delay the achievement of our goals. We cannot assure you that Dr. Goldstein or Mr. Finkelstein, or any other key employees, will not elect to terminate their employment. In addition, we do not maintain a key man life insurance policy with respect to any of our management personnel. In the future, we anticipate that we will also need to add additional management and other personnel. Competition for qualified personnel in our industry is intense, and our success will depend in part on our ability to attract and retain highly skilled personnel. We cannot assure you that our efforts to attract or retain such personnel will be successful.

 

  

Mauro Bove, a member of our Board, was also a director and officer of entities affiliated with Sigma-Tau and is a director of Lee’s Pharmaceuticals, relationships which could give rise to a conflict of interest for Mr. Bove.

 

Mauro Bove is a member of our Board of Directors, and, until March 31, 2014, was also a director and officer of entities affiliated with Sigma-Tau, which collectively make up our largest stockholder group. At this time Mr. Bove remains engaged with Sigma-Tau as a consultant. Sigma-Tau has provided us with significant funding, may continue doing so in the future, and is also our strategic partner in Europe with respect to the development of certain of our drug candidates. We have issued shares of common stock, convertible promissory notes and common stock warrants to Sigma-Tau and its affiliates in several private placement financing transactions, including as recently as September 2013. We have licensed certain rights to our product candidates generally for the treatment of dermal and internal wounds to Sigma-Tau. Under the license agreement, upon the completion of a Phase 2 clinical trial of either of these product candidates that yields positive results in terms of clinical efficacy and safety, Sigma-Tau is obligated to either make a $5 million milestone payment to us or to initiate and fund a pivotal Phase 3 clinical trial of the product candidate. In 2009, we completed two Phase 2 clinical trials of RGN-137, but these trials were not sufficient to trigger the milestone obligation. There can be no assurance that we will ever receive this payment or be able to initiate a pivotal Phase 3 clinical trial of RGN-137 that would be funded by Sigma-Tau. As a result of Mr. Bove’s relationship with Sigma-Tau, there could be a conflict of interest between Sigma-Tau and our other stockholders with respect to these and other agreements and circumstances that may require the exercise of the Board’s discretion with respect to Sigma-Tau. Any decision in the best interests of Sigma-Tau may not be in the best interest of our other stockholders.

 

Additionally, Mr. Bove is a non-executive director of Lee’s Pharmaceuticals, in which affiliates of Sigma-Tau have a significant equity interest. In July 2012, we entered into a license agreement for TB4 in any pharmaceutical form, including our RGN-259, RGN-352 and RGN-137 product candidates for development in China, Hong Kong, Macau and Taiwan. There can be no assurance that we will ever receive any further payments from Lee’s under the agreement. As a result of Mr. Bove’s relationship with Lee’s and Sigma-Tau, Mr. Bove may have interests that are different from our other stockholders in connection with these and other agreements and circumstances that may require the exercise of the Board’s discretion with respect to Lee’s or Sigma-Tau. These conflicts could result in decisions that are not be in the best interest of our other stockholders.

 

Risks Related To Our Intellectual Property

 

We are partially reliant on our license from the National Institutes of Health for the rights to Tß4, and any loss of these rights could adversely affect our business.

 

We have received an exclusive worldwide license to intellectual property discovered at the National Institutes of Health, or NIH, pertaining to the use of Tß4 in wound healing and tissue repair. The intellectual property rights from this license, along with independent patent applications we have filed, as well as patents and patent applications under licenses we acquired, form the basis for our current commercial development focus with Tß4. The NIH license terminates upon the last to expire of the patent applications that are filed, or any patents that may issue from such applications, in connection with the license. This license requires us to pay a minimum annual royalty to the NIH, regardless of the success of our product development efforts, plus certain other royalties upon the sale of products created by the intellectual property granted under the license. In 2013 we amended certain provisions of the exclusive license; we were permitted to credit amounts paid to prosecute or maintain the licensed patent rights during the 2013 calendar year against the 2013 minimum annual royalty of $25,000. Beginning in 2014 the minimum annual royalty is $2,000. While to date we believe that we have complied with all requirements to maintain the license, including the required payments for 2013 and the minimum annual royalty for 2014, the loss of this license could have an adverse effect on our business and business prospects.

 

  

We may not be able to maintain broad patent protection for our product candidates, which could limit the commercial potential of our product candidates.

 

Our success will depend in part on our ability to obtain, defend and enforce patents, both in the United States and abroad. We have attempted to create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments and derivatives of Tß4. As described elsewhere in this report, we currently do not have adequate financial resources to fund our ongoing business activities substantially beyond 12 months without additional funding. As a result of our current financial condition, we continuously evaluate our issued patents and patent applications and may decide to limit their therapeutic and/or geographic coverage in an effort to enhance our ability to focus on certain medical conditions and countries within our financial constraints. As a result, we may not be able to protect our intellectual property rights in indications and/or territories that we otherwise would, and, therefore, our ability to commercialize Tß4, if at all, could be substantially limited, which could have a material adverse impact on our future results of operations.

 

If we are not able to maintain adequate patent protection for our product candidates, we may be unable to prevent our competitors from using our technology or technology that we license.

 

Our success will depend in substantial part on our ability to obtain, defend and enforce patents, maintain trade secrets and operate without infringing upon the proprietary rights of others, both in the United States and abroad. Pursuant to an exclusive worldwide license from the NIH, we have exclusive rights to use Tß4 in the treatment of non-healing wounds. While patents covering our use of Tß4 have issued in some countries, we cannot guarantee whether or when corresponding patents will be issued, or the scope of any patents that may be issued, in other countries. We have attempted to create a substantial intellectual property portfolio, submitting patent applications for various compositions of matter, methods of use and fragments and derivatives of Tß4. We have also in-licensed other intellectual property rights from third parties that could be subject to the same risks as our own patents. If any of these patent applications do not issue, or do not issue in certain countries, or are not enforceable, the ability to commercialize Tß4 in various medical indications could be substantially limited or eliminated.

 

In addition, the patent positions of the products being developed by us and our collaborators involve complex legal and factual uncertainties. As a result, we cannot assure you that any patent applications filed by us, or by others under which we have rights, will result in patents being issued in the United States or foreign countries. In addition, there can be no assurance that any patents will be issued from any pending or future patent applications of ours or our collaborators, that the scope of any patent protection will be sufficient to provide us with competitive advantages, that any patents obtained by us or our collaborators will be held valid if subsequently challenged or that others will not claim rights in or ownership of the patents and other proprietary rights we or our collaborators may hold. Unauthorized parties may try to copy aspects of our product candidates and technologies or obtain and use information we consider proprietary. Policing the unauthorized use of our proprietary rights is difficult. We cannot guarantee that no harm or threat will be made to our or our collaborators’ intellectual property. In addition, changes in, or different interpretations of, patent laws in the United States and other countries may also adversely affect the scope of our patent protection and our competitive situation.

 

Due to the significant time lag between the filing of patent applications and the publication of such patents, we cannot be certain that our licensors were the first to file the patent applications we license or, even if they were the first to file, also were the first to invent, particularly with regards to patent rights in the United States. In addition, a number of pharmaceutical and biotechnology companies and research and academic institutions have developed technologies, filed patent applications or received patents on various technologies that may be related to our product candidates. Some of these technologies, applications or patents may conflict with our or our licensors’ technologies or patent applications. A conflict could limit the scope of the patents, if any, that we or our licensors may be able to obtain or result in denial of our or our licensors’ patent applications. If patents that cover our activities are issued to other companies, we may not be able to develop or obtain alternative technology.

 

 

Additionally, there is certain subject matter that is patentable in the United States but not generally patentable outside of the United States. Differences in what constitutes patentable subject matter in various countries may limit the protection we can obtain outside of the United States. For example, methods of treating humans are not patentable in many countries outside of the United States. These and other issues may prevent us from obtaining patent protection outside of the United States, which would have a material adverse effect on our business, financial condition and results of operations.

 

Changes to U.S. patent laws could materially reduce any value our patent portfolio may have.

 

The value of our patents depends in part on their duration. A shorter period of patent protection could lessen the value of our rights under any patents that may be obtained and may decrease revenues derived from its patents. For example, the U.S. patent laws were previously amended to change the term of patent protection from 17 years following patent issuance to 20 years from the earliest effective filing date of the application. Because the time from filing to issuance of biotechnology applications may be more than three years depending on the subject matter, a 20-year patent term from the filing date may result in substantially shorter patent protection. Future changes to patent laws could shorten our period of patent exclusivity and may decrease the revenues that we might derive from the patents and the value of our patent portfolio.

 

We may not have adequate protection for our unpatented proprietary information, which could adversely affect our competitive position.

 

In addition to our patents, we also rely on trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. However, others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets or disclose our technology. To protect our trade secrets, we may enter into confidentiality agreements with employees, consultants and potential collaborators. However, we may not have such agreements in place with all such parties and, where we do, these agreements may not provide meaningful protection of our trade secrets or adequate remedies in the event of unauthorized use or disclosure of such information. Also, our trade secrets or know-how may become known through other means or be independently discovered by our competitors. Any of these events could prevent us from developing or commercializing our product candidates.

 

We may be subject to claims that we or our employees have wrongfully used or disclosed alleged trade secrets of former employers.

 

As is commonplace in the biotechnology industry, we employ now, and may hire in the future, individuals who were previously employed at other biotechnology or pharmaceutical companies, including competitors or potential competitors. Although there are no claims currently pending against us, we may be subject to claims that we or certain employees have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation could result in substantial costs and would be a significant distraction to management.

 

Risks Related To Our Securities

 

Our common stock price is volatile, our stock is highly illiquid, and any investment in our securities could decline substantially in value.

 

For the period from January 1, 2013 through August 11, 2014 the closing price of our common stock has ranged from $0.05 to $0.28, with an average daily trading volume of approximately 69,000 shares. In light of our small size and limited resources, as well as the uncertainties and risks that can affect our business and industry, our stock price is expected to continue to be highly volatile and can be subject to substantial drops, with or even in the absence of news affecting our business. The following factors, in addition to the other risk factors described in this report, and the potentially low volume of trades in our common stock since it is not listed on a national securities exchange, may have a significant impact on the market price of our common stock, some of which are beyond our control:

 

  

·

results of pre-clinical studies and clinical trials;

·

commercial success of approved products;

·

corporate partnerships;

·

technological innovations by us or competitors;

·

changes in laws and government regulations both in the U.S. and overseas;

·

changes in key personnel at our company;

·

developments concerning proprietary rights, including patents and litigation matters;

·

public perception relating to the commercial value or safety of any of our product candidates;

·

other issuances of our common stock, or securities convertible into or exercisable for our common stock, causing dilution;

·

anticipated or unanticipated changes in our financial performance;

·

general trends related to the biopharmaceutical and biotechnological industries; and

·

general conditions in the stock market.

 

The stock market in general has recently experienced relatively large price and volume fluctuations. In particular, the market prices of securities of smaller biotechnology companies have experienced dramatic fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in its value. You should also be aware that price volatility may be worse if the trading volume of the common stock remains limited or declines.

 

Our principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

 

Our officers, directors and principal stockholders together control approximately 49% of our outstanding common stock. Included in this group is Sigma-Tau and its affiliates, which together hold outstanding shares representing approximately 32% of our outstanding common stock and G-treeBNT which owns approximately 12% of our outstanding common stock. These stockholders also hold options, warrants, convertible promissory notes and stock purchase rights that provide them with the right to acquire significantly more shares of common stock. Accordingly, if these stockholders acted together they could control the outcome of all stockholder votes. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock, and therefore may not be in the best interest of our other stockholders.

 

If securities or industry analysts do not publish research or reports or publish unfavorable research about our business, the price of our common stock and other securities and their trading volume could decline.

 

The trading market for our common stock and other securities will depend in part on the research and reports that securities or industry analysts publish about us or our business. We do not currently have and may never obtain research coverage by securities and industry analysts. If securities or industry analysts do not commence or maintain coverage of us, the trading price for our common stock and other securities would be negatively affected. In the event we obtain securities or industry analyst coverage, if one or more of the analysts who covers us downgrades our securities, the price of our securities would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, interest in the purchase of our securities could decrease, which could cause the price of our common stock and other securities and their trading volume to decline.

 

  

The exercise of options and warrants, conversion of convertible promissory notes, and other issuances of shares of common stock or securities convertible into common stock will dilute your interest.

 

As of June 30, 2014, there were outstanding options to purchase an aggregate of 6,388,554 shares of our common stock under our 2000 and 2010 incentive equity plans at exercise prices ranging from $0.14 per share to $3.82 per share and outstanding warrants to purchase 11,468,901 shares of our common stock at a weighted average exercise price of $0.64 per share. In addition to the outstanding options and warrants we have also issued five series of convertible promissory notes, including one in January 2014, which are presently convertible into an aggregate of 13,683,334 shares of our common stock. In October 2012, we sold convertible promissory notes totaling $300,000 that are convertible into 2,000,000 shares of common stock at a conversion price of $0.15 per share. In 2013, we sold a three additional series of convertible promissory notes, which notes totaled $646,000 and are initially convertible into 10,766,667 shares of common stock at a conversion price of $0.06 per share. In January 2014, we sold a fifth series of convertible promissory notes, which notes totaled $55,000 and are initially convertible into 916,667 shares of common stock at a conversion price of $0.06 per share. The notes issued in 2013 and January 2014 contain down round provisions under which the conversion prices of these notes could be decreased as a result of future equity offerings below the conversion price of the notes. We are also committed to issue 8,333,333 shares of common stock to G-treeBNT at a purchase price of $0.12 per share on or before August 31, 2014 and G-treeBNT has an option to purchase an additional 5.5 million shares of common stock at $0.15 per share on or before January 31, 2015. The exercise of options and warrants or note conversions at prices below the market price of our common stock could adversely affect the price of shares of our common stock. Additional dilution may result from the issuance of shares of our capital stock in connection with collaborations or manufacturing arrangements or in connection with other financing efforts.

 

Any issuance of our common stock that is not made solely to then-existing stockholders proportionate to their interests, such as in the case of a stock dividend or stock split, will result in dilution to each stockholder by reducing his, her or its percentage ownership of the total outstanding shares. Moreover, if we issue options or warrants to purchase our common stock in the future and those options or warrants are exercised or we issue restricted stock, stockholders may experience further dilution. Holders of shares of our common stock have no preemptive rights that entitle them to purchase their pro rata share of any offering of shares of any class or series.

 

In addition, most of the outstanding warrants to purchase shares of our common stock have an exercise price above the current market price for our common stock. As a result, these warrants may not be exercised prior to their expiration, in which case we would not realize any proceeds from their exercise.

 

Our certificate of incorporation and Delaware law contain provisions that could discourage or prevent a takeover or other change in control, even if such a transaction would be beneficial to our stockholders, which could affect our stock price adversely and prevent attempts by our stockholders to replace or remove our current management.

 

Our certificate of incorporation provides our Board with the power to issue shares of preferred stock without stockholder approval. In addition, we are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law. Subject to specified exceptions, this section provides that a corporation may not engage in any business combination with any interested stockholder, as defined in that statute, during the three-year period following the time that such stockholder becomes an interested stockholder. This provision could also have the effect of delaying or preventing a change of control of our company. The foregoing factors could reduce the price that investors or an acquirer might be willing to pay in the future for shares of our common stock.

 

  

We may become involved in securities class action litigation that could divert management’s attention and harm our business and our insurance coverage may not be sufficient to cover all costs and damages.

 

The stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the common stock of pharmaceutical and biotechnology companies. These broad market fluctuations may cause the market price of our common stock to decline. In the past, following periods of volatility in the market price of a particular company’s securities, securities class action litigation has often been brought against that company. We may become involved in this type of litigation in the future. Litigation often is expensive and diverts management’s attention and resources, which could hurt our business, operating results and financial condition.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

None.

 

  

Item 6.

Exhibits

 

Exhibit No.			Description of Exhibit		Reference*
3.1			Restated Certificate of Incorporation		Exhibit 3.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
3.2			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
3.3			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
3.4			Certificate of Amendment to Restated Certificate of Incorporation		Exhibit 3.4 to Registration Statement on Form S-8 (File No. 333-168252) (filed July 21, 2010)
3.5			Certificate of Designation of Series A Participating Cumulative Preferred Stock		Exhibit 3.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
3.6			Amended and Restated Bylaws		Exhibit 3.4 to the Company’s Quarterly Report on Form 10-Q (filed August 14, 2006)
3.7			Amendment to Amended and Restated Bylaws		Exhibit 3.6 to the Company’s Registration Statement on Form S-8 (File No. 333-152250) (filed July 10, 2008)
4.1			Specimen Common Stock Certificate		Exhibit 4.1 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
4.2			Specimen Rights Certificate		Exhibit 4.2 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)

 

  

4.3			Rights Agreement, dated April 29, 1994, between the Company and American Stock Transfer & Trust Company, as Rights Agent		Exhibit 4.3 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
4.4			Amendment No. 1 to Rights Agreement, dated March 4, 2004, between the Company and American Stock Transfer & Trust Company, as Rights Agent		Exhibit 4.4 to Registration Statement on Form S-1 (File No. 333-166146) (filed April 16, 2010)
4.5			Warrant Agreement, dated May 21, 2010, between the Company and American Stock Transfer & Trust Company, as Warrant Agent		Exhibit 4.6 to Current Report on Form 8-K (File No. 001-15070) (filed May 21, 2010)
4.6			Form of Warrant Certificate		Exhibit 4.6 to Amendment No. 1 to Registration Statement on Form S-1 (File No. 333-166146) (filed May 17, 2010)
10.1			Executive Employment Agreement between the Company and J.J. Finkelstein dated April 16, 2014#		Filed herewith
10.2			Executive Employment Agreement between the Company and Allan L. Goldstein dated April 16, 2014#		Filed herewith
10.3			Executive Employment Agreement between the Company and Dane Saglio dated April 16, 2014#		Filed herewith
31.1			Certification of Principal Executive Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934		Filed herewith
31.2			Certification of Principal Financial Officer pursuant to Rules 13a-14 and 15d-14 promulgated under the Securities Exchange Act of 1934		Filed herewith
32.1			Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith**
32.2			Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002		Filed herewith**

 

  

101

The following materials from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets at June 30, 2014 and December 31, 2013; (ii) Statements of Operations for the three and six months ended June 30, 2014 and 2013; (iii) Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (iv) Notes to Financial Statements.

Filed herewith***

#		Management compensatory plan or arrangement.
*		Except where noted, the exhibits referred to in this column have heretofore been filed with the Securities and Exchange Commission as exhibits to the documents indicated and are hereby incorporated by reference thereto. The Registration Statements referred to are Registration Statements of the Company.
**		This certification is being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
***		Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files included in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those Sections.

 

  

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

	RegeneRx Biopharmaceuticals, Inc.
	(Registrant)
Date:  August 14, 2014	/s/J.J. Finkelstein
	J.J. Finkelstein
	President and Chief Executive Officer
	(On Behalf of the Registrant)
Date:  August 14, 2014	/s/Dane Saglio
	Dane Saglio
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)