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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year Ended December 31, 2017
☐
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: 000-55866
MONOPAR THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
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DELAWARE
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32-0463781
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. employer
identification number)
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1000 Skokie Blvd., Suite 350, Wilmette, IL
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60091
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(Address of principal executive offices)
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(zip code)
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(847) 388-0349
(Registrant’s telephone number, including area
code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of each class
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Name of each exchange on which registered
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N/A
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N/A
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Securities registered pursuant to section 12(g) of the
Act:
Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities 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 ☐ 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 ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (§ 229.405 of this chapter) is
not contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. Yes ☒ 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 the definitions of “large
accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the
Exchange Act.
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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(Do not check if a smaller reporting
company)
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Smaller reporting company
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Emerging growth company
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☒
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the
Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or
15(d) of the Securities Exchange Act of 1934 (the “Exchange
Act”) subsequent to the distribution of securities under a
plan confirmed by a court. Yes ☐ No ☐
Not Applicable.
The number of shares outstanding with respect to each of the
classes of our common stock, as of March 26, 2018, is set forth below:
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Class
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Number of shares outstanding
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Class A common stock, par value $0.001 per share
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9,291,420.614
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Documents incorporated by reference:
MONOPAR THERAPEUTICS INC.
TABLE OF CONTENTS
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Page
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Business
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3
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Risk
Factors
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22
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Properties
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33
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Legal
Proceedings
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33
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Market
for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
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33
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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35
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Financial
Statements and Supplementary Data
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49
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
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50
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Controls
and Procedures
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50
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Directors,
Executive Officers and Corporate Governance
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51
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Executive
Compensation
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57
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Security Ownership
of Certain Beneficial Owners and Management and Related Stockholder
Matters
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61
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Certain
Relationships and Related Transactions and Director
Independence
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63
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Principal
Accountant Fees and Services
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65
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Exhibits
and Financial Statement Schedules
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66
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Signatures
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1
Forward-Looking Statements
This
Annual Report on Form 10-K contains “forward-looking
statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Act”) and
Section 21E of the 34 Act. All statements other than statements of
historical facts included in this Annual Report on Form 10-K are
forward-looking statements. The words “hopes,”
“believes,” “anticipates,”
“plans,” “seeks,” “estimates,”
“projects,” “expects,”
“intends,” “may,” “could,”
“should,” “would,” “will,”
“continue,” and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
contained in this Annual Report on Form 10-K include without
limitation statements about the market for cancer products in
general and statements about our:
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projections and
related assumptions;
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business and
corporate strategy;
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plans, objectives,
expectations, and intentions;
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clinical and
preclinical pipeline and the anticipated development of our
technologies, products, and operations;
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anticipated revenue
and growth in revenue from various product offerings;
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future operating
results;
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intellectual
property portfolio;
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projected liquidity
and capital expenditures;
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development and
expansion of strategic relationships, collaborations, and
alliances; and
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market opportunity,
including without limitation the potential market acceptance of our
technologies and products and the size of the market for cancer
products.
Although
we believe that the expectations reflected in such forward-looking
statements are appropriate, we can give no assurance that such
expectations will be realized. Cautionary statements are disclosed
in this Annual Report on Form 10-K, including without limitation
statements in the section entitled “RISK FACTORS,”
addressing forward-looking statements. All subsequent written and
oral forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by
the cautionary statements. We undertake no obligation to update any
statements made in this Annual Report on Form 10-K or elsewhere,
including without limitation any forward-looking statements, except
as required by law.
2
PART I
Item
1. Business
You
should read the following discussion in conjunction with our
financial statements as of December 31, 2017 and the notes to such
financial statements included elsewhere in this Annual Report on
Form 10-K.
Overview
We
are a clinical-stage biotechnology company focused on developing
innovative drugs and drug combinations to improve clinical outcomes
for cancer patients. We are building a drug development pipeline
through the licensing or acquisition of oncology therapeutics at
the late preclinical through advanced clinical development stage,
leveraging already existing scientific and clinical data as much as
possible to de-risk clinical development.
Our
lead drug product candidate is Validive® (clonidine mucobuccal
tablet; clonidine MBT), a Phase 3-ready molecule for the prevention
and treatment of severe oral mucositis (“SOM”) in
patients undergoing radiotherapy for oropharyngeal cancer
(“OPC”). In September 2017, we exercised our exclusive
option with Onxeo S.A. to license worldwide rights to
Validive.
Increased expression of pro-inflammatory cytokines
by macrophages is believed to be the mechanism of
radiotherapy-induced severe oral mucositis. Oropharyngeal cancer
arises in the immune tissue at the back of the throat, which is
characterized by a high localization of macrophages. As a
mucoadhesive tablet that works locally through agonizing a receptor
on macrophages that suppresses cytokine expression at the sites of
radiation, we believe Validive®
has significant promise in addressing
this large unmet medical need. Currently, there are no U.S. Food
and Drug Administration (“FDA”)-approved preventive or
therapeutic options for patients that develop radiation-induced
SOM.
A
Phase 1 and Phase 2 trial with Validive have been completed, with
encouraging results. We anticipate a pre-Phase 3 meeting with the
FDA in the second quarter of 2018, and are aiming to initiate our
Phase 3 development program in the second half of 2018. Assuming
the FDA concurs with our clinical plan, an interim analysis of the
Phase 3 clinical data is currently planned for the fourth quarter
of 2019, with final data anticipated to be released in the first
half of 2021. In anticipation of initiating the international Phase
3 development program for Validive, we created a wholly-owned
French subsidiary, Monopar Therapeutics, SARL in January 2018, and
a wholly-owned Australian subsidiary, Monopar Therapeutics
Australia Pty Ltd. in March 2018.
In
August 2017, we acquired the clinical stage drug product candidate
MNPR-201 (GPX-150) from TacticGem, LLC. MNPR-201 is a novel
doxorubicin analog engineered to eliminate the cardiotoxic side
effects typically generated by anthracycline-based cancer drugs.
MNPR-201 has completed a small Phase 2 clinical trial in soft
tissue sarcoma patients. We are aiming to initiate one or more
Phase 2 trials for MNPR-201 in the first half of 2019.
As
part of the transaction to acquire MNPR-201, TacticGem, LLC became
our majority shareholder. Surrounding this transaction, we raised
approximately $9.5 million (net of transaction costs) and filed a
Form 10 with the SEC which became effective on January 8,
2018.
We
also own several discovery and preclinical stage drug product
candidates, the furthest along being MNPR-101 (huATN-658). MNPR-101
is a novel first-in-class humanized monoclonal antibody to the
urokinase plasminogen activator receptor (“uPAR”) for
the treatment of advanced cancers. It has nearly completed
IND-enabling work and we anticipate a pre-IND meeting with the FDA
in the third quarter of 2018.
In
order to fund our planned operations, including executing our
clinical development plans and advancing our drug product
candidates, we will need to obtain additional significant capital
through the sale of equity securities or other financial
arrangements; however, there can be no assurance that we will be
able to raise needed capital under acceptable terms, if at all. The
sale of additional equity will dilute our existing
stockholders.
Corporate Information
We were
formed as a Delaware limited liability company in December 2014,
with the name Monopar Therapeutics, LLC. In December 2015, we
converted into a Delaware C corporation. Our principal executive
offices are located at 1000 Skokie Blvd, Suite 350, Wilmette, IL
60091. Our telephone number is (847) 388-0349, and our email
address is info@monopartx.com.
3
Our corporate website is located at www.monopartx.com. Any
information contained in, or that can be accessed through our
website is not incorporated by reference in this Annual Report on
Form 10-K.
Our Strategy
Our
goal is to leverage the experience and competencies of our
management team to acquire, in-license and develop promising drug
product candidates and to commercialize cancer therapeutics that
address unmet medical needs in the oncology market. The key
elements of our strategy include:
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Initiate
our Phase 3 development program for Validive;
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Obtain
FDA approval of Validive for reducing the risk of onset of SOM in
patients undergoing radiotherapy for oropharyngeal
cancer;
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Commercialize
Validive in the U.S. and EU;
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Maintain,
expand and protect our intellectual property portfolio around
Validive;
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Initiate
clinical trial(s) for MNPR-201 in indications where we can leverage
existing data of doxorubicin’s efficacy (breast cancer,
sarcoma, rare pediatric cancers);
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Request
pre-IND meeting for MNPR-101; and
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Expand
our product portfolio through acquiring or in-licensing additional
product candidates, especially ones where we can leverage already
existing scientific and clinical data to help de-risk further
clinical development.
The Oncology Therapeutics Market
Cancer
is a collection of diseases characterized by uncontrolled growth
and spread of abnormal cells. In January 2018, the American Cancer
Society projected that there will be an estimated 1.7 million new
cancer cases diagnosed and 609,640 cancer deaths in the U.S. in
2018. Current treatments for cancer include surgery, radiation
therapy, chemotherapy, hormone therapy, targeted therapy and
immunotherapy. The IQVIA Institute for Human Data Science reported
in 2017 that total global spending on oncology medicines, including
therapeutic treatments and supportive care, reached $113 billion in
2016.
Many
currently marketed cancer drugs do not distinguish between rapidly
growing healthy cells and cancer cells. This leads to serious side
effects and a very narrow therapeutic index. Often, treatment is
discontinued because of adverse effects or cumulative toxicities,
rendering chronic treatment impossible. Since tumors are generally
not completely eradicated by chemotherapy, cessation of treatment
often leads to a regrowth of the malignancy. Furthermore, many
tumors mutate rapidly and develop resistance, thereby further
rendering existing treatments ineffective. While newer
immunotherapies have shown promising results, only a portion of
patients will respond to such treatments. There is an urgent need
for additional drugs to improve cancer treatment.
Advances
in the understanding of how tumor cells differ from normal tissue
have made possible the development of a new class of targeted
cancer therapies that interrupt processes important to tumor
survival and progression. These include anti-angiogenic drugs,
anti-metastatic drugs, and cell-signaling inhibitors.
All
of these approaches may be associated with various side effects
experienced by cancer patients that result from the treatments
having an adverse impact on normal functioning cells and organ
systems. Supportive care products are frequently prescribed or
administered to cancer patients to prevent or treat these side
effects thereby allowing the patients to continue to receive
potentially life prolonging cancer therapies and to minimize long
term consequences from these treatments.
Our
pipeline and strategy are aligned with the trends in cancer care.
Validive is intended to reduce the incidence of SOM and keep OPC
patients on treatment longer. MNPR-201 is a novel analog of
doxorubicin designed to eliminate formation of dose limiting
cardiotoxic metabolites generated by doxorubicin while retaining
the anti-cancer activity. MNPR-101 is designed to bind a specific
cell surface receptor found cancer cells (uPAR), to thereby
interrupt several pathways required for tumor growth and
progression.
4
Our Drug Product Candidates
MONOPAR
PRODUCT PIPELINE
Validive®
(clonidine mucobuccal tablet;
clonidine MBT)
Validive (clonidine MBT) is a mucobuccal tablet
(“MBT”) of clonidine based on the
Lauriad®
mucoadhesive technology. The Lauriad
technology was developed for oral transmucosal drug delivery and
significantly increases the mucous and salivary concentrations of
the active ingredient it contains, with decreased systemic
absorption. The tablet is placed under the patient’s upper
lip and remains there for several hours a day, releasing the active
ingredient into the saliva.
Mechanism of Action
Validive is designed to deliver high local
concentrations of the active pharmaceutical ingredient clonidine,
an agonist of alpha-2 adrenergic receptors
(“alpha-2AR”),
to the oropharynx, the site of irradiation in the treatment of OPC.
In the oropharynx, alpha-2AR are
expressed on macrophages, immune cells that produce cytokines, the
molecules that are responsible for the development of SOM (Maria et
al., 2017). A recent clinical study demonstrated that radiation
treatment substantially increased salivary cytokine levels and that
these were positively associated with the formation of SOM in
patients with head and neck cancer (Bossi et al., 2016). OPC
patients with human papilloma virus positive (“HPV+”)
OPC demonstrate an increased accumulation of macrophages in the
tumor microenvironment compared to patients with OPC without human
papilloma virus (“HPV–”), thus further priming
HPV+ OPC patients for the development of SOM (Oguejiofor et al.,
2017). The alpha-2AR regulates
the expression of cytokines by macrophages, and clonidine reduces
this cytokine production (Romero-Sandoval et al., 2005; Spengler et
al., 1990). Macrophages are the primary immune cells that express
alpha-2AR, making clonidine’s mechanism of
cytokine suppression macrophage selective and distinct from the
mechanism of other anti-inflammatory drugs (Handy et al., 1998;
Perälä et al., 1992; Laukova et al., 2010). Further,
Validive delivers clonidine transmucosally, to the sites of
radiation treatment in OPC. This results in high salivary
concentrations of clonidine and minimizes systemic absorption,
allowing for maximal dosing of drug to the at-risk oral mucosa and
the OPC microenvironment (Vasseur et al., 2017). Onxeo’s
preclinical studies and Phase 2 clinical trial have provided data
that support Validive’s mechanism of action and therapeutic
potential for reducing the development of SOM in patients with OPC,
improving oral mucositis-related symptoms, and decreasing
radiotherapy-related adverse events, while exhibiting a favorable
safety profile and high compliance rate with
patients.
5
Severe Oral Mucositis (“SOM”)
SOM
is induced by radiation treatment and is the most frequent major
radiation-induced side effect observed in patients with head and
neck cancer (“HNC”). SOM induces intense oral pain and
dysphagia and limits a patient’s ability to eat and drink,
which can lead to severe weight loss and a requirement for enteral
or parenteral nutritional support. Patients that develop SOM are
often hospitalized, and symptoms can force patients to stop cancer
treatment for an undefined period of time or terminate early, thus
reducing cancer treatment efficacy (Elting et al., 2008;
Vera-Llonch et al., 2006). Thus, SOM impacts both quality of life
and clinical outcomes in HNC patients. Currently, there are no
FDA-approved preventive or therapeutic options for patients that
develop radiation-induced SOM. Only symptomatic treatments such as
opioids and mouthwashes are currently considered as part of the
standard of care for this indication.
The
global incidence of HNC was approximately 690,000 cases in 2012
(Globocan 2012; Gupta, 2016). The incidence of HNC in the U.S. was
approximately 63,000 cases in 2017 (cancer.net) and is projected to
increase to more than 93,000 new cases by 2030 (Gupta et al.,
2016). A similar increase is also predicted in the European Union
(“EU”) Five (France, Germany, Italy, Spain and the
United Kingdom).
These
projections include all HNC patients, regardless of the anatomic
location of their disease. However, the most rapidly growing
sub-population of HNC are patients with OPC (Chaturvedi et al.,
2011; Ramqvist et al., 2010). The oropharynx is comprised largely
of immune tissue and includes the soft palate, the base (rear one
third) of the tongue, and the tonsils. In the U.S., the incidence
of OPC is approaching 70% of all HNC, the majority of which
(approximately 70%) is HPV+ (Chaturvedi et al., 2011; Jordan et
al., 2012; Gooi et al., 2016). The incidence of OPC is also
increasing in the rest of the world (>30% of HNC) (Taberna et
al., 2017), with >50% of all OPC being HPV+ (Gupta et al., 2016;
Fakhry et al., 2015).
Recent
data (Vatca et al., 2014) have demonstrated that HPV+ OPC patients
have a 6.9-fold increased risk of developing SOM during radiation
treatment, and that onset of SOM occurs sooner than in HPV–
OPC patients. These observations suggest that HPV+ OPC patients may
be more likely to benefit from Validive (clonidine MBT) treatment
than other HNC patients. The incidence of HPV+ OPC has outpaced the
incidence of HPV– HNC by 4-5-fold over the past decade
(Chaturvedi et al., 2011; Castellsagué et al., 2017). We
project that this trend will continue for at least the next 20-25
years (another generation) in the U.S. based on the predicted
increase in high-risk oral HPV infections due to the lack of
adequate use of HPV vaccinations in children (Castellsagué et
al., 2017). Thus, the HPV+ OPC population could be a driver of
market growth for Validive (clonidine MBT), and also represents a
potentially molecularly defined population for the clinical
development of this drug (Taberna et al., 2017; Castellsagué
et al., 2017).
Clinical Data
In
November 2012, Onxeo submitted an Investigational New Drug
application ("IND") for Validive with the FDA for the prevention
and treatment of oral mucositis induced by radiotherapy and/or
chemotherapy in cancer patients. On March 12, 2018, we received a
notification from the FDA confirming the IND transfer from Onxeo to
us. We believe that Onxeo’s Phase 2 data support the
development of Validive for SOM in OPC patients, with an enhanced
response anticipated in HPV+ patients. Patients with HPV+ OPC have
a 6.9-fold higher risk of developing SOM (Vatca et al., 2014)
possibly due to the increased accumulation of immune cells in the
tumor due to the presence of the HPV infection (Lyford-Pike et al.,
2013; Vatca et al., 2014; Oguejiofor et al., 2017). These immune
cells may release oral mucosa damaging cytokines in response to
radiation and may therefore be more responsive to Validive, which
suppresses the production of these cytokines.
In
October 2015, the results from an international Phase 2 clinical
trial of Validive were announced by Onxeo, demonstrating
encouraging signs of clinical activity and safety compared to
placebo. The trial enrolled 183 patients and was conducted in more
than thirty centers in Europe and the U.S. This global,
multi-center, double-blind, randomized, placebo-controlled,
three-arm study (NCT01385748) compared the efficacy and safety of
Validive (50 microgram (µg) and 100 µg) to placebo in
patients with HNC receiving chemoradiation therapy. Validive and
placebo were applied to the gum of the mouth once daily beginning 1
to 3 days prior to chemoradiotherapy and continuing until the end
of chemoradiation treatment.
6
The
safety profile of Validive was similar to placebo. Patients treated
with Validive experienced less nausea and dysphagia compared to
placebo.
The
mean overall patient compliance was approximately 90% across all
treatment groups. Overall compliance according to patient diaries
was similar in all treatment groups and consistent with the
compliance according to the investigator’s
evaluation.
The
analysis of OPC patients in this study showed:
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The incidence
of severe oral mucositis (primary endpoint) was reduced by 26.3%
(40% relative to placebo) in OPC patients treated with Validive
(100 µg) (p=0.09† which is a meaningful trend but not
statistically significant). 65.2% of OPC patients on placebo
experienced severe oral mucositis compared to only 38.9% of OPC
patients on Validive 100 µg.
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Validive
(100 µg) reduced the risk of onset of SOM by 52% compared to
placebo
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Secondary
endpoints of severe drinking, eating, and speaking limitations due
to mouth and throat soreness (“MTS”) score were reduced
in the Validive (100µg) treated cohort.
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Decreases
in other indicators of clinical benefit, including decreased
duration of severe oral mucositis (by 15 days versus placebo),
weight loss, decreased opiate use and increased cumulative dose of
radiation received, strongly favored the Validive (100 µg)
treated cohort.
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A
dose response was observed with the Validive (100 µg) dose,
demonstrating a trend toward superiority over the Validive (50
µg) dose as well as placebo.
†p-value or probability value, is a statistical
measurement of the likelihood a drug does not actually work based
on the clinical data compared to a control such as a placebo (with
no active pharmaceutical ingredient). In general, the FDA requires
a p-value of less than 5% or p < 0.05, which is considered
statistically significant, for marketing approval. A p-value of
p<0.05 for a clinical trial comparing a drug and placebo means
that there is less than a 5% chance the drug is actually
inactive.
Our
review of Onxeo’s Phase 2 data indicated that the effect of
Validive was much greater in OPC compared to non-OPC patients. We
believe the data along with the mechanism of action of Validive
provide a rationale for developing Validive for the treatment of
radiation induced SOM in OPC patients as a first indication. The
most rapidly growing sub-population of HNC in the U.S. and Europe
are patients with HPV+ disease, which are primarily HNC patients
with OPC. The oropharynx is the part of the throat at the back of
the mouth, which includes the soft palate, the base (rear one
third) of the tongue, and the tonsils. HPV+ OPC is a molecularly
defined population of HNC characterized by the expression of a
protein biomarker, p16 INK4a, and the presence of HPV DNA in the
tumor. Evaluation of HPV status is part of the routine clinical
assessment of patients with OPC prior to initiating treatment. The
incidence of HPV+ OPC has outpaced the incidence of HPV– HNC
in the U.S. and Europe by 4 to 5-fold over the past decade
(Chaturvedi et al., 2011; Castellsagué et al.,
2017).
Validive Development Strategy
Based
on the existing Phase 2 data in patients with OPC treated with
Validive, we are planning an adaptive design Phase 3 development
program that will evaluate Validive compared to placebo in OPC
patients stratified for HPV status. This design will allow us to
prospectively confirm the observation made from the Phase 2 trial,
that Validive will be effective in preventing radiation-induced SOM
in patients with OPC. The Phase 3 program will also evaluate if
Validive performs better in the HPV+ OPC cohort. We are currently
working with the U.S. and EU regulatory agencies to design a
development plan to move Validive toward registration in both a
time- and cost- efficient manner. An optimal timeline of
development milestones related to Validive include: FDA meeting to
discuss Phase 3 in the second quarter of 2018, with Phase 3 trial
being initiated in the third quarter of 2018, first patient dosed
in the fourth quarter of 2018, interim analysis of Phase 3 trial in
the fourth quarter of 2019, initiate stage 2 of the Phase 3 trial
in the first half of 2020, data readout for the Phase 3 trial in
the first half of 2021, and NDA submission in the second half of
2021. However, there are many risk factors which could delay or
otherwise affect Validive’s development. See Item 1A –
“Risk Factors.”
7
MNPR-201 (GPX-150; 5-imino-13-deoxydoxorubicin)
MNPR-201 (GPX-150; 5-imino-13-deoxydoxorubicin) is
a proprietary doxorubicin analog that is selective for
topoisomerase-II-alpha.
Doxorubicin is used to treat adult and pediatric solid and blood
(hematologic) cancers including breast, gastric, ovarian and
bladder cancer, soft tissue sarcomas, leukemias and lymphomas. A
number of clinical studies have demonstrated the anti-cancer
benefit of higher doses of doxorubicin administered for longer
periods of time. The optimal clinical efficacy of doxorubicin,
however, has been limited historically by the risk of patients
developing irreversible, potentially life-threatening
cardiotoxicity. MNPR-201 has been engineered specifically to retain
the anticancer activity of doxorubicin while minimizing the toxic
effects on the heart. We believe the results of these studies,
along with the potential to combine a less or non-cardiotoxic
analog of doxorubicin with other anticancer agents, emphasizes that
there is a large market opportunity for MNPR-201 in a broad
spectrum of cancer types.
The
antitumor effects of MNPR-201 are mediated through the
stabilization of the topoisomerase II complex after a DNA strand
break and DNA intercalation leading to apoptosis (cell death)
through a mechanism similar to doxorubicin and other anthracycline
drugs. Inhibiting the topoisomerase II-alpha isoform is desired for
the anti-cancer effect, while inhibiting the topoisomerase II-beta
isoform has been demonstrated to mediate, at least in part, the
cardiotoxicity associated with all anthracycline drugs currently
used in the clinic. MNPR-201 is substantially more selective than
doxorubicin for inhibiting topoisomerase II-alpha versus
topoisomerase II-beta. This selectivity may at least partly explain
the minimal cardiotoxicity that MNPR-201 has demonstrated in
clinical studies to date.
Clinical Data
In February 2007, Gem Pharmaceuticals, LLC (a
partner of TacticGem LLC) submitted an IND for MNPR-201 (GPX-150)
for the treatment of cancer. The IND remains open and was
transferred to us in February 2018. Several clinical studies of
MNPR-201 (GPX-150) have been completed. A Phase I dose escalation
study conducted at the University of Iowa enrolled 24 patients at 5
different dose levels of MNPR-201 (GPX-150) ranging from 14-265
mg/m2.
No evidence of irreversible cardiotoxicity was observed in any of
these patients, including 4 patients that had received prior
anthracycline (doxorubicin or related molecules) treatment. In the
four highest dose levels (>84 mg/m2),
9/17 patients showed a stabilization of disease including 3 out of
4 patients with leiomyosarcoma, which is a type of cancer that
originates in connective tissue and smooth muscle most commonly in
the uterus, stomach and small intestine.
Based on the demonstration of stable disease in
patients with leiomyosarcoma in the Phase I trial, a multi-center
open label single arm Phase 2 trial was run in
doxorubicin-naïve patients with non-resectable or metastatic
soft tissue sarcoma (“STS”). Doxorubicin has
historically been the standard of care for the treatment of
leiomyosarcoma and other STS. This Phase 2 clinical trial enrolled
22 patients and was completed in early 2017. MNPR-201 was
administered intravenously at 265 mg/m2
every 3 weeks for up to 16 doses and
there was clear indication of anticancer activity and no evidence
of irreversible cardiotoxicity. One patient went on compassionate
use and received 20 cycles of MNPR-201, many more than the 6 to 8
cycles patients on doxorubicin are typically limited to. The
progression free survival at 6 months was 38%, versus
doxorubicin’s 6-month progression free survival of 25%, 33%,
and 23% in three separate studies in this patient population
(Lorigan et al., 2007; Judson et al., 2014; Chawla et al.,
2015).
MNPR-201 Development Strategy
We will need to raise additional funds to support
the next stage of clinical development of MNPR-201, which is
planned to include Phase 2 trials that will evaluate MNPR-201 in
cancer indications where doxorubicin has shown efficacy but its use
is restricted due to cardiotoxicity. The objective of these trials
would be to demonstrate signals of efficacy where MNPR-201 dosing
does not have to be restricted due to cardiotoxicity. For example,
several clinical studies completed in the 1990s demonstrated that
concurrent doxorubicin (60 mg/m2,
8 cycles) and paclitaxel gave a 94% overall response rate in
patients with metastatic breast cancer but led to 18% of these
patients developing congestive heart failure (Gianni et al., 1995).
Reduction of doxorubicin to 4-6 cycles of treatment decreased
occurrence of congestive heart failure, but also reduced response
rate to 45-55% (Sparano et al., 1999; Valero et al., 2001). A
potential Phase 2 screening trial in patients with metastatic
breast cancer would evaluate concurrent MNPR-201 plus paclitaxel to
see if a higher response rate than 45-55% could be observed in the
absence of irreversible cardiotoxicity. Concomitant administration
of paclitaxel and MNPR-201 in the absence of cardiotoxicity would
also provide rationale for this same combination in other clinical
settings. Similar studies are also under consideration for the
combination of MNPR-201 + trastuzumab in metastatic HER2+ breast
cancer patients. Additional studies will evaluate cross-over to
MNPR-201 in patients benefiting from doxorubicin that have reached
their lifetime limit of doxorubicin exposure in STS and other
cancer indications including several pediatric cancer indications.
The results of these Phase 2 studies would be used to inform an
initial registration strategy for MNPR-201, as well as to support
collaborative clinical development efforts with cooperative groups
and cancer-focused foundations. Ideally, we would like to initiate
the Phase 2 clinical trial(s) in the first half of 2019. However,
there are many risk factors which could delay or otherwise affect
MNPR-201’s development. See Item 1A – “Risk
Factors.”
8
MNPR-101 (formerly huATN-658)
No
IND is required for MNPR-101 at this time because it is not yet in
human clinical trials.
uPA/uPAR Antibodies
A significant body of in vitro and in vivo data have established the urokinase plasminogen
activator ("uPA") system as being central to the processes of
angiogenesis and metastasis, and therefore as a potentially
promising target for cancer drug development. The uPA system is
involved in the tissue remodeling and tumor signaling that leads to
the progression of cancer. Recent evidence suggests that, in
addition to uPA, its cell surface receptor, uPAR, may also be a
suitable target for cancer therapeutics and diagnostics because
it:
●
is
selectively expressed on metastatic tumor, tumor-associated immune
and angiogenic endothelial cells, but not on most normal cells
(several Phase 1 imaging studies in human advanced cancer patients
show that uPAR can only be detected in the tumor and not in normal
tissues);
●
is
central to several extracellular and intracellular oncogenic
pathways required for metastasis (inhibiting the uPA system in turn
inhibits many other downstream targets that are currently being
targeted by other companies);
●
is
expressed on immune cells that allow the tumor to evade recognition
by the immune system; and
●
has
the potential to interfere at several different signaling pathways
that converge at uPAR.
Thus,
uPAR-targeted therapies may have broad-spectrum activity against
many different cancer types.
We
have developed a set of monoclonal antibodies that target uPA and
uPAR. Our lead antibody, MNPR-101, demonstrated significant
anti-tumor activity in numerous preclinical models of tumor growth
and is being advanced for clinical evaluation. Based on the
selective expression of uPAR in tumor, MNPR-101 is expected to be
well-tolerated and amenable to a variety of combination treatment
approaches.
Efficacy and Safety
MNPR-101
is designed to interrupt several pathways required for tumor growth
and progression. The compound’s mechanism of action is
designed to block several particular cellular activities that are
only turned “on” in a tumor rather than to destroy the
tumor cell directly. For this reason, we believe that MNPR-101 may
have fewer side effects than current cytotoxic agents which kill
cells indiscriminately. In addition, by inhibiting multiple
pathways required for tumor growth and progression, we believe
MNPR-101 may lead to more effective tumor control than therapies
that target only a single such pathway. We believe that most
tumors, regardless of the tissue from which they originate, rely on
the pathways that we are targeting; therefore, therapies directed
at such pathways have the potential to be used against many
different types of cancers.
Drug Resistance
MNPR-101
may also avoid some of the drug resistance problems caused by
genetic instability that plague many conventional chemotherapies.
Cancerous cells mutate and reproduce rapidly, meaning that there is
great genetic heterogeneity among cells in a tumor. A given
chemotherapy may be effective against the vast majority of these
cells, but if even a small number have mutations that confer
resistance, these cells will likely survive the treatment. The
tumor will grow back composed almost entirely of these mutated
cells, making the cancer resistant to further treatments with that
particular chemotherapy. By targeting multiple tumor progression
pathways, using drugs in combination regimens, and targeting more
genetically stable endothelial and immune cells in addition to
tumor cells, we believe that MNPR-101 has the potential to avoid
these drug resistance problems.
Combination Use
Published
preclinical data have shown the ability of MNPR-101 to enhance the
anti-tumor activity of chemotherapies such as paclitaxel and
gemcitabine (Bauer et al., 2005; Kenny et al., 2011). The
expression and targeting of uPAR in general also suggests that
MNPR-101 may combine with other targeted agents that affect
signaling leading to tumor growth including the ability of tumors
to evade immune response. In particular, uPAR is selectively
expressed on cells of the myeloid lineage such as myeloid derived
suppressor cells, neutrophils and macrophages, all of which drive
tumor progression and may mediate resistance to immune checkpoint
inhibitors.
9
Reports
of successful cancer therapy increasingly involve the use of drug
combinations that target multiple metabolic pathways
simultaneously. To that end, oncologists are increasingly exploring
the combined use of approved drugs when treating their patients.
MNPR-101 is not expected to replace existing therapies, but rather
to complement them. MNPR-101 is intended to be combined with
existing therapies used to reduce tumor mass in order to make the
overall treatment more effective in the acute setting. MNPR-101
could make chemotherapy more effective by making tumors more
susceptible to chemotherapy by interrupting the tumors’
protective mechanisms. MNPR-101 could also potentially be used as a
standard follow-up therapy after chemotherapy to prevent tumor
regrowth and metastasis or in combination with immunotherapy
including immune checkpoint inhibitors. Many cancers are not fatal
unless tumors metastasize beyond their primary site and interfere
with normal function in critical organs of the body. Current
thinking suggests that by containing or preventing tumor growth, it
may be possible to transform cancer into a manageable, non-fatal
condition treated with chronic drug therapy. Given these potential
uses, new treatments that target multiple pathways and are designed
to be used in drug combinations, like MNPR-101, have the potential
to significantly improve treatment outcomes, rather than merely
competing with each other in the market.
MNPR-101 Development Strategy
We
currently plan to request a pre-IND meeting with the FDA to discuss
MNPR-101 in the third quarter of 2018. However, there are many risk
factors which could delay or otherwise affect MNPR-101’s
development. See Item 1A – “Risk
Factors.”
Material Agreements
Since
our inception, we have entered into three material agreements, one
with Onxeo S.A., one with Cancer Research UK, and one with XOMA
Ltd. None of the agreements requires any issuance of equity or any
annual maintenance fee. See the summary of each material agreement
below.
In
June 2016, we executed an option agreement with Onxeo S.A., a
French public company, which gave us the option to license Validive
(clonidine mucobuccal tablet), a mucoadhesive tablet of clonidine
based on the Lauriad mucoadhesive technology to potentially treat
severe oral mucositis in patients undergoing treatment for head and
neck cancers. The pre-negotiated license terms included as part of
the option agreement included clinical, regulatory, developmental
and sales milestones that could reach up to $108 million if we
achieve all milestones, and escalating royalties on net sales from
5 - 10%. On September 8, 2017, pursuant to the Onxeo license option
agreement, we exercised the option to license Validive for $1
million. The exercise of the option assigns all of Onxeo’s
rights to the Validive intellectual property to us, which allows us
to commence the planning of our Phase 3 clinical trial in severe
oral mucositis. Under the agreement, we are required to pay
royalties to Onxeo on a product-by-product and country-by-country
basis until the later of (1) the date when a given product is no
longer within the scope of a patent claim in the country of sale or
manufacture, (2) the expiry of any extended exclusivity period in
the relevant country (such as orphan drug exclusivity, pediatric
exclusivity, new chemical entity exclusivity, or other exclusivity
granted beyond the expiry of the relevant patent), or (3) a
specific time period after the first commercial sale of the product
in such country. In most countries, including the U.S., the patent
term is generally 20 years from the earliest claimed filing date of
a non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The
Onxeo license agreement does not have a pre-determined term, but
expires on a product-by-product and country-by-country basis; that
is, the agreement expires with respect to a given product in a
given country whenever our royalty payment obligations with respect
to such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We may also
choose to terminate the agreement, either in its entirety or as to
a certain product and a certain country, by providing Onxeo with
advance notice.
On May 15, 2015, we entered into a Clinical Trial
and Option Agreement (“CTOA”) with Cancer Research UK.
Being a new entity at the time of the agreement negotiations, one
of the requirements under the CTOA, which has already been
fulfilled, was for us to deposit $800,000 into an escrow to cover
indemnities in the event of third party claims resulting from
actions or inactions of ours, patent infringement claims, or
potential costs on termination of the CTOA by Cancer Research UK
for cause. Pursuant to this
agreement Cancer Research UK conducted preclinical work, improved
the manufacturing, and planned to conduct a Phase 1a/1b clinical
trial in cancer patients. Under this agreement, Cancer Research UK
was to cover all costs through Phase 1a/1b clinical studies,
including manufacturing. As part of a portfolio reprioritization
review, on March 21, 2018, Cancer Research UK notified us
it was terminating the agreement and would work to transfer to us
the data generated under the agreement. We are currently
reviewing potential alternative collaboration opportunities for
MNPR-101 and continue to maintain the program’s intellectual
property portfolio.
10
To humanize our MNPR-101 antibody, we have taken a
non-exclusive license to XOMA Ltd.’s humanization technology
and know-how. Under the terms of the license, we are to pay only
upon developmental and sales milestone achievements which could
reach up to $14.925 million if we achieve all milestones.
The agreement does not require the
payment of sales royalties. There can be no assurance that we will reach any
milestones. The first milestone payment is payable upon first
dosing of a human patient in a Phase 2 clinical
trial.
Oncology Market Competition
The
pharmaceutical industry in general, and the oncology therapeutics
sector in particular, are characterized by intense competition. We
face competition from pharmaceutical and biotechnology companies,
many of which are larger and better financed than us. We also face
competition in our efforts to develop and commercialize new
oncology therapeutics from academic and government laboratories.
The therapeutics that we are developing, if successfully
commercialized, will have to compete with existing therapeutics
already on the market and novel therapeutics currently in
development, as well as new therapeutics that may be discovered and
developed in the future. Our product candidates will also have to
compete with alternate treatment modalities, such as radiation,
which is also subject to continual innovation and improvement.
Additional information can be found in the section entitled
“Risk Factors – Risks Related to Our Business
Operations and Industry.”
Intellectual Property Portfolio and Exclusivity
An
important part of our strategy is obtaining patent protection to
help preserve the proprietary nature of our drug product
candidates, and to prevent others from developing competitive
agents that are similar. Our patent portfolio includes issued
patents and pending patent applications in the U.S. and in foreign
countries. Our general practice is to seek patent protection in
major markets worldwide.
We
license all intellectual property related to Validive from Onxeo
S.A., a French public company. See “Material
Agreements”. Validive is covered by 32 issued patents and
allowed patent applications and corresponding patents and
applications in 32 jurisdictions, including the U.S., EU, Japan,
and other Asian countries, and has orphan drug designation in the
EU as well as Fast Track designation from the FDA. These patents
are methods of use patents that cover the use of Validive to
prevent and/or treat inflammation and inflammatory pain of the
mucosa including cancer therapy-induced mucositis, and have been
assigned to us pursuant to our license agreement with Onxeo. These
patents expire in 2029.
MNPR-201
(GPX-150) is covered by both composition of matter as well as
manufacturing process patents. We have a patent for chemical
synthesis technology that efficiently converts cardiotoxic
"13-keto" anthracyclines such as doxorubicin, daunorubicin,
epirubicin, and idarubicin into novel, patentable, and most likely
less-cardiotoxic "5-imino-13-deoxy" analogs. A novel chemical
composition of an intermediate for this synthesis is also patented.
In addition, we have a patent covering the combination of MNPR-201
with paclitaxel for the treatment of cancer, plus covering the
method of use of these two drugs for this purpose. Our MNPR-201
patent portfolio, which is still in the process of completing
transfer of ownership subsequent to the purchase from TacticGem
LLC, contains seven issued and allowed U.S. patents and allowed
patent applications and one U.S. pending patent application. We
have certain corresponding patents and applications in twenty-nine
foreign jurisdictions, including the U.S., EU, Japan, and other
Asian countries. The composition of matter patents will expire in
2018, the process patents for the synthesis of MNPR-201
intermediates will expires in 2024 and the patents covering the
combination use of MNPR-201 and its analogs with taxanes will
expire in 2026. We may pursue patent term extensions where
appropriate. We do not believe that expiration of the MNPR-201
composition of matter patents will significantly affect our ability
to develop or maintain our proprietary position around MNPR-201,
given that we have obtained patent protection around the
intermediates and process used to manufacture MNPR-201, will have
Hatch-Waxman exclusivity (applicable to new chemical entities) for
5 years that will prevent generic competition, and have obtained
U.S. orphan drug status in soft tissue sarcoma with additional
orphan cancer indications to follow. We also have a pending
International Nonproprietary Name (“INN”) request with
the World Health Organization for a non-proprietary (generic) name
for MNPR-201.
Our
patent portfolio for our MNPR-101 antibody (huATN-658), as well as
its epitope, consists of two issued U.S. composition of matter and
their methods of use patents, and allowed patent applications and
corresponding (granted and pending) patents and patent applications
in twenty-two foreign jurisdictions, including the European Union,
Japan, and other Asian countries. These patents are owned by us.
The patents covering the composition of matter of MNPR-101 will
expire in 2025 and the patents covering the MNPR-101 epitope will
expire in 2027. Being a novel biologic, it is eligible for 12 years
of exclusivity in the U.S. under the Biologics Price Competition
and Innovation Act (“BPCI Act”), and in numerous other
countries it will benefit from varying durations of similar
exclusivity, as well.
11
Patent
life determination depends on the date of filing of the application
and other factors as promulgated under the patent laws. In most
countries, including the U.S., the patent term is generally 20
years from the earliest claimed filing date (the priority date) of
a non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. Some of our patents are currently near expiration and we
may pursue patent term extensions for these where appropriate. See
“Risk Factors – Risks Related to Our Intellectual
Property.”
Manufacturing
We
do not currently own or operate manufacturing facilities for the
production or testing of Validive, MNPR-201, MNPR-101 or any other
product candidates, nor do we have plans to develop our own
manufacturing operations in the foreseeable future. We presently
depend on third party contract manufacturers for all our required
raw materials, Active Pharmaceutical Ingredients
(“API”), and finished drug products for our preclinical
and clinical studies. We have not yet executed manufacturing
agreements for our API and supplies of Validive, MNPR-201, or
MNPR-101. See “Risk Factors – Risks Related to Our
Reliance on Third Parties.”
Research and Development Costs
Research
and development (“R&D”) costs including in-process
R&D are expensed as incurred. Major components of R&D
expenses include R&D salaries and benefits, materials and
supplies and fees paid to consultants and to the entities that
conduct certain development activities on our behalf. R&D
expense, including upfront fees and milestones paid to
collaborators, are expensed as goods are received or services
rendered. Costs to acquire technologies, including license fees, to
be used in R&D that have not reached technological feasibility
and have no alternative future use are expensed as in-process
R&D as incurred, except in the case of a business combination
when such costs are capitalized as part of the purchase price
allocation. During the fiscal years ended December 31, 2017 and
2016, in aggregate we spent approximately $15.7 million (which
includes $14.5 million of in-process R&D) on research and
development costs (not including approximately $1.5 million spent
by Gem in development of MNPR-201). See “Risk Factors –
Risks Related to Clinical Development and Regulatory
Approval.”
Government Regulation and Product Approval
Government
authorities in the U.S., at the federal, state and local level, and
other countries extensively regulate, among other things, the
research, development, testing, manufacture, quality control,
approval, labeling, packaging, storage, record-keeping, promotion,
advertising, distribution, post-approval monitoring and reporting,
marketing and export and import of products such as those we are
developing. The pharmaceutical drug product candidates that we
develop must be approved by the FDA before they may be legally
marketed in the U.S. See “Risk Factors – Risks Related
to Clinical Development and Regulatory
Approval.”
U.S. Pharmaceutical Product Development Process
In
the U.S., the FDA regulates pharmaceutical products under the
Federal Food, Drug and Cosmetic Act (“FDCA”) and
implementing regulations. Pharmaceutical products are also subject
to other federal, state and local statutes and regulations. The
process of obtaining regulatory approvals and the subsequent
compliance with appropriate federal, state, local and foreign
statutes and regulations require the expenditure of substantial
time and financial resources. Failure to comply with the applicable
U.S. requirements at any time during the product development
process, approval process or after approval, may subject an
applicant to administrative or judicial enforcement. FDA
enforcement could result in refusal to approve pending
applications, withdrawal of an approval, a clinical hold, warning
letters, product recalls, product seizures, total or partial
suspension of production or distribution injunctions, fines,
refusals of government contracts, restitution, disgorgement or
civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us. The process
required by the FDA before a non-biological pharmaceutical product
may be marketed in the U.S. generally involves the
following:
●
Completion
of preclinical laboratory tests, animal studies and formulation
studies according to Good Laboratory Practices (“GLP”),
or other applicable regulations;
●
Submission
to the FDA of an Investigational New Drug application
(“IND”), which must become effective before human
clinical studies may begin;
●
Performance
of adequate and well-controlled human clinical studies according to
the FDA’s current Good Clinical Practices
(“GCP”), to establish the safety and efficacy of the
proposed pharmaceutical product for its intended use;
12
●
Submission
to the FDA of a New Drug Application (“NDA”), for a new
pharmaceutical product;
●
Satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities where the pharmaceutical product is produced to assess
compliance with the FDA’s current Good Manufacturing Practice
standards (“cGMP:”), to assure that the facilities,
methods and controls are adequate to preserve the pharmaceutical
product’s identity, strength, quality and
purity;
●
Potential
FDA audit of the preclinical and clinical study sites that
generated the data in support of the NDA; and
●
FDA
review and approval of the NDA.
The
lengthy process of seeking required approvals and the continuing
need for compliance with applicable statutes and regulations
require the expenditure of substantial resources and approvals are
inherently uncertain.
Before
testing any compounds with potential therapeutic value in humans,
the pharmaceutical product candidate enters the preclinical testing
stage. Preclinical tests include laboratory evaluations of product
chemistry, toxicity and formulation, as well as animal studies to
assess the potential safety and activity of the pharmaceutical
product candidate. These early proof-of-principle studies are done
using sound scientific procedures and thorough documentation. The
conduct of the single and repeat dose toxicology and toxicokinetic
studies in animals must comply with federal regulations and
requirements including GLP. The sponsor must submit the results of
the preclinical tests, together with manufacturing information,
analytical data, any available clinical data or literature and a
proposed clinical protocol, to the FDA as part of the IND. The IND
automatically becomes effective 30 days after receipt by the FDA,
unless the FDA has concerns and notifies the sponsor. In such a
case, the IND sponsor and the FDA must resolve any outstanding
concerns before the clinical study can begin. If resolution cannot
be reached within the 30-day review period, either the FDA places
the IND on clinical hold or the sponsor withdraws the application.
The FDA may also impose clinical holds on a pharmaceutical product
candidate at any time before or during clinical studies due to
safety concerns or non-compliance. Accordingly, it is not certain
that submission of an IND will result in the FDA allowing clinical
studies to begin, or that, once begun, issues will not arise that
suspend or terminate such clinical studies.
During
the development of a new drug, sponsors are given opportunities to
meet with the FDA at certain points. These points may be prior to
submission of an IND, at the end of Phase 2, and before an NDA is
submitted. Meetings at other times may be requested. These meetings
can provide an opportunity for the sponsor to share information
about the data gathered to date, for the sponsor to ask specific
questions to the FDA, for the FDA to provide advice, and for the
sponsor and FDA to reach agreement on the next phase of
development. Sponsors typically use the end of Phase 2 meeting to
discuss their Phase 2 clinical results and present their plans for
the pivotal Phase 3 clinical (registration) trial(s) that they
believe will support approval of the new drug. A sponsor may be
able to request a Special Protocol Assessment (“SPA”),
the purpose of which is to reach agreement with the FDA on the
design of the Phase 3 clinical trial protocol design and analyses
that will form the primary basis of an efficacy claim.
According
to FDA guidance for industry on the SPA process, a sponsor which
meets the prerequisites may make a specific request for a SPA and
provide information regarding the design and size of the proposed
clinical trial. The FDA’s goal is to evaluate the protocol
within 45 days of the request to assess whether the proposed trial
is adequate, and that evaluation may result in discussions and a
request for additional information. A SPA request must be made
before the proposed trial begins, and all open issues must be
resolved before the trial begins. If a written agreement is
reached, it will be documented and made part of the IND record. The
agreement will be binding on the FDA and may not be changed by the
sponsor or the FDA after the trial begins except with the written
agreement of the sponsor and the FDA or if the FDA determines that
a substantial scientific issue essential to determining the safety
or efficacy of the drug was identified after the testing
began.
Clinical
studies involve the administration of the pharmaceutical product
candidate to healthy volunteers or patients under the supervision
of qualified investigators, generally physicians not employed by or
under the clinical study sponsor’s control. Clinical studies
are conducted under protocols detailing, among other things, the
objectives of the clinical study, dosing procedures, subject
selection and exclusion criteria, how the results will be analyzed
and presented and the parameters to be used to monitor subject
safety. Each protocol must be submitted to the FDA as part of the
IND. Clinical studies must be conducted in accordance with Good
Clinical Practice (“GCP”) guidelines. Further, each
clinical study must be reviewed and approved by an independent
institutional review board (“IRB”), at, or servicing,
each institution at which the clinical study will be conducted. An
IRB is charged with protecting the welfare and rights of study
participants and is tasked with considering such items as whether
the risks to individuals participating in the clinical studies are
minimized and are reasonable in relation to anticipated benefits.
The IRB also approves the informed consent form that must be
provided to each clinical study subject or his or her legal
representative and must monitor the clinical study until
completed.
13
Human
clinical studies are typically conducted in three sequential phases
that may overlap or be combined:
●
Phase
I. The pharmaceutical product is initially introduced into healthy
human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion.
●
Phase
2. The pharmaceutical product is evaluated in a limited patient
population to identify possible adverse effects and safety risks,
to preliminarily evaluate the efficacy of the product for specific
targeted diseases, to determine dosage tolerance, optimal dosage
and dosing schedule and to identify patient populations with
specific characteristics where the pharmaceutical product may be
more effective.
●
Phase
3. Clinical studies are undertaken to further evaluate dosage,
clinical efficacy and safety in an expanded patient population at
geographically dispersed clinical study sites. These clinical
studies are intended to establish the overall risk/benefit ratio of
the product and provide an adequate basis for product labeling. The
studies must be well-controlled and usually include a control arm
for comparison. One or two Phase 3 studies are required by the FDA
for an NDA approval, depending on the disease severity and other
available treatment options.
●
Post-approval
studies, or phase IV clinical studies, may be conducted after
initial marketing approval. These studies are used to gain
additional experience from the treatment of patients in the
intended therapeutic indication.
●
Progress
reports detailing the results of the clinical studies must be
submitted at least annually to the FDA and written IND safety
reports must be submitted to the FDA and the investigators for
serious and unexpected adverse events or any finding from tests in
laboratory animals that suggests a significant risk for human
subjects. Phase I, Phase 2 and Phase 3 clinical studies may not be
completed successfully within any specified period, if at all. The
FDA or the sponsor or its data safety monitoring board may suspend
a clinical study at any time on various grounds, including a
finding that the research subjects or patients are being exposed to
an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical study at its institution if the
clinical study is not being conducted in accordance with the
IRB’s requirements or if the pharmaceutical product has been
associated with unexpected serious harm to patients.
Concurrent
with clinical studies, companies usually complete additional animal
studies and must also develop additional information about the
chemistry and physical characteristics of the pharmaceutical
product as well as finalize a process for manufacturing the product
in commercial quantities in accordance with cGMP requirements. The
manufacturing process must be capable of consistently producing
quality batches of the pharmaceutical product candidate and, among
other things, must develop methods for testing the identity,
strength, quality and purity of the final pharmaceutical product.
Additionally, appropriate packaging must be selected and tested and
stability studies must be conducted to demonstrate that the
pharmaceutical product candidate does not undergo unacceptable
deterioration over its shelf life.
U.S. Review and Approval Processes
The
results of product development, preclinical studies and clinical
studies, along with descriptions of the manufacturing process,
analytical tests conducted on the chemistry of the pharmaceutical
product, proposed labeling and other relevant information are
submitted to the FDA as part of an NDA requesting approval to
market the product. The submission of an NDA is subject to the
payment of substantial user fees; a waiver of such fees may be
obtained under certain limited circumstances.
In
addition, under the Pediatric Research Equity Act
(“PREA”), an NDA or supplement to an NDA must contain
data to assess the safety and effectiveness of the pharmaceutical
product for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective. The FDA may grant deferrals for submission of data or
full or partial waivers. Unless otherwise required by regulation,
PREA does not apply to any pharmaceutical product for an indication
for which orphan designation has been granted.
The
FDA reviews all NDAs submitted before it accepts them for filing
and may request additional information rather than accepting an NDA
for filing. Once the submission is accepted for filing, the FDA
begins an in-depth review of the NDA. Under the goals and policies
agreed to by the FDA under the Prescription Drug User Fee Act
(“PDUFA”), the FDA has 10 months in which to complete
its initial review of a standard NDA and respond to the applicant,
and six months for a priority NDA. The FDA does not always meet its
PDUFA goal dates for standard and priority NDAs. The review process
and the PDUFA goal date may be extended by three months if the FDA
requests or if the NDA sponsor otherwise provides additional
information or clarification regarding information already provided
in the submission within the last three months before the PDUFA
goal date.
14
After
the NDA submission is accepted for filing, the FDA reviews the NDA
application to determine, among other things, whether the proposed
product is safe and effective for its intended use, and whether the
product is being manufactured in accordance with cGMP to assure and
preserve the product’s identity, strength, quality and
purity. The FDA may refer applications for novel pharmaceutical
products or pharmaceutical products which present difficult
questions of safety or efficacy to an advisory committee, typically
a panel that includes clinicians and other experts, for review,
evaluation and a recommendation as to whether the application
should be approved and under what conditions. The FDA is not bound
by the recommendations of an advisory committee, but it considers
such recommendations carefully when making decisions. During the
pharmaceutical product approval process, the FDA also will
determine whether a risk evaluation and mitigation strategy
(“REMS”), is necessary to assure the safe use of the
pharmaceutical product. If the FDA concludes that a REMS is needed,
the sponsor of the NDA must submit a proposed REMS; the FDA will
not approve the NDA without a REMS, if required.
Before
approving an NDA, the FDA will inspect the facilities at which the
product is manufactured. The FDA will not approve the product
unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to
assure consistent production of the product within required
specifications. Additionally, before approving an NDA, the FDA will
typically inspect one or more clinical sites as well as the site
where the pharmaceutical product is manufactured to assure
compliance with GCP and cGMP. If the FDA determines the
application, manufacturing process or manufacturing facilities are
not acceptable, it will outline the deficiencies in the submission
and often will request additional testing or information. In
addition, the FDA will require the review and approval of product
labeling.
The
NDA review and approval process is lengthy and difficult and the
FDA may refuse to approve an NDA if the applicable regulatory
criteria are not satisfied or may require additional clinical data
or other data and information. Even if such data and information
are submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. Data obtained from clinical
studies are not always conclusive and the FDA may interpret data
differently than the sponsor interprets the same data. The FDA will
issue a complete response letter if the agency decides not to
approve the NDA. The complete response letter usually describes all
of the specific deficiencies in the NDA identified by the FDA. The
deficiencies identified may be minor, for example, requiring
labeling changes, or major, for example, requiring additional
clinical studies. Additionally, the complete response letter may
include recommended actions that the applicant might take to place
the application in a condition for approval. If a complete response
letter is issued, the applicant may either resubmit the NDA,
addressing all of the deficiencies identified in the letter, or
withdraw the application.
If
a product receives regulatory approval, the approval may be
significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict
the commercial value of the product. Further, the FDA may require
that certain contraindications, warnings or precautions be included
in the product labeling. In addition, the FDA may require Phase IV
testing which involves clinical studies designed to further assess
pharmaceutical product safety and effectiveness and may require
testing and surveillance programs to monitor the safety of approved
products that have been commercialized.
Expedited Development and Review Programs
The
FDA has a Fast Track program that is intended to expedite or
facilitate the process for reviewing new pharmaceutical products
that meet certain criteria. Specifically, new pharmaceutical
products are eligible for Fast Track designation if they are
intended to treat a serious or life-threatening condition and
demonstrate the potential to address unmet medical needs for the
condition. The Fast Track designation must be requested by the
sponsor. Fast Track designation applies to the combination of the
product and the specific indication for which it is being studied.
With a Fast Track designated product, the FDA may consider for
review sections of the NDA on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for
the submission of the sections of the NDA, if the FDA agrees to
accept sections of the NDA and determines that the schedule is
acceptable and if the sponsor pays any required user fees upon
submission of the first section of the NDA.
Any
product submitted to the FDA for marketing approval, including a
Fast Track program, may also be eligible for other types of FDA
programs intended to expedite development and review, such as
priority review and accelerated approval. Any product is eligible
for priority review if it has the potential to provide safe and
effective therapy where no satisfactory alternative therapy exists
or a significant improvement in the treatment, diagnosis or
prevention of a disease compared to marketed products. The FDA will
attempt to direct additional resources to the evaluation of an
application for a new pharmaceutical product designated for
priority review in an effort to facilitate the review.
Additionally, a product may be eligible for accelerated approval.
Pharmaceutical products studied for their safety and effectiveness
in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may receive
accelerated approval, which means that the products may be approved
on the basis of adequate and well-controlled clinical studies
establishing that the product has an effect on a surrogate endpoint
that is reasonably likely to predict a clinical benefit, or on the
basis of an effect on a clinical endpoint other than survival or
irreversible morbidity. As a condition of approval, the FDA may
require that a sponsor of a pharmaceutical product receiving
accelerated approval perform adequate and well-controlled
post-marketing clinical studies. In addition, the FDA currently
requires as a condition for accelerated approval pre-approval of
promotional materials, which could adversely impact the timing of
the commercial launch of the product. Fast Track designation,
priority review and accelerated approval do not change the
standards for approval but may expedite the development or approval
process.
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Breakthrough Therapy Designation
The
FDA is also required to expedite the development and review of the
application for approval of drugs that are intended to treat a
serious or life-threatening disease or condition where preliminary
clinical evidence indicates that the drug may demonstrate
substantial improvement over existing therapies on one or more
clinically significant endpoints. Under the breakthrough
therapy program, the sponsor of a new drug candidate may request
that the FDA designate the drug candidate for a specific indication
as a breakthrough therapy concurrent with, or after, the filing of
the IND for the drug candidate. The FDA must determine if the
drug candidate qualifies for breakthrough therapy designation
within 60 days of receipt of the sponsor’s request.
Validive and MNPR-101 may both be eligible for breakthrough therapy
designation.
European Union Drug Review and Approval
In
the European Economic Area (“EEA”) (which is comprised
of the 28 Member States of the European Union plus Norway, Iceland
and Liechtenstein), medicinal products can only be commercialized
after obtaining a Marketing Authorization (“MA”). There
are two types of MA:
The
Community MA, which is issued by the European Commission through
the Centralized Procedure, based on the opinion of the CHMP, or
Committee for Medicinal Products for Human Use, of the European
Medicines Agency (“EMA”), is valid throughout the
entire territory of the EEA. The Centralized Procedure is mandatory
for certain types of products, such as biotechnology medicinal
products, orphan medicinal products, and medicinal products
containing a new active substance indicated for the treatment of
AIDS, cancer, neurodegenerative disorders, diabetes and auto-immune
and viral diseases. The Centralized Procedure is optional for
products containing a new active substance not yet authorized in
the EEA, or for products that constitute a significant therapeutic,
scientific or technical innovation or which are in the interest of
public health in the EU.
National
MAs, which are issued by the competent authorities of the Member
States of the EEA and only cover their respective territory, are
available for products not falling within the mandatory scope of
the Centralized Procedure. Where a product has already been
authorized for marketing in a Member State of the EEA, this
National MA can be recognized in other Member States through the
Mutual Recognition Procedure. If the product has not received a
National MA in any Member State at the time of application, it can
be approved simultaneously in various Member States through the
Decentralized Procedure. Under the above described procedures,
before granting the MA, the EMA or the competent authorities of the
Member States of the EEA make an assessment of the risk-benefit
balance of the product on the basis of scientific criteria
concerning its quality, safety and efficacy.
PRIME Designation
The
EMA launched its PRIME regulatory initiative to enhance support for
the development of therapies that target an unmet medical need. The
initiative focuses on drugs that may offer a major therapeutic
advantage over existing treatments, or benefit patients with no
treatment options. These therapies are considered priority
medicines within the EU. Through PRIME, the EMA offers early,
proactive and enhanced support to drug developers to optimize the
generation of robust data on a therapy’s benefits and risks
and enable accelerated assessment of drug applications. MNPR-101
may be eligible for PRIME designation.
Post-Approval Requirements
Any
pharmaceutical products for which a sponsor receives FDA approvals
are subject to continuing regulation by the FDA, including, among
other things, record-keeping requirements, reporting of adverse
experiences with the product, providing the FDA with updated safety
and efficacy information, product sampling and distribution
requirements, complying with certain electronic records and
signature requirements and complying with FDA and FTC promotion and
advertising requirements, which include, among others, standards
for direct-to-consumer advertising, prohibitions on promoting
pharmaceutical products for uses or in patient populations that are
not described in the pharmaceutical product’s approved
labeling (known as “off-label use”), industry-sponsored
scientific and educational activities and promotional activities
involving the internet. Failure to comply with FDA requirements can
have negative consequences, including adverse publicity,
enforcement letters from the FDA, actions by the U.S. Department of
Justice and/or U.S. Department of Health and Human Services Office
of Inspector General, mandated corrective advertising or
communications with doctors, and civil or criminal penalties.
Although physicians may prescribe legally available pharmaceutical
products for off-label uses, manufacturers may not directly or
indirectly market or promote such off-label uses.
16
Manufacturers
of FDA approved products are required to comply with applicable FDA
manufacturing requirements contained in the FDA’s cGMP
regulations. cGMP regulations require, among other things, quality
control and quality assurance, as well as the corresponding
maintenance of records and documentation. Pharmaceutical product
manufacturers and other entities involved in the manufacture and
distribution of approved pharmaceutical products are required to
register their establishments with the FDA and certain state
agencies, and are subject to periodic unannounced inspections by
the FDA and certain state agencies for compliance with cGMP and
other laws. Accordingly, manufacturers must continue to expend
time, money and effort in the area of production and quality
control to maintain cGMP compliance. Discovery of problems with a
product after approval may result in restrictions on a product,
manufacturer or holder of an approved NDA, including withdrawal of
the product from the market. In addition, changes to the
manufacturing process generally require prior FDA approval before
being implemented and other types of changes to the approved
product, such as adding new indications and additional labeling
claims, are also subject to further FDA review and approval. The
FDA also may require post-marketing testing, known as Phase IV
testing, risk minimization action plans and surveillance to monitor
the effects of an approved product or place conditions on an
approval that could restrict the distribution or use of the
product.
U.S. Foreign Corrupt Practices Act
The
U.S. Foreign Corrupt Practices Act (“FCPA”), prohibits
certain individuals and entities from promising, paying, offering
to pay, or authorizing the payment of anything of value to any
foreign government official, directly or indirectly, to obtain or
retain business or an improper advantage. The U.S. Department of
Justice and the SEC have increased their enforcement efforts with
respect to the FCPA. Violations of the FCPA may result in large
civil and criminal penalties and could result in an adverse effect
on a company’s reputation, operations, and financial
condition. A company may also face collateral consequences such as
debarment and the loss of export privileges.
Federal and State Pharmaceutical Legislation
In
addition to FDA restrictions on marketing of pharmaceutical
products, several other types of state and federal laws have been
applied to restrict certain business practices in the
biopharmaceutical industry.
Anti-Kickback Statute of 1972
The
federal Anti-Kickback Statute prohibits, among other things,
knowingly and willfully offering, paying, soliciting, or receiving
remuneration to induce or in return for purchasing, leasing,
ordering, or arranging for the purchase, lease, or order of any
healthcare item or service reimbursable under Medicare, Medicaid,
or other federally financed healthcare programs. The term
“remuneration” has been broadly interpreted to include
anything of value, including for example, gifts, discounts, the
furnishing of supplies or equipment, credit arrangements, payments
of cash, waivers of payment, ownership interests and providing
anything at less than its fair market value. The Anti-Kickback
Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers,
purchasers, and formulary managers on the other. Although there are
a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the
exemptions and safe harbors are drawn narrowly, and a
company’s practices may not in all cases meet all of the
criteria for statutory exemptions or safe harbor protection.
Practices that involve remuneration that may be alleged to be
intended to induce prescribing, purchases, or recommendations may
be subject to scrutiny if they do not qualify for an exemption or
safe harbor. Several courts have interpreted the statute’s
intent requirement to mean that if any one purpose of an
arrangement involving remuneration is to induce referrals of
federal healthcare covered business, the statute has been violated.
The reach of the Anti-Kickback Statute was also broadened by the
PPACA, which, among other things, amends the intent requirement of
the federal Anti-Kickback Statute. Pursuant to the statutory
amendment, a person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it in order
to have committed a violation. In addition, the PPACA provides that
the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the civil
False Claims Act (discussed below) or the civil monetary penalties
statute, which imposes penalties against any person who is
determined to have presented or caused to be presented a claim to a
federal health program that the person knows or should know is for
an item or service that was not provided as claimed or is false or
fraudulent.
False Claims Act of 1986
The
federal False Claims Act prohibits any person from knowingly
presenting, or causing to be presented, a false claim for payment
to the federal government. Recently, several pharmaceutical and
other healthcare companies have been prosecuted under these laws
for allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the
product. Other companies have been prosecuted for causing false
claims to be submitted because of the companies’ marketing of
the product for unapproved, and thus non-reimbursable, uses. Many
states also have statutes or regulations similar to the federal
Anti-Kickback Statute and False Claims Act, which state laws apply
to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the
payer.
17
Health Insurance Portability and Accountability Act of 1996
(“HIPPA”)
The
federal Health Insurance Portability and Accountability Act of 1996
(“HIPAA”), created new federal criminal statutes that
prohibit knowingly and willfully executing a scheme to defraud any
healthcare benefit program, including private third-party payers
and knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false, fictitious or
fraudulent statement in connection with the delivery of or payment
for healthcare benefits, items or services. Because of the breadth
of these laws and the narrowness of the federal Anti-Kickback
Statute’s safe harbors, it is possible that some of a
company’s business activities could be subject to challenge
under one or more of such laws. Such a challenge could have a
material adverse effect on a company’s business, financial
condition and results of operations. See “Risk Factors -
Risks Related to Commercialization of Our Product
Candidates.”
Health Information Technology for Economic and Clinical Health Act
of 2009 (“HITECH”)
HIPAA,
as amended by the Health Information Technology and Clinical Health
Act (“HITECH”), and its implementing regulations,
imposes certain requirements relating to the privacy, security and
transmission of individually identifiable health information. Among
other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to “business
associates”—independent contractors or agents of
covered entities that receive or obtain protected health
information in connection with providing a service on behalf of a
covered entity. HITECH also increased the civil and criminal
penalties that may be imposed against covered entities, business
associates and possibly other persons, and gave state attorneys
general new authority to file civil actions for damages or
injunctions in federal courts to enforce the federal HIPAA laws and
seek attorney’s fees and costs associated with pursuing
federal civil actions. In addition, state laws govern the privacy
and security of health information in certain circumstances, many
of which differ from each other in significant ways and may not
have the same effect, thus complicating compliance efforts. See
“Risk Factors - Risks Related to Commercialization of Our
Product Candidates.”
The Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (“MMA”)
In
the U.S. and foreign jurisdictions, there have been a number of
legislative and regulatory changes to the healthcare system, in
particular, there have been and continue to be a number of
initiatives at the U.S. federal and state levels that seek to
reduce healthcare costs. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (“MMA”),
imposed new requirements for the distribution and pricing of
prescription drugs for Medicare beneficiaries. Under Part D,
Medicare beneficiaries may enroll in prescription drug plans
offered by private entities, which will provide coverage of
outpatient prescription drugs. Part D plans include both
stand-alone prescription drug benefit plans and prescription drug
coverage as a supplement to Medicare Advantage plans. Unlike
Medicare Part A and B, Part D coverage is not standardized. Part D
prescription drug plan sponsors are not required to pay for all
covered Part D drugs, and each drug plan can develop its own drug
formulary that identifies which drugs it will cover and at what
tier or level. However, Part D prescription drug formularies must
include drugs within each therapeutic category and class of covered
Part D drugs, though not necessarily all the drugs in each category
or class. Any formulary used by a Part D prescription drug plan
must be developed and reviewed by a pharmacy and therapeutic
committee. Moreover, while the MMA applies only to drug benefits
for Medicare beneficiaries, private payers often follow Medicare
coverage policy and payment limitations in setting their own
payment rates. Any reduction in payment that results from Medicare
Part D may result in a similar reduction in payments from
non-governmental payers.
The American Recovery and Reinvestment Act of 2009
The
American Recovery and Reinvestment Act of 2009 provides funding for
the federal government to compare the effectiveness of different
treatments for the same illness. A plan for the research will be
developed by the Department of Health and Human Services, the
Agency for Healthcare Research and Quality and the National
Institutes for Health, and periodic reports on the status of the
research and related expenditures will be made to Congress.
Although the results of the comparative effectiveness studies are
not intended to mandate coverage policies for public or private
payers, it is not clear what effect, if any, the research will have
on the sales of any product, if any such product or the condition
that it is intended to treat is the subject of a
study.
Physician Payments Sunshine Act of 2010
The
federal Physician Payments Sunshine Act requires certain
manufacturers of drugs, devices, biologics and medical supplies for
which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program, with specific
exceptions, to report annually to the Centers for Medicare &
Medicaid Services (“CMS”) information related to
payments or other transfers of value made to physicians and
teaching hospitals, and applicable manufacturers and applicable
group purchasing organizations to report annually to CMS ownership
and investment interests held by the physicians and their immediate
family members.
18
Patent Protection and Affordable Care Act of 2010
In
March 2010, the PPACA was enacted, which includes measures to
significantly change the way healthcare is financed by both
governmental and private insurers. Among the provisions of the
PPACA of importance to the pharmaceutical and biotechnology
industry are the following:
●
an
annual, nondeductible fee on any entity that manufactures or
imports certain branded prescription drugs and biologic agents,
apportioned among these entities according to their market share in
certain government healthcare programs, that began in
2011;
●
an
increase in the rebates a manufacturer must pay under the Medicaid
Drug Rebate Program to 23.1% and 13% of the average manufacturer
price for branded and generic drugs, respectively;
●
a
new Medicare Part D coverage gap discount program, in which
manufacturers must agree to offer 50% point-of-sale discounts to
negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under
Medicare Part D;
●
extension
of manufacturers’ Medicaid rebate liability to covered drugs
dispensed to individuals who are enrolled in Medicaid managed care
organizations;
●
expansion
of eligibility criteria for Medicaid programs by, among other
things, allowing states to offer Medicaid coverage to additional
individuals and by adding new mandatory eligibility categories for
certain individuals with income at or below 133% of the Federal
Poverty Level beginning in 2014, thereby potentially increasing
manufacturers’ Medicaid rebate liability;
●
expansion
of the entities eligible for discounts under the Public Health
Service pharmaceutical pricing program
●
new
requirements under the federal Open Payments program, created under
Section 6002 of the PPACA and its implementing regulations, that
manufacturers of drugs, devices, biologics and medical supplies for
which payment is available under Medicare, Medicaid or the
Children’s Health Insurance Program (with certain exceptions)
report annually to the U.S. Department of Health and Human Services
(“HHS”), information related to “payments or
other transfers of value” made or distributed to physicians
(defined to include doctors, dentists, optometrists, podiatrists
and chiropractors) and teaching hospitals, and that applicable
manufacturers and applicable group purchasing organizations report
annually to HHS ownership and investment interests held by
physicians (as defined above) and their immediate family members,
with data collection required beginning August 1, 2013 and
reporting to the Centers for Medicare & Medicaid Services
(“CMS”), required by March 31, 2014 and by the 90th day
of each subsequent calendar year;
●
a
requirement to annually report drug samples that manufacturers and
distributors provide to physicians, effective April 1,
2012;
●
expansion
of health care fraud and abuse laws, including the False Claims Act
and the Anti-Kickback Statute, new government investigative powers,
and enhanced penalties for noncompliance;
●
a
licensure framework for follow-on biologic products;
●
a
new Patient-Centered Outcomes Research Institute to oversee,
identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such
research;
●
creation
of the Independent Payment Advisory Board which, beginning in 2014,
will have authority to recommend certain changes to the Medicare
program that could result in reduced payments for prescription
drugs and those recommendations could have the effect of law even
if Congress does not act on the recommendations; and
●
establishment
of a Center for Medicare Innovation at CMS to test innovative
payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending that
began on January 1, 2011.
Budget Control Act of 2011
In
August 2011, the President signed into law the Budget Control Act
of 2011, which, among other things, created the Joint Select
Committee on Deficit Reduction, or joint committee, to recommend
proposals in spending reductions to Congress. The joint committee
did not achieve its targeted deficit reduction of at least $1.2
trillion and for the years 2013 through 2021, triggering automatic
reductions to several government programs. These reductions include
aggregate reductions to Medicare payments to providers of up to 2%
per fiscal year, starting in 2013.
19
American Taxpayer Relief Act of 2012
In
January 2013, the President signed into law the American Taxpayer
Relief Act of 2012, which, among other things, reduced Medicare
payments to several providers and increased the statute of
limitations period for the government to recover overpayments to
providers from three to five years. These new laws may result in
additional reductions in Medicare and other healthcare
funding.
Proposals in Congress to repeal or replace parts of the
PPACA
There
have been a number of proposals in the U.S. Congress to repeal or
replace parts of the PPACA. Some of the proposals include the
repeal of the tax on prescription medications, repeal of the
medical device excise tax for sales, and repeal of the elimination
of a deduction for expenses allocable to Medicare Part D subsidy.
It is uncertain whether any repeal or replace legislation will be
passed and signed into law or what effect any such legislation may
have on our commercialization strategy. See “Risk Factors -
Future Legislation, Executive or Private Sector Action May Increase
the Difficulty and Cost for us to Commercialize our Products and
Affect the Prices Obtained for Such Products.”
Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of the FDA approval of the
use of our pharmaceutical product candidates, some of our products
to be licensed under U.S. patents may be eligible for limited
patent term extension under the Drug Price Competition and Patent
Term Restoration Act of 1984, commonly referred to as the
Hatch-Waxman Amendments. The Hatch-Waxman Amendments permits a
patent restoration term of up to five years as compensation for
patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the
remaining term of a patent beyond a total of 14 years from the
product’s approval date. The patent term restoration period
is generally one-half the time between the effective date of an IND
and the submission date of an NDA plus the time between the
submission date of an NDA and the approval of that application.
Only one patent applicable to an approved pharmaceutical product is
eligible for the extension and the application for the extension
must be submitted prior to the expiration of the patent. The U.S.
Patent and Trademark Office (“USPTO”), in consultation
with the FDA, reviews and approves the application for any patent
term extension or restoration.
Market
exclusivity provisions under the U.S. Food, Drug, and Cosmetic Act
can also delay the submission or the approval of certain
applications of other companies seeking to reference another
company’s NDA.
The Biologics Price Competition and Innovation Act (“BPCI
Act”)
The
Biologics Price Competition and Innovation Act, (“BPCI
Act”), authorizes the FDA to license a biological product
that is biosimilar to an FDA-licensed biologic through an
abbreviated pathway. The BPCI Act establishes criteria for
determining that a product is biosimilar to an already-licensed
biologic, or reference product, and establishes a process by which
an abbreviated BLA for a biosimilar product is submitted, reviewed
and approved. The BPCI Act provides periods of exclusivity that
protect a reference product from biosimilars competition. Under the
BPCI Act, the FDA may not accept a biosimilar application for
review until four years after the date of first licensure of the
reference product, and the biosimilar may not be licensed until at
least 12 years after the reference product’s approval.
Additionally, the BPCI Act establishes procedures by which the
biosimilar applicant provides information about its application and
product to the reference product sponsor, and by which information
about potentially relevant patents may be shared and litigation
over patents may proceed in advance of approval. The BPCI Act also
provides a period of exclusivity for the first biosimilar
determined by the FDA to be interchangeable with the reference
product.
We
anticipate that the contours of the BPCI Act will continue to be
defined as the statute is implemented over a period of years. This
likely will be accomplished by a variety of means, including
decisions related to the statute by the relevant federal courts,
FDA issuance of guidance documents, and FDA decisions in the course
of considering specific applications. The FDA has to date issued
various guidance documents and other materials indicating the
agency’s thinking regarding a number of issues implicated by
the BPCI Act. Additionally, the FDA’s approval of several
biosimilar applications in recent years has helped define the
agency’s approach to certain issues.
20
Pharmaceutical Coverage, Pricing and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of
any pharmaceutical product candidates for which we obtain
regulatory approval. In the U.S. and markets in other countries,
sales of any products for which we receive regulatory approval for
commercial sale will depend in part upon the availability of
reimbursement from third-party payers. Third-party payers include
government payers such as Medicare and Medicaid, managed care
providers, private health insurers and other organizations. The
process for determining whether a payer will provide coverage for a
pharmaceutical product may be separate from the process for setting
the price or reimbursement rate that the payer will pay for the
pharmaceutical product. Third-party payers may limit coverage to
specific pharmaceutical products on an approved list, or formulary,
which might not include all of the FDA-approved pharmaceutical
products for a particular indication. Third-party payers are
increasingly challenging the price and examining the medical
necessity and cost-effectiveness of medical products and services,
in addition to their safety and efficacy. We may need to conduct
expensive pharmaco-economic studies in order to demonstrate the
medical necessity and cost-effectiveness of its products, in
addition to the costs required to obtain the FDA approvals. A
payer’s decision to provide coverage for a pharmaceutical
product does not imply that an adequate reimbursement rate will be
approved.
In
2003, the federal government enacted legislation providing a
partial prescription drug benefit for Medicare recipients, which
became effective at the beginning of 2006. However, to obtain
payments under this program, a company would be required to sell
products to Medicare recipients through prescription drug plans
operating pursuant to this legislation. As part of their
participation in the Medicare prescription drug program, these
plans negotiate discounted prices for prescription drugs. Federal,
state and local governments in the U.S. continue to consider
legislation to limit the growth of health care costs, including the
cost of prescription drugs. Future legislation and regulations
could limit payments for pharmaceuticals such as the drug product
candidates that we are developing.
Different
pricing and reimbursement schemes exist in other countries. In the
European Community, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a large
part of the cost of those products to consumers. Some jurisdictions
operate positive and negative list systems under which products may
only be marketed once a reimbursement price has been agreed upon.
To obtain reimbursement or pricing approval, some of these
countries may require the completion of clinical studies that
compare the cost-effectiveness of a particular pharmaceutical
product candidate to currently available therapies. Other member
states allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs, has
become very intense. As a result, increasingly high barriers are
being erected to the entry of new products. In addition, in some
countries, cross-border imports from low-priced markets exert a
commercial pressure on pricing within a country.
International Regulation
In
addition to regulations in the U.S., there are a variety of foreign
regulations governing clinical studies and commercial sales and
distribution of our future product candidates. Whether or not FDA
approval is obtained for a product, approval of a product must be
obtained by the comparable regulatory authorities of foreign
countries before clinical studies or marketing of the product can
commence in those countries. The approval process varies from
country to country, and the time may be longer or shorter than that
required for FDA approval. The requirements governing the conduct
of clinical studies, product licensing, pricing and reimbursement
vary greatly from country to country. In addition, certain
regulatory authorities in select countries may require us to repeat
previously conducted preclinical and/or clinical studies under
specific criteria for approval in their respective country which
may delay and/or greatly increase the cost of approval in certain
markets targeted for approval by us.
Under
E.U. regulatory systems, marketing applications for pharmaceutical
products must be submitted under a centralized procedure to the
EMA. The centralized procedure provides for the grant of a single
marketing authorization that is valid for all E.U. member states.
The EMA also has designations for Orphan Drugs, which, if
applicable, can provide for faster review, lower fees and more
access to advice during drug development. While the marketing
authorization in the European Union is centralized, the system for
clinical studies (application, review and requirements) is handled
by each individual country. Approval to run a clinical study in one
country does not guarantee approval in any other country. The
pharmaceutical industry in Canada is regulated by Health Canada. A
New Drug Submission (“NDS”) is the equivalent of a U.S.
NDA and must be filed to obtain approval to market a pharmaceutical
product in Canada. Marketing regulations and reimbursement are
subject to national and provincial laws. In Japan, applications for
approval to manufacture and market new drugs must be approved by
the Ministry of Health, Labor and Welfare. Nonclinical and clinical
studies must meet the requirements of Japanese laws. Results from
clinical studies conducted outside of Japan must be supplemented
with at least a bridging clinical study conducted in Japanese
patients.
21
In
addition to regulations in Europe, Canada, Japan and the U.S.,
there are a variety of foreign regulations governing clinical
studies, commercial distribution and reimbursement of future
product candidates which we may be subject to as we pursue
regulatory approval and commercialization of Validive, MNPR-201,
MNPR-101, or any future product candidates
internationally.
Compliance with Environmental Laws
Since we do not
have our own laboratory facilities, we do not estimate any annual
costs of compliance with environmental laws.
Employees
Our
operations are currently overseen by five individuals, of which
three have a PhD, two have an MD, one has an MBA, one has an MSc in
health economics and policy, and one has an inactive CPA. They have
worked at industry leading companies such as BioMarin
Pharmaceutical Inc., Raptor Pharmaceuticals, Abbott Laboratories,
and Onyx Pharmaceuticals. As of March 1, 2018, we have five
employees; four of them are full-time employees. For information
regarding our executive officers, see the section entitled
“Executive Officers and Board Members.”
Available Information
Our
Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and amendments to those reports filed
or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act
may be accessed through the SEC’s website at www.sec.gov and on our website
at www.monopartx.com free of
charge. Such filings are placed on our website as soon as
reasonably practicable after they are filed with the SEC. Our Code
of Business Conduct and Ethics and our Audit Committee Charter are
also posted on the Investor Highlight page on our
website.
Item 1A. Risk Factors
RISK FACTORS
An
investment in our common stock involves a high degree of risk. A
prospective investor should carefully consider the following
information about these risks, together with other information
appearing elsewhere in this Annual Report on Form 10-K, before
deciding to invest in our common stock. The occurrence of any of
the following risks could have a material adverse effect on our
business, financial condition, results of operations and future
prospects and prospective investors could lose all or part of their
investment. The risk factors discussed below and elsewhere in this
Annual Report on Form 10-K are not exhaustive; other significant
risks may exist that are not identified in this Annual Report on
Form 10-K, but that might still materially and adversely affect our
business, prospects, financial condition, and results of operations
were any of such risks to occur.
Risks Related to Our Financial Condition and Capital
Requirements
We have a limited operating history, expect to incur significant
operating losses, and have a high risk of never being
profitable.
We
commenced operations in December 2014 and have a limited operating
history of almost three years. Therefore, there is limited
historical financial or operational information upon which to
evaluate our performance. Our prospects must be considered in light
of the uncertainties, risks, expenses, and difficulties frequently
encountered by companies in their early stages of operations. Most
companies in our industry at our stage of development never become
profitable, and are acquired or go out of business without
successfully developing any product that generates revenue from
commercial sales.
From
inception in December 2014 through December 31, 2017, we have
incurred losses of approximately $18.4 million. We expect to
continue to incur substantial operating losses over the next
several years for the clinical development of our current and
future licensed or purchased drug product candidates.
The
amount of future losses and when, if ever, we will become
profitable are uncertain. We do not have any products that have
generated any revenues from commercial sales, and do not expect to
generate revenues from the commercial sale of products in the near
future, if ever. Our ability to generate revenue and achieve
profitability will depend on, among other things, successful
completion of the development of our product candidates; obtaining
necessary regulatory approvals from the FDA and international
regulatory agencies; establishing manufacturing, sales, and
marketing arrangements with third parties; obtaining adequate
reimbursement by third party payers; and raising sufficient funds
to finance our activities. If we are unsuccessful at some or all of
these undertakings, our business, financial condition, and results
of operations are expected to be materially and adversely
affected.
22
As
a new public reporting company, we are subject to SEC reporting and
other requirements, which will lead to increased operating costs in
order to meet these requirements.
If we continue to incur operating losses and fail to obtain the
capital necessary to fund our operations, we will be unable to
advance our development programs, complete our clinical trials, or
bring products to market, or may be forced to cease operations
entirely. In addition, any capital obtained by us may be obtained
on terms that are unfavorable to us, our investors, or
both.
Developing
a new drug and conducting clinical trials for one or more disease
indications involves substantial costs. We have projected cash
requirements for the near term based on a variety of assumptions,
but some or all of such assumptions are likely to be incorrect
and/or incomplete, possibly materially in an adverse direction. Our
actual cash needs may deviate materially from those projections,
changes in market conditions or other factors may increase our cash
requirements, or we may not be successful even in raising the
amount of cash we currently project will be required for the near
term. See discussion of our material development agreements in
“Material Agreements”. We will need to raise additional
capital in the future; the amount of additional capital needed will
vary as a result of a number of factors, including without
limitation the following:
●
receiving
less funding than we require;
●
higher
than expected costs to manufacture our active pharmaceutical
ingredient and our drug product candidates;
●
higher
than expected costs for preclinical testing;
●
an
increase in the number, size, duration, or complexity of our
clinical trials;
●
slower
than expected progress in developing Validive, MNPR-201, MNPR-101,
or other drug product candidates, including without limitation,
additional costs caused by program delays;
●
higher
than expected costs associated with attempting to obtain regulatory
approvals, including without limitation additional costs caused by
additional regulatory requirements or larger clinical trial
requirements;
●
higher
than expected personnel or other costs, such as adding personnel or
pursuing the licensing/acquisition of additional assets;
and
●
higher
than expected costs to protect our intellectual property portfolio
or otherwise pursue our intellectual property
strategy.
If
we attempt to raise additional financing, there can be no assurance
that we will be able to secure such additional financing in
sufficient quantities or at all. We may be unable to raise
additional capital for reasons including without limitation our
financial performance, investor confidence in us and the
biopharmaceutical industry, credit availability from banks and
other financial institutions, the status of current projects, and
our prospects for obtaining any necessary regulatory approvals.
Potential investors’ capital investments may be shifted to
other opportunities with perceived greater returns and/or lower
risk thereby reducing capital available to us, if at
all.
In
addition, any additional financing might not be available and even
if available, may not be available on terms favorable to us or our
then-existing investors. We may seek to raise funds through public
or private equity offerings, debt financings, corporate
collaboration or licensing arrangements, mergers, acquisitions,
sales of intellectual property, or other financing vehicles or
arrangements. To the extent that we raise additional capital by
issuing equity securities or other securities, our then-existing
investors may experience significant dilution. If we raise funds
through debt financings or bank loans, we may become subject to
restrictive covenants, our assets may be pledged as collateral for
the debt, and the interests of our then-existing investors would be
subordinated to the debt holders or banks. In addition, our use of
and ability to exploit assets pledged as collateral for debt or
loans may be restricted or forfeited. To the extent that we raise
additional funds through collaboration or licensing arrangements,
we may be required to relinquish significant rights (including
without limitation intellectual property rights) to our
technologies or product candidates, or grant licenses on terms that
are not favorable to us. If we are not able to raise needed funding
under acceptable terms or at all, then we will have to reduce
expenses, including the possible options of curtailing operations,
abandoning opportunities, selling off assets, reducing costs, or
ceasing operations entirely.
23
Risks Related to Clinical Development and Regulatory
Approval
We do not have and may never have any approved products on the
market. Our business is highly dependent upon receiving approvals
from various U.S. and international governmental agencies and will
be severely harmed if we are not granted approval to manufacture
and sell our drug product candidates.
In
order for us to commercialize any treatment for a cancer indication
or for any other clinical indication, we must obtain regulatory
approvals of such treatment for that indication. Satisfying
regulatory requirements is an expensive process that typically
takes many years and involves compliance with requirements covering
research and development, testing, manufacturing, quality control,
labeling, and promotion of drugs for human use. To obtain necessary
regulatory approvals, we must, among other requirements, complete
clinical trials demonstrating that our products are safe and
effective for a particular indication. There can be no assurance
that our products are safe and effective, that our clinical trials
will demonstrate the necessary safety and effectiveness of our drug
product candidates, or that we will succeed in obtaining regulatory
approval for any treatment we develop even if such safety and
effectiveness are demonstrated.
Any
delays or difficulties we encounter in our clinical trials may
delay or preclude regulatory approval from the FDA or from
international regulatory organizations. Any delay or preclusion of
regulatory approval would be expected to delay or preclude the
commercialization of our products. Examples of delays or
difficulties that we may encounter in our clinical trials include
without limitation the following:
●
Clinical
trials may not yield sufficiently conclusive results for regulatory
agencies to approve the use of our products.
●
Our
products may fail to be more effective than current therapies, or
to be effective at all.
●
We
may discover that our products have adverse side effects, which
could cause our products to be delayed or precluded from receiving
regulatory approval or otherwise expose us to significant
commercial and legal risks.
●
It
may take longer than expected to determine whether or not a
treatment is effective.
●
Patients
involved in our clinical trials may suffer severe adverse side
effects even up to death, whether as a result of treatment with our
products, the withholding of such treatment, or other reasons
(whether within or outside of our control).
●
We
may fail to enroll a sufficient number of patients in our clinical
trials.
●
Patients
enrolled in our clinical trials may not have the characteristics
necessary to obtain regulatory approval for a particular
indication.
●
We
may be unable to produce sufficient quantities of product to
complete the clinical trials.
●
Even
if we are successful in our clinical trials, any required
governmental approvals may still not be obtained or, if obtained,
may not be maintained.
●
If
approval for commercialization is granted, it is possible the
authorized use will be more limited than is necessary for
commercial success, or that approval may be conditioned on
completion of further clinical trials or other activities, which
will cause a substantial increase in costs and which we might not
succeed in performing or completing.
●
If
granted, approval may be withdrawn or limited if problems with our
products emerge or are suggested by the data arising from their use
or if there is a change in law or regulation.
Any
success we may achieve at a given stage of our clinical trials does
not guarantee that we will achieve success at any subsequent stage,
including without limitation final FDA approval.
We
may encounter delays or rejections in the regulatory approval
process because of additional government regulation resulting from
future legislation or administrative action, or from changes in the
policies of the FDA or other regulatory bodies during the period of
product development, clinical trials, or regulatory review. Failure
to comply with applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of
products, total or partial suspension of production, or an
injunction preventing certain activity, as well as other regulatory
action against our product candidates or us. As a company, we have
no experience in successfully obtaining regulatory approval for a
drug and thus may be poorly equipped to gauge, and may prove unable
to manage risks relating to obtaining such approval.
Outside
the U.S., our ability to market a product is contingent upon
receiving clearances from appropriate non-U.S. regulatory
authorities. Non-U.S. regulatory approval typically includes all of
the risks associated with FDA clearance discussed above as well as
the additional uncertainties and potential prejudices faced by U.S.
companies conducting business abroad. In certain cases, pricing
restrictions and practices can make achieving even limited
profitability very difficult.
24
If we or our licensees, development collaborators, or suppliers are
unable to manufacture our products in sufficient quantities or at
defined quality specifications, or are unable to obtain regulatory
approvals for the manufacturing facility, we may be unable to
develop and/or meet demand for our products and lose time to market
and potential revenues.
Completion
of our clinical trials and commercialization of our product
candidates require access to, or development of, facilities to
manufacture a sufficient supply of our product candidates. We
currently contract with outside sources to manufacture MNPR-101. In
order to be able to manufacture sufficient quantities of MNPR-101
to be able to proceed with human clinical trials, Cancer Research
UK developed a new cell line under our CTOA. We received
notification of termination of CRUK’s work on MNPR-101 under
the CTOA on March 21, 2018. There can be no assurance that this new
cell line will be successful or that sufficient quantities of
MNPR-101 will be able to be manufactured. Since Cancer Research UK
has decided to terminate its involvement with MNPR-101, we will
need to make other arrangements for the clinical testing,
development and manufacture of our drug product candidate. There
can be no assurance that such alternative arrangements can be made
or on terms favorable to us. We in the future may become unable,
for various reasons, to rely on our sources for the manufacture of
our product candidates, either for clinical trials or, at some
future date, for commercial distribution. We may not be successful
in identifying additional or replacement third-party manufacturers,
or in negotiating acceptable terms with any we do identify. We may
face competition for access to these manufacturers’
facilities and may be subject to manufacturing delays if the
manufacturers give other clients higher priority than they give to
us. Even if we are able to identify an additional or replacement
third-party manufacturer, the delays and costs associated with
establishing and maintaining a relationship with such manufacturer
may have a material adverse effect on us.
Before
we can begin to commercially manufacture Validive, MNPR-201,
MNPR-101, or any other product candidate, we must obtain regulatory
approval of the manufacturing facility and process. Manufacturing
of drugs for clinical and commercial purposes must comply with the
FDA's current Good Manufacturing Practices requirements, commonly
known as “cGMP”, and applicable non-U.S. regulatory
requirements. The cGMP requirements govern quality control and
documentation policies and procedures. Complying with cGMP and
non-U.S. regulatory requirements will require that we expend time,
money, and effort in production, recordkeeping, and quality control
to ensure that the product meets applicable specifications and
other requirements. We, or our contracted manufacturing facility,
must also pass a pre-approval inspection prior to FDA approval.
Failure to pass a pre-approval inspection may significantly delay
or prevent FDA approval of our products. If we fail to comply with
these requirements, we would be subject to possible regulatory
action and may be limited in the jurisdictions in which we are
permitted to sell our products and will lose time to market and
potential revenues.
It is uncertain whether insurance will be adequate to address
product liability claims, or that insurance against such claims
will be affordable or available on acceptable terms in the
future.
Clinical
research involves the testing of new drugs on human volunteers
pursuant to a clinical trial protocol. Such testing involves a risk
of liability for personal injury to or death of patients due to,
among other causes, adverse side effects, improper administration
of the new drug, or improper volunteer behavior. Claims may arise
from patients, clinical trial volunteers, consumers, physicians,
hospitals, companies, institutions, researchers, or others using,
selling, or buying our products, as well as from governmental
bodies. In addition, product liability and related risks are likely
to increase over time, in particular upon the commercialization or
marketing of any products by us or parties with which we enter into
development, marketing, or distribution collaborations. Although we
are contracting for general liability insurance in connection with
our ongoing business, there can be no assurance that the amount and
scope of such insurance coverage will be appropriate and sufficient
in the event any claims arise, that we will be able to secure
additional coverage should we attempt to do so, or that our
insurers would not contest or refuse any attempt by us to collect
on such insurance policies. Furthermore, there can be no assurance
that suitable insurance will continue to be available on terms
acceptable to us or at all, or that, if obtained, the insurance
coverage will be appropriate and sufficient to cover any potential
claims or liabilities.
Risks Related to Our Reliance on Third Parties
Corporate, non-profit, and academic collaborators may take actions
(including lack of effective actions) to delay, prevent, or
undermine the success of our products.
Our
operating and financial strategy for the development, clinical
testing, manufacture, and commercialization of drug product
candidates is heavily dependent on us entering into collaborations
with corporations, non-profit organizations, academic institutions,
licensors, licensees, and other parties. There can be no assurance
that we will be successful in establishing such collaborations.
Some of our existing collaborations are, and future collaborations
may be terminable at the sole discretion of the collaborator. For
example, our collaboration with Cancer Research UK on MNPR-101, we
recently received notification of termination by CRUK of its
involvement with MNPR-101 and we will need to seek alternate
arrangements. Replacement collaborations might not be available on
attractive terms, or at all. The activities of any collaborator
will not be within our control and may not be in our power to
influence. There can be no assurance that any collaborator will
perform its obligations to our satisfaction or at all; that we will
derive any revenue, profits, or benefit from such collaborations;
or that any collaborator will not compete with us. If any
collaboration is not pursued, we may require substantially greater
capital to undertake development and commercialization of our
proposed products, and may not be able to develop and commercialize
such products effectively, if at all. In addition, a lack of
development and commercialization collaborations may lead to
significant delays in introducing proposed products into certain
markets and/or reduced sales of proposed products in such markets.
Furthermore, current or future collaborators may act deliberately
or inadvertently in ways detrimental to our interests.
25
The termination of third-party licenses could adversely affect our
rights to important compounds.
We
rely on certain rights to MNPR-101 that we have secured through a
non-exclusive license agreement with XOMA. XOMA, as licensor, has
the ability to terminate the license if we breach our obligations
under the license agreement and do not remedy any such breach in
time after receiving written notice of such breach from XOMA. A
termination of the license agreement might force us to cease
developing and/or selling MNPR-101, if it gets to market. We have
exercised our option to license Validive; as such, Onxeo has the
ability to terminate the license if we breach our obligations under
the option and license agreement. A termination of the option and
license agreement might force us to cease developing and/or selling
Validive.
Data provided by collaborators and other parties upon which we rely
have not been independently verified and could turn out to be
false, misleading, or incomplete.
We
rely on third-party vendors, scientists, and collaborators to
provide us with significant data and other information related to
our projects, clinical trials, and business. We do not
independently verify or audit all of such data (including possibly
material portions thereof). As a result, such data may be
inaccurate, misleading, or incomplete.
In certain cases, we rely on a single supplier for a particular
manufacturing material, and any interruption in or termination of
service by such supplier could delay or disrupt the
commercialization of our products.
We
rely on third-party suppliers for the materials used to manufacture
our compounds. Some of these materials may only be available from
one supplier. Any interruption in or termination of service by such
single source suppliers could result in a delay or disruption in
manufacturing until we locate an alternative source of supply.
There can be no assurance that we would be successful in locating
such alternative source of supply or in negotiating acceptable
terms with such prospective supplier.
Risks Related to Commercialization of Our Product
Candidates
Our product development efforts are at an early stage. We have not
yet undertaken any marketing efforts, and there can be no
assurances that future anticipated market testing and analyses will
validate our marketing strategy and therefore we may need to modify
the products, or will not be successful in either developing or
marketing those products.
We
have not completed the development or clinical trials of any
product candidates and, accordingly, have not yet begun to market
or generate revenue from the commercialization of any products.
Commercializing these product candidates will require substantial
additional research and development as well as costly clinical
trials. There can be no assurance that we will successfully
complete development of our product candidates or successfully
market them. We may encounter problems and delays relating to
research and development, regulatory approval, intellectual
property rights of product candidates, or other factors. There can
be no assurance that our development programs will be successful,
that our products, if successfully developed, will prove to be safe
and effective in or after clinical trials, that the necessary
regulatory approvals for any product candidates will be obtained,
or, even if obtained, will be as broad as sought or will be
maintained for any period thereafter, that patents will issue on
our patent applications, that any intellectual property protections
we secure will be adequate, or that our collaboration arrangements
will not diminish the value of our intellectual property through
licensing or other arrangements. Furthermore, there can be no
assurance that any product we might market will be received
favorably by customers (whether physicians, patients, or both),
adequately reimbursed by third party payers, or that competitive
products will not perform better and/or be marketed more
successfully. Additionally, there can be no assurances that any
future market testing and analyses will validate our marketing
strategies. We may need to seek to modify the product labels
through additional studies in order to be able to market them
successfully.
If we are unable to establish relationships with licensees or
collaborators to carry out sales, marketing, and distribution
functions or to create effective marketing, sales, and distribution
capabilities, we will be unable to market our products
successfully.
Our
business strategy may include out-licensing product candidates to
or collaborating with larger firms with experience in marketing and
selling pharmaceutical products. There can be no assurance that we
will successfully be able to establish marketing, sales, or
distribution relationships with any third party, that such
relationships, if established, will be successful, or that we will
be successful in gaining market acceptance for any products we
might develop. To the extent that we enter into any marketing,
sales, or distribution arrangements with third parties, our product
revenues per unit sold are expected to be lower than if we
marketed, sold, and distributed our products directly, and any
revenues we receive will depend upon the efforts of such third
parties.
If
we are unable to establish such third-party marketing and sales
relationships, or choose not to do so, we would have to establish
in-house marketing and sales capabilities. We have no experience in
marketing or selling oncology pharmaceutical products, and
currently have no marketing, sales, or distribution infrastructure
and no experience developing or managing such infrastructure for an
oncology product. To market any products directly, we would have to
establish a marketing, sales, and distribution force that had
technical expertise and could support a distribution capability.
Competition in the biopharmaceutical industry for technically
proficient marketing, sales, and distribution personnel is intense
and attracting and retaining such personnel may significantly
increase our costs. There can be no assurance that we will be able
to establish internal marketing, sales, or distribution
capabilities or that these capabilities will be sufficient to meet
our needs.
26
Commercial success of our product candidates will depend on the
acceptance of these products by physicians and
patients.
Any
product candidate that we may develop may not gain market
acceptance among physicians and patients. Market acceptance of and
demand for any product that we may develop will depend on many
factors, including without limitation:
●
prevalence
and severity of adverse side effects;
●
potential
advantages over alternative treatments;
●
cost
effectiveness;
●
convenience
and ease of administration;
●
sufficient
third-party coverage or reimbursement;
●
strength
of marketing and distribution support; and
●
our
ability to provide acceptable evidence of safety and
efficacy.
If
any product candidate developed by us receives regulatory approval
but does not achieve an adequate level of market acceptance by
physicians and patients, we may generate little or no product
revenue and may not become profitable.
Our products may not be accepted for reimbursement or properly
reimbursed by third-party payers.
The
successful commercialization of any products we might develop will
depend substantially on whether the costs of our products and
related treatments are reimbursed at acceptable levels by
government authorities, private healthcare insurers, and other
third-party payers, such as health maintenance organizations.
Reimbursement rates may vary, depending upon the third-party payer,
the type of insurance plan, and other similar or dissimilar
factors. If our products are not subject to adequate reimbursement,
physicians may not prescribe for our products in sufficient amounts
to make our products profitable.
Comparative
effectiveness research demonstrating benefits in a
competitor’s product could adversely affect the sales of our
drug product candidates. If third-party payers do not consider our
products to be cost-effective compared to other available
therapies, they may not cover our products as a benefit under their
plans or, if they do, the level of payment may not be sufficient to
allow us to sell our products on a profitable basis.
Adequate
third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return
on our investment in product development. In addition, in the U.S.
there is a growing emphasis on comparative effectiveness research,
both by private payers and by government agencies. To the extent
other drugs or therapies are found to be more effective than our
products, payers may elect to cover such therapies in lieu of our
products and/or reimburse our products at a lower
rate.
In
addition, emphasis on managed care in the U.S. has increased and we
expect this will continue to increase the pressure on
pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable
coverage and reimbursement status is attained for one or more
products for which we receive regulatory approval, less favorable
coverage policies and reimbursement rates may be implemented in the
future.
Any
development along these lines could materially and adversely affect
our prospects. We are unable to predict what legislative or
regulatory changes relating to the healthcare industry, including
without limitation any changes affecting governmental and/or
private or third party coverage and reimbursement, may be enacted
in the future, or what effect such legislative or regulatory
changes would have on our business.
If we obtain FDA approval for any of our product candidates, we
will be subject to various federal and state fraud and abuse laws;
these laws may impact, among other things, our proposed sales,
marketing and education programs. Fraud and abuse laws are expected
to increase in breadth and in detail, which will likely increase
our operating costs and the complexity of our programs to insure
compliance with such enhanced laws.
If
we obtain FDA approval for any of our product candidates and begin
commercializing those products in the U.S., our operations may be
directly, or indirectly through our customers, distributors, or
other business partners, subject to various federal and state fraud
and abuse laws, including, without limitation, anti-kickback
statutes and false claims statutes which may increase our operating
costs. These laws may impact, among other things, our proposed
sales, marketing and education programs. In addition, we may be
subject to data privacy and security regulation by both the federal
government and the states in which we conduct
business.
27
If our operations are found to be in violation of any of the
federal and state laws or any other governmental regulations that
apply to us, we may be subject to criminal actions and significant
civil monetary penalties, which would adversely affect our ability
to operate our business and our results of operations.
If
our operations are found to be in violation of any of the federal
and state laws described above or any other governmental
regulations that apply to us, we may be subject to penalties,
including criminal and significant civil monetary penalties,
damages, fines, imprisonment, exclusion from participation in
government healthcare programs, and the curtailment or
restructuring of our operations, any of which could adversely
affect our ability to operate our business and our results of
operations. To the extent that any of our product candidates are
ultimately sold in a foreign country, we may be subject to similar
foreign laws and regulations, which may include, for instance,
applicable post-marketing requirements, including safety
surveillance, anti-fraud and abuse laws, and implementation of
corporate compliance programs and reporting of payments or
transfers of value to healthcare professionals.
Negotiated prices for our products covered by a Part D prescription
drug plan will likely be lower than the prices we might otherwise
obtain.
Government
payment for some of the costs of prescription drugs may increase
demand for our products for which we receive marketing approval,
however, any negotiated prices for our products covered by a Part D
prescription drug plan will likely be lower than the prices we
might otherwise obtain.
Risks Related to Our Intellectual Property
If we and our third-party licensors do not obtain and preserve
protection for our respective intellectual property rights, our
competitors may be able to take advantage of our (and our
licensors’) development efforts to develop competing
drugs.
Our
commercial success will depend in part on obtaining patent
protection for any products and other technologies we might
develop, and successfully defending any patents we obtain against
third-party challenges. We license all intellectual property
related to Validive from Onxeo S.A., a French public company. See
“Material Agreements”. The assignment and transfer of
the MNPR-201 (GPX-150) patent portfolio from TacticGem, LLC to us
has been completed. We filed and have been granted in the U.S. and
various countries around the world patents for antibodies that
target uPAR. We have also been granted in the U.S. and various
countries around the world patents to a specific sequence of amino
acids on uPAR, to which our MNPR-101 antibody binds. We are
currently prosecuting this patent in other countries around the
world to further protect MNPR-101. The patent process is subject to
numerous risks and uncertainties, and there can be no assurance
that we will be successful in obtaining and defending patents. See
“Intellectual Property Portfolio”. These risks and
uncertainties include without limitation the
following:
●
Patents that may be issued or licensed may be challenged,
invalidated, or circumvented; or may not provide any competitive
advantage for other reasons.
●
Our competitors, many of which have substantially greater
resources than us and have made significant investments in
competing technologies, may seek, or may already have obtained,
patents that will limit, interfere with, or eliminate our ability
to make, use, and sell our potential products either in the U.S. or
in international markets.
●
As a matter of public policy regarding worldwide health
concerns, there may be significant pressure on the U.S. government
and other international governmental bodies to limit the scope of
domestic and international patent protection for cancer treatments
that prove successful.
●
Countries other than the U.S. may have less restrictive
patent laws than those upheld by the U.S. courts; therefore,
non-U.S. competitors could exploit these laws to create, develop,
and market competing products.
In
addition, the USPTO and patent offices in other jurisdictions have
often required that patent applications concerning pharmaceutical
and/or biotechnology-related inventions be limited or narrowed
substantially to cover only the specific innovations exemplified in
the patent application, thereby limiting their scope of protection
against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents may be substantially
narrower than anticipated.
If
we permit our patents to lapse or expire, we will not be protected
and will have less of a competitive advantage. The value of our
products may be greatly reduced if this occurs. Our patents expire
at different times and are subject to the laws of multiple
countries. Some of our patents are currently near expiration and we
may pursue patent term extensions for these where appropriate. See
“Intellectual Property Portfolio”.
In
addition to patents, we also rely on trade secrets and proprietary
know-how. While we take measures to protect this information by
entering into confidentiality and invention agreements with our
consultants and collaborators, we cannot provide any assurances
that these agreements will be fully enforceable and will not be
breached, that we will be able to protect ourselves from the
harmful effects of disclosure if they are not fully enforceable or
are breached, that any remedy for a breach will adequately
compensate us, that these agreements will achieve their intended
aims, or that our trade secrets will not otherwise become known or
be independently discovered by competitors. If any of these events
for which we cannot provide assurances occurs, or we otherwise lose
protection for our trade secrets or proprietary know-how, the value
of this information may be greatly reduced.
28
Intellectual property disputes could require us to spend time and
money to address such disputes and could limit our intellectual
property rights.
The
biopharmaceutical industry has been characterized by extensive
litigation regarding patents and other intellectual property
rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may become subject
to infringement claims or litigation arising out of patents and
pending applications of our competitors, or additional interference
proceedings declared by the USPTO to determine the priority of
inventions. The defense and prosecution of intellectual property
suits, USPTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how, or to
determine the enforceability, scope, and validity of the
proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a
party could subject us to significant liabilities, require us to
obtain licenses from third parties, or restrict or prevent us from
selling our products in certain markets. Even if a given patent or
intellectual property dispute were settled through licensing or
similar arrangements, our costs associated with such arrangements
may be substantial and could include the payment by us of large
fixed payments and ongoing royalties. Furthermore, the necessary
licenses may not be available on satisfactory terms or at all. In
addition, even where we have meritorious claims or defenses, the
costs of litigation may prevent us from pursuing these claims or
defenses and/or may require extensive financial and personnel
resources to pursue these claims or defenses.
Risks Related to Our Business Operations and Industry
We have a limited operating history as we are a new
entity.
As
of March 1, 2018, we have engaged exclusively in acquiring
pharmaceutical drug product candidates, licensing rights to drug
product candidates and entering into collaboration agreements, and
have not completed any clinical trials, received any governmental
approvals, brought any product to market, manufactured or produced
products in commercial quantities or sold any pharmaceutical
products. We have limited experience in negotiating, establishing,
and maintaining strategic relationships, conducting clinical
trials, and managing the regulatory approval process, all of which
will be necessary if we are to be successful. Our lack of
experience in these critical areas makes it difficult for a
prospective investor to evaluate our abilities, and increases the
risk that we will fail to successfully execute our
strategies.
Furthermore,
if our business grows rapidly, our operational, managerial, legal,
and financial resources will be strained. Our development will
require continued improvement and expansion of our management team
and our operational, managerial, legal, and financial systems and
controls.
In
the normal course of business, we have evaluated and expect to
evaluate potential acquisitions and/or licenses of patents,
compounds, and technologies that our management believes could
complement or expand our business. We have limited history of
conducting acquisitions, and negotiating and acquiring licenses. In
the event that we identify an acquisition or license candidate we
find attractive, there is no assurance that we will be successful
in negotiating an agreement to acquire or license, or in financing
or profitably exploiting, such patents, compounds, or technologies.
Furthermore, such an acquisition or license could divert management
time and resources away from other activities that would further
our business development.
If we lose key management leadership, and/or scientific personnel,
and if we cannot recruit qualified employees, managers, directors,
officers, or other significant personnel, we may experience delays
and increases in compensation costs, and our business materially
disrupted.
Our
future success is highly dependent on the continued service of
principal members of our management, leadership, and scientific
personnel, who are able to terminate their employment with us at
any time, and may be able to compete with us. The loss of any of
our key management, leadership, or scientific personnel including
in particular, Chandler D. Robinson, our President and CEO, and
Andrew P. Mazar, our Executive Vice President of Research and
Development, and Chief Scientific Officer, could materially disrupt
our business and materially delay or prevent the successful
commercialization of our product candidates. We have employment
agreements with Dr. Robinson and Dr. Mazar which have no term but
are for at-will employment, meaning the executives have the ability
to terminate their employment at any time.
Our
future success will also depend on our continuing ability to
identify, hire, and retain highly skilled personnel for all areas
of the organization. Competition in the biopharmaceutical industry
for scientifically and technically qualified personnel is intense,
and we may be unsuccessful in identifying, hiring, and retaining
qualified personnel. Our continued ability to identify, hire, and
retain highly skilled personnel may cause our compensation costs to
increase materially.
We are an emerging growth company and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
We
are an emerging growth company. Under the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), emerging growth
companies can delay adopting new or revised accounting standards
until such time as those standards apply to private companies.
Therefore, we may not be subject to the same new or revised
accounting standards as other public companies that are not
“emerging growth companies.”
29
For
as long as we continue to be an emerging growth company, we also
intend to take advantage of certain other exemptions from various
reporting requirements that are applicable to other public
companies including, but not limited to, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, exemptions from the requirements of
holding a nonbinding advisory stockholder vote on executive
compensation and any golden parachute payments not previously
approved, exemption from the requirement of auditor attestation in
the assessment of our internal control over financial reporting and
exemption from any requirement that may be adopted by the Public
Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing
additional information about the audit and the financial statements
(auditor discussion and analysis). If we do take advantage of these
exemptions, the information that we provide stockholders will be
different than what is available with respect to other public
companies. We cannot predict if investors will find our Common
Stock less attractive because we will rely on these exemptions. If
investors find our Common Stock less attractive as a result of our
status as an emerging growth company, there may be less liquidity
for our Common Stock and our stock price may be more
volatile.
We
will remain an emerging growth company until the earliest of (i)
the end of the fiscal year in which the market value of our common
stock that is held by non-affiliates exceeds $700 million as of the
end of the second fiscal quarter, (ii) the end of the fiscal year
in which we have total annual gross revenues of $1 billion or more
during such fiscal year, (iii) the date on which we issue more than
$1 billion in non-convertible debt in a three-year period or (iv)
the end of the fiscal year following the fifth anniversary of the
date of the first sale of our Common Stock pursuant to an effective
registration statement filed under the Act.
Competition and technological change may make our product
candidates obsolete or non-competitive.
The
biopharmaceutical industry is subject to rapid technological
change. We have many potential competitors, including major drug
and chemical companies, specialized biopharmaceutical firms, and
universities and other research institutions. These companies,
firms, and other institutions may develop products that are more
effective than our product candidates or that would make our
product candidates obsolete or non-competitive. Many of these
companies, firms, and other institutions have greater financial
resources than us and may be better able to withstand and respond
to adverse market conditions within the biopharmaceutical industry,
including without limitation the lengthy regulatory approval
process for product candidates.
If product liability lawsuits are brought against us, we may incur
substantial costs to defend them and address any damages awarded,
and demand for our products could be reduced as a result of such
lawsuits.
The
testing and marketing of medical products is subject to an inherent
risk of product liability claims. Since we currently are not
sponsoring a clinical trial, we do not have product liability
insurance coverage, but plan to obtain appropriate coverage when we
enroll patients in a Validive or other clinical trial. Regardless
of their merit or eventual outcome, product liability claims may
result in:
●
decreased
demand for our products;
●
injury
to our reputation and significant, adverse media
attention;
●
withdrawal
of clinical trial volunteers; and
●
potentially
significant litigation costs, including without limitation any
damages awarded to the plaintiffs if we lose or settle
claims.
We use hazardous materials, including radioactive materials, in our
business, and any claims relating to improper handling, storage, or
disposal of these materials could materially harm our
business.
Our
business involves the use of a broad range of hazardous chemicals
and materials, including radioactive materials. Environmental laws
impose stringent civil and criminal penalties for improper
handling, disposal, and storage of these materials. In addition, in
the event of an improper or unauthorized release of, or exposure of
individuals to, hazardous materials, we could be subject to civil
damages due to personal injury or property damage caused by the
release or exposure. A failure to comply with environmental laws
could result in fines and the revocation of environmental permits,
which could prevent us from conducting our business.
We have limited the liability of and indemnified our directors and
officers.
Although
our directors and officers are accountable to us and must exercise
good faith, good business judgement, and integrity in handling our
affairs, our Second Amended and Restated Certificate of
Incorporation (the “Certificate of Incorporation”),
provides that our directors will be indemnified to the fullest
extent permitted under Delaware law. As a result, our stockholders
may have fewer rights against our directors than they would have
absent such provisions in our Certificate of Incorporation, and a
stockholder’s ability to seek and recover damages for a
breach of fiduciary duties may be reduced or restricted. Delaware
law allows indemnification if our Board Member (a) has acted in
good faith, in a manner the Board Member reasonably believes to be
in or not opposed to our best interests, and (b) with respect to
any criminal action or proceeding, if the Board Member had no
reasonable cause to believe the conduct was unlawful.
30
Pursuant
to the Certificate of Incorporation, each director and (to the
extent approved by our Board) each of our officers who is made a
party to a legal proceeding because he or she is or was a Board
Member or officer, is indemnified by us from and against any and
all liability, except that we may not indemnify a Board Member or
officer: (a) for any liability incurred in a proceeding in which
such person is adjudged liable to Monopar or is subjected to
injunctive relief in favor of Monopar; (b) for acts or omissions
that involve intentional misconduct or a knowing violation of law,
fraud or gross negligence; (c) for unlawful distributions; (d) for
any transaction for which such Board Member or officer received a
personal benefit or as otherwise prohibited by or as may be
disallowed under Delaware law; or (e) with respect to any dispute
or proceeding between us and such Board Member or officer unless
such indemnification has been approved by a disinterested majority
of Board Members or by a majority in interest of disinterested
stockholders. We are required to pay or reimburse attorney’s
fees and expenses of a Board Member seeking indemnification as they
are incurred, provided the director executes an agreement to repay
the amount to be paid or reimbursed if there is a final
determination by a court of competent jurisdiction that such person
is not entitled to indemnification.
Future legislation or executive or private sector actions may
increase the difficulty and cost for us to commercialize our
products and affect the prices obtained for such
products.
There
have been several attempts made to repeal the Patient Protection
and Affordable Care Act (the “PPACA”), and modification
and partial or complete repeal of the Affordable Care Act in the
future is possible. On December 22, 2017, the Tax Cuts and Jobs Act
became law – one of its provisions repealed what is known as
the individual mandate under PPACA which could have the effect of
negating such law. Healthcare reform measures that may be adopted
in the future may result in more rigorous coverage criteria and
lower reimbursement, and in additional downward pressure on the
price that may be charged for any of our product candidates, if
approved.
The
increasing cost of healthcare as a percentage of GDP and the
increasing deferred liabilities behind most governmental health
care programs (such as Medicare and Medicaid) continue to be an
economic challenge which affects the overall economic health of the
U.S. High cost products and therapies that are early in their life
cycle, are attractive targets for parties that believe that the
cost of healthcare must be better controlled and reduced.
Pharmaceutical prices and healthcare reform has been debated and
acted upon by legislators for many years. Future legislation or
executive or private sector actions related to healthcare reform
could materially and adversely affect our business by reducing our
ability to generate revenue at prices sufficient to reward for the
risks and costs of development, to raise capital, and to market our
products.
Additionally, Executive Orders and policy
statements issued by President Trump have increased the uncertainty
regarding the timing for the FDA’s interpretation and
implementation of requirements under the Federal Food, Drug and
Cosmetic Act (“FDCA”). Some of these executive actions
may also negatively affect the FDA’s exercise of regulatory
oversight and ability to timely review industry submissions and
applications in connection with the drug development and approval
process. Notably, on April 12, 2017, the Director for the Office of
Management and Budget (“OMB”) implemented a long-term
plan to reduce the size of the federal workforce. Although the FDA
is funded in the near-term, in the future, an under-staffed FDA
could result in increasing delays in the FDA’s responsiveness
or in its ability to review applications, issue regulations or
guidance, or implement or enforce regulatory requirements in a
timely fashion or at all. A January 30, 2017 Executive Order also
included a budget neutrality provision that requires the total
incremental cost of all new regulations in the 2017 fiscal year,
including repealed regulations, to be no greater than zero, except
in limited circumstances. It is difficult to predict how these
requirements will be interpreted and implemented, and the extent to
which they will impact the FDA’s ability to continue engaging
in its regulatory authorities under the FDCA. If executive or
legislative actions impose restrictions on the FDA’s ability
to engage in oversight and implementation activities in the normal
course, our business may be negatively impacted. On August 18,
2017, the FDA Reauthorization Act of 2017 was signed which, among
other things, established user fees for human drug applications
which are to be directed toward expediting the drug development
process. On December 12, 2017, an amendment to the FDCA was passed
to authorize additional emergency uses for medical products during
a military emergency. Both of
these actions restore increased funding for the FDA. The user fees
for human drug applications can result in funding which is variable
depending on the work load created by applications that is
supported by the user fees. There is no assurance that
federal or state health care reform will not adversely affect our
future business and financial results, and we cannot predict how
future federal or state legislative, judicial or administrative
changes relating to healthcare reform and third party payers will
affect the pharmaceutical industry in general and our business in
particular.
Future tax reform measures may negatively impact our financial
position.
Our
business may be negatively impacted by tax reform measures. If tax
reform measures are passed, there can be no assurance that we will
continue to receive favorable tax treatment related to our patents.
For example, on December 22, 2017, the Tax Cuts and Jobs Act of
2017 was signed into law that significantly revises the Internal
Revenue Code of 1986, as amended. The newly enacted federal income
tax law, among other things, contains significant changes to
corporate taxation, including reduction of the corporate tax rate
from a top marginal rate of 35% to a flat rate of 21%, limitation
of the tax deduction for interest expense to 30% of adjusted
earnings (except for certain small businesses), limitation of the
deduction for net operating losses to 80% of current year taxable
income and elimination of net operating loss carrybacks, treatment
of proceeds from the sale of “self-created” patents as
ordinary income, and modifying or repealing many business
deductions and credits (including reducing the business tax credit
for certain clinical testing expenses incurred in the testing of
orphan drugs from 50% to 25%). Notwithstanding the reduction in the
corporate income tax rate, the overall impact of the new federal
tax law is uncertain and our business and financial condition could
be adversely affected. In addition, it is uncertain if and to what
extent various states will conform to the newly enacted federal tax
law. The impact of this tax reform on holders of our common stock
is also uncertain. We urge our stockholders to consult with their
legal and tax advisors with respect to this legislation and the
potential tax consequences of investing in or holding our common
stock. It is difficult to predict what future tax reform measures,
if any, could be implemented and the extent to which they will
impact our accounting practices and our business.
31
Our anticipated operating expenses over the next year are based
upon our management’s estimates of possible future events.
Actual amounts could differ materially from those estimated by our
management.
Development
of pharmaceuticals and cancer drugs is extremely risky and
unpredictable. We have estimated operating expenses and capital
expenditures over the next year based on certain assumptions. Any
change in the assumptions could and will cause the actual results
to vary substantially from the anticipated expenditures, and could
result in material differences in actual versus forecasted expenses
or expenditures. Furthermore, all of the factors are subject to the
effect of unforeseeable future events. The estimates of capital
expenditures and operating expenses represent forward-looking
statements within the meaning of the federal securities laws.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ
materially from those discussed in the forward-looking statements
as a result of various factors, including the risk factors set
forth under "Risk Factors" in this Form 10-K. In view of the
foregoing, investors should not rely on these estimates in making a
decision to invest in us.
Risks Associated with Our Capital Stock
We may never provide liquidity to our investors.
No
public market exists with respect to any of our securities. There
is no assurance that any public offering, merger, combination,
sale, or other liquidity event relating to us will ever take place,
or that any public offering, merger, combination, sale, or other
event that might take place would provide liquidity for our
investors or that we will be able to provide liquidity to our
investors in any fashion. In the event that we are unable to affect
a public offering, merger, combination, sale, or other liquidity
event, our investors would likely be unable to sell their interests
in us.
Existing and new investors will experience dilution as a result of
future sales or issuances of our common stock and future option
exercises under our stock option plan.
Our
Board Members, employees, and certain of our consultants have been
and will be issued equity and/or granted options that vest with the
passage of time. Up to a total of 1,600,000 shares of our Common
Stock may be issued as stock options or restricted stock under the
Amended and Restated Monopar Therapeutics Inc. 2016 Stock Incentive
Plan, and stock options for the purchase of up to 690,596 shares of
our common stock have already been granted. See Item 11 -
“Stock Option Plan.” The issuance of such equity and/or
the exercise of such options will dilute both our existing and our
new investors. As of March 1, 2018, no stock options have been
exercised.
Our
existing and our new investors will likely also experience
substantial dilution resulting from the issuance by us of equity
securities in connection with certain transactions, including
without limitation, future offering of shares, intellectual
property licensing, acquisition, or commercialization
arrangements.
Holders of the shares of our Common Stock will have no control of
our operations or of decisions on major transactions.
Our
business and affairs are managed by or under the direction of our
Board. Our Stockholders are entitled to vote only on actions that
require a Stockholder vote under federal or state law. Stockholder
approval requires the consent and approval of holders of a majority
or more of our outstanding stock. Shares of stock do not have
cumulative voting rights and therefore, holders of a majority of
the shares of our outstanding stock will be able to elect all Board
Members. TacticGem, LLC owns 7,166,667 shares of common stock
(77.1%). The limited liability company agreement of TacticGem, LLC
provides that the manager will vote its shares of Monopar to elect
to the Board of Directors those persons nominated by TacticPharma
LLC plus one person nominated by Gem Pharmaceuticals, LLC.
Additionally, other than in the elections of directors the limited
liability company agreement requires TacticGem to pass through
votes to its members in proportion to their membership percentages
in TacticGem. As a result, Tactic Pharma, our initial investor,
holds an approximately 46% beneficial interest in us and together
with Gem’s beneficial ownership of approximately 33%, the two
entities control a majority of our stock and will be able to elect
all Board Members and control our affairs. Some of our Board
Members and executive officers own and control Tactic Pharma.
Although no single person has a controlling interest in Tactic
Pharma, acting together, they are able to control Tactic Pharma and
a large voting block of Monopar and elect over a majority of our
Board of Directors. See Item 12 - “Security Ownership of
Certain Beneficial Owners and Management.”
Our ability to list on Nasdaq in the future will require raising
significant additional capital and likely require a public stock
transaction; failure to qualify to trade on Nasdaq will make it
more difficult to raise capital.
We
will need to raise significant funds in the next 24 months to
execute our clinical development plans and we believe that if our
stock is trading on Nasdaq’s Capital Market it will enable
better access to capital. Nasdaq has listing requirements for
inclusion of securities for trading on the Nasdaq Capital Market,
including stockholders equity of $4 million (market value standard)
or $5 million (equity standard), market value of publicly held
shares of $15 million, an operating history of 2 years under the
equity standard or a market value of listed securities of $50
million under the market value standard, 1 million publicly held
shares, 300 shareholders, three market makers and a $4 bid price or
a closing price of $3 (equity standard) or $2 (market value
standard). If we are unable to list on Nasdaq, it could make it
harder for us to raise capital in both the immediate time frame and
in the long-term. If we are unable to raise capital when needed in
the future, we may have to cease or reduce operations.
32
Item 2. Properties
We
lease approximately 1,202 square feet of space in the Village of
Wilmette, Illinois for our corporate offices, under a lease which
runs through the end of 2019. We lease approximately 160 square
feet for our Seattle, Washington office. We believe that we will
require additional office space within the next 12 months as we
begin to hire additional personnel.
Item 3. Legal
We are
not party to any material legal proceedings.
PART II
Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
Market Information
There
is no established public trading market in our common stock. Our
securities are not listed for trading on any national securities
exchange nor are bid or asked quotations reported in any
over-the-counter quotation service.
Rule 144 Eligibility
As of
March 1, 2018, 1,335,079.3 shares of our common stock are eligible
for sale under Rule 144.
We
cannot estimate the number of shares of our common stock that our
existing stockholders will elect to sell under Rule
144.
Holders
As of
March 1, 2018, there were 9,291,420.614 shares of our common stock
outstanding held by 43 holders. In addition, there were nine
holders of stock options to purchase up to 690,596 shares of our
common stock.
Dividends
We have
never paid cash dividends on any of our capital stock and we
currently intend to retain our future earnings, if any, to fund the
development and growth of our business. We do not intend to pay
cash dividends to holders of our common stock in the foreseeable
future.
Securities Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information as of December 31, 2017, with
respect to shares of our common stock that may be issued under
existing equity compensation plans. There are no equity
compensation plans that have not been approved by our security
holders.
33
|
Plan
Category
|
Number of
Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
|
Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights
|
Number of
Securities Remaining Available For Future Issuance under Equity
Compensation Plans
|
|
Equity compensation
plans approved by security holders (1)
|
658,592
|
$0.94
|
941,408
|
(1) The
Monopar Therapeutics Inc. 2016 Stock Incentive Plan.
Registration Rights
We are
subject to an agreement with TacticGem (pursuant to the Gem
Transaction as discussed later in this document), which obligates
us to file Form S-3 or other appropriate form of registration
statement covering the resale of any of our Common Stock by
TacticGem, Gem, or Tactic, upon direction by TacticGem at any time
after we have been subject to the reporting requirements of the
1934 Act for at least twelve months (the “Initial Holding
Period’). We are required to use our best efforts to have
such registration statement declared effective as soon as practical
after it is filed. In the event that such registration statement
for resale is not approved by the SEC, and TacticGem submits a
written request, we are required to prepare and file a registration
statement on Form S-1 registering such Common Stock for resale and
to use our best efforts to have such registration statement
declared effective as soon as practical thereafter. After
registration, pursuant to these rights, these shares will become
freely tradable without restriction under the Securities Act other
than pursuant to restrictions on affiliates under Rule
144.
Recent Sales of Unregistered Securities.
Set
forth below is information regarding shares of common stock issued
and options granted by us in the year ended December 31, 2017, that
were not registered under the Securities Act. Also included is the
consideration, if any, received by us, for such shares and options
and information relating to the Securities Act, or rule of the SEC,
under which exemption from registration was claimed. No
underwriters were involved in the foregoing issuances of
securities. Below this description of recent sales of unregistered
securities is a description of the exemptions from registration
which were applicable to each sale or grant.
(a) On
February 20, 2017, we granted stock options for 1,200 shares of our
Common Stock to each of Dr. Christopher M. Starr, Dr. Chandler D.
Robinson, and Dr. Andrew P. Mazar in exchange for services.
Pursuant to the “Conversion” in March 2017, these stock
options were each adjusted to be for 84,000 shares. On the same
date, we granted a stock option for 336 shares of our Common Stock
to Kim R. Tsuchimoto in exchange for services, which was adjusted
to be for 23,520 shares pursuant to the Conversion. The exercise
price of each of these options was $0.001 per share and the options
expire on February 19, 2027.
(b)
During March 2017 through June 2017, 340,840.33 shares of Common
Stock were sold to accredited investors at a price of $6.00 per
share.
(c)
During August 2017 through September 2017, 448,834 shares of Common
Stock were sold to accredited investors at a price of $6.00 per
share.
(d) On
September 1, 2017, we granted options for 21,024 shares of Common
Stock to Arthur Klausner, and on September 18, 2017, we granted
options for 21,024 shares of Common Stock to each of Michael J.
Brown and Raymond W. Anderson, in exchange for services as
Directors. The exercise price of the options was $6.00 per share
and the options expire on August 31, 2027 and September 17, 2027,
respectively.
(e) On
August 25, 2017, 3,055,394.12 shares of our Common Stock were
issued to TacticGem in exchange for the Gem Contributed Assets
(including assets and $5 million in cash) as part of the Gem
Transaction.
(f) On
November 1, 2017, we granted options for 40,000 shares of Common
Stock to Kirsten Anderson in exchange for services. The exercise
price of the options was $6.00 per share and the options expire on
October 31, 2027.
(g) On January 1, 2018, we granted options for 32,004 shares of
Common Stock to Patrice Rioux in exchange for services. The
exercise price of the option was $6.00 per share and the options
expire on December 31, 2027.
34
The
offers, sales and issuances of the securities described in
paragraphs (a), (d), (f), and (g) were deemed to be exempt from
registration under the Securities Act in reliance on both Section
4(a)(2) of the Act and Rule 701 in that the transactions were under
compensatory benefit plans and contracts relating to compensation
as provided under Rule 701. The recipients of such securities
were our employees, officers, bona
fide consultants and advisors and received the securities under our
Plan. Appropriate legends were affixed to the securities issued in
these transactions. Each of the recipients of securities in these
transactions had adequate access, through employment, business or
other relationships, to information about us and had knowledge and
experience to make the decision to accept the stock
options.
The offers, sales and issuances of the securities
described in paragraph (b), (c), and (e) were deemed to be exempt
from registration under the Securities Act in reliance on Rule
506(b) of Regulation D in that the issuance of securities to the
accredited investors did not involve a public offering. The
recipients of securities in each of these transactions acquired the
securities for investment only and not with a view to or for sale
in connection with any distribution thereof. Each of the recipients
of securities in these transactions was an accredited investor
under Rule 501 of Regulation D. Form D was filed related to
the offer described in paragraph (b) on March 28, 2017; and Form D
was filed related to the offer described in paragraph (c) on August
23, 2017.
Item 7. Management's Discussion and
Analysis of Financial Condition and Results of
Operations.
You
should read the following discussion and analysis of our financial
condition and results of operations together with our financial
statements and related notes appearing at the end of this Annual
Report on Form 10-K. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Annual
Report on Form 10-K, including information with respect to our
plans and strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties.
You should read the "Risk Factors" section of this Annual Report on
Form 10-K, Item 1A, for a discussion of important factors that
could cause actual results to differ materially from the results
described in or implied by the forward-looking statements contained
in the following discussion and analysis.
Overview
Our
mission is to develop innovative drugs and drug combinations to
improve clinical outcomes for cancer patients. We are building a
drug development pipeline through the licensing or acquisition of
oncology therapeutics at the late preclinical through advanced
clinical development stage.
Validive
is being developed for the treatment of radiation-induced SOM. SOM
is a frequent major adverse side effect for patients with head and
neck cancer who are treated by radiation treatment. SOM causes
intense oral pain and limits a patient’s ability to eat and
drink, which causes additional treatment complications. Many
affected patients require hospitalization and the SOM symptoms can
force patients to stop cancer treatments early, which reduces the
success of treatments. Validive is designed to deliver the active
ingredient, clonidine, to the at-risk oropharyngeal mucosa.
Clonidine reduces the production of cytokines, the molecules that
cause ulcerations and pain in patients that develop SOM.
Preclinical studies and a Phase 2 clinical trial have demonstrated
that Validive has the potential for reducing the frequency of
developing SOM in addition to improving its symptoms, as compared
to a placebo. On September 8, 2017, we exercised our exclusive
option to license in order to advance the development of Validive
with the near-term goal of commencing a Phase 3 development
program. If successful, this Phase 3 program may allow us to apply
for marketing approval. See “Material Agreements” and
“Strategy.”
In August 2017, we acquired MNPR-201 (GPX-150;
5-imino-13-deoxydoxorubicin), a proprietary analog of doxorubicin
that is selective for topoisomerase-II-alpha
from TacticGem. MNPR-201 has been
engineered specifically to retain the anticancer activity of
doxorubicin while minimizing toxic effects on the
heart.
MNPR-101 is a drug product candidate designed to
reduce tumor growth by targeting a specific receptor, uPAR, which
is present in a range of tumor types, including pancreatic and
ovarian tumors. uPAR is part of the normal cell repair process in
non-cancerous cells; however, in cancerous cells the tumor hijacks
uPAR to help the tumor grow and spread. Preclinical models have
shown that MNPR-101 is effective at reducing tumor growth, both
used alone and in combination with existing therapies.
In May
2015, we entered into a Clinical Trial and Option Agreement with
Cancer Research UK with respect to our drug product candidate
MNPR-101 (formerly huATN-658). Pursuant to this agreement Cancer
Research UK conducted preclinical work, improved the manufacturing,
and planned to conduct a Phase 1a/1b clinical trial in cancer
patients. As part of a portfolio reprioritization review,
on March 21, 2018 Cancer Research UK notified us it was
closing its project related to MNPR-101 and would work to make
arrangements to formally terminate the agreement. We are
currently reviewing potential alternative collaboration
opportunities for MNPR-101 and continue to maintain the
program’s intellectual property
portfolio.
35
Over
the next three years, we plan to execute a Phase 3 clinical trial
for Validive, continue clinical development of MNPR-201, pursue
collaboration opportunities for MNPR-101 for initial clinical
development, raise additional capital to fund our drug development
programs, acquire or in-license additional drug product candidates
and promote public and biotech investor awareness of
us.
Developing
a new drug and conducting clinical trials for one or more disease
indications involves substantial costs and resources. Our operating
and financial strategy for the development, clinical testing,
manufacture and commercialization of drug product candidates is
heavily dependent on our entering into collaborations with
corporations, non-profits, scientific institutions, licensors,
licensees and other parties, which enables us to utilize their
financial and other resources to assist in drug development.
Additionally, we will need to raise significant funds in the next
12–24 months to execute our clinical development of Validive
and potential approval and commercialization plans. We believe that
we will have better access to capital as a public reporting company
and if a trading market develops for our stock. This would increase
corporate visibility, provide increased liquidity for our
stockholders, and create a market value for our pipeline of
oncology drug product candidates. Therefore, we became a public
reporting company under the Securities Exchange Act of 1934 (the
“34 Act”) through the filing of a Form 10 registration
statement with the SEC. We are working with investment bankers and
market makers, with the intention of listing on Nasdaq as soon as
we are able to meet the shareholder number, capitalization and
other requirements for such a listing, which will likely require a
public offering of our stock or other public stock transaction. See
“Risk Factors – Our ability to list on Nasdaq in the
future will require raising significant additional capital and
likely require a public stock transaction; failure to qualify to
trade on Nasdaq will make it more difficult to raise
capital.” There can be no assurance that we will be
successful in including our stock for trading on Nasdaq or that a
market will develop for our stock. See Item 1A - “Risk
Factors – Risks Related to Our Financial Condition and
Capital Requirements”, and “Risks Related to Our
Business Operations and Industry.”
Revenues
We
are an emerging growth company, have no approved drugs and have not
generated any revenues.
Conversion of Preferred Stock to Common Stock
In
March 2017, holders of a majority in interest of our Series A
Preferred Stock and holders of a majority in interest of our Series
Z Preferred Stock voted to adopt the Second Amended and Restated
Certificate of Incorporation of the Company (the “Certificate
of Incorporation”). When the Certificate of Incorporation
took effect, each share of Series A Preferred Stock was
automatically converted into 84 shares of common stock of the
Company (a 1.2 for 1 conversion to Common Stock concurrent with a
70 for 1 stock split) and each share of Series Z Preferred Stock
was automatically converted into 70 shares of common stock of the
Company (a 1 for 1 conversion to common stock concurrent with a 70
for 1 stock split) and Series A Preferred Stock and Series Z
Preferred Stock were eliminated (the “Conversion”).
100,000 shares of Series Z Preferred Stock were converted into
7,000,000 shares of common stock and 15,894 shares of Series A
Preferred Stock were converted into 1,335,079.284 shares of common
stock. All references in this “Management’s Discussion
and Analysis of Financial Conditions and Results of
Operations” to common stock authorized, issued and
outstanding and common stock options take into account the stock
split that occurred as part of the Conversion.
Critical Accounting Policies and Use of Estimates
While
our significant accounting policies are described in more detail in
Note 2 of our financial statements included elsewhere in this
Annual Report on Form 10-K, we believe the following accounting
policies to be critical to the judgments and estimates used in the
preparation of our financial statements.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities, and reported amounts of
revenues and expenses in the financial statements and accompanying
notes. Actual results could differ from those
estimates.
Going Concern Assessment
We
adopted Accounting Standards Updates (“ASU”) 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to
Continue as a Going Concern, which the Financial Accounting
Standards Board (“FASB”) issued to provide guidance on
determining when and how reporting companies must disclose
going-concern uncertainties in their financial statements. The ASU
requires management to perform interim and annual assessments of an
entity’s ability to continue as a going concern within one
year of the date of issuance of the entity’s financial
statements (or within one year after the date on which the
financial statements are available to be issued, when applicable).
Further, a company must provide certain disclosures if there is
“substantial doubt about the entity’s ability to
continue as a going concern.” In February 2018, we analyzed
our minimum cash requirements through March 2019 and have
determined that, based upon our current available cash, we have no
substantial doubt about our ability to continue as a going concern.
See Item 1A - “Risk Factors” – our anticipated
operating expenses over the next year are based upon our
management’s estimates of possible future events. Actual
operating expenses could differ materially from those projected by
our management.
36
Revenue
We
are an emerging growth company, have no approved drugs and have not
generated any revenues. See “Overview –
Revenues”. To date, we have engaged in acquiring
pharmaceutical drug product candidates, licensing rights to drug
product candidates, entering into collaboration agreements for
testing and clinical development of our drug product candidates and
providing the infrastructure to support the clinical development of
drug product candidates. We do not anticipate revenues from
operations until we complete testing and development of one of our
drug product candidates and obtain marketing approval or we sell or
out-license one of our drug product candidates to another party.
See “Liquidity and Capital Resources”.
Research and Development Expenses
Research
and development (“R&D”) costs are expensed as
incurred. Major components of research and development expenses
include salaries and benefits of R&D staff, fees paid to
consultants and to the entities that conduct certain development
activities on our behalf and materials and supplies.
We
accrue and expense the costs for clinical trial activities
performed by third parties based upon estimates of the percentage
of work completed over the life of the individual study in
accordance with agreements established with contract research
organizations and clinical trial sites. We determine the estimates
through discussions with internal clinical personnel and external
service providers as to progress or stage of completion of trials
or services and the agreed upon fee to be paid for such services.
Costs of setting up clinical trial sites for participation in the
trials are expensed immediately as research and development
expenses. Clinical trial site costs related to patient enrollment
are accrued as patients are entered into the trial. During the
previous two fiscal years, we had no clinical trials in
progress.
The
successful development of our product pipeline is highly uncertain.
We cannot reasonably estimate the nature, timing or costs of the
efforts that will be necessary to complete the remainder of the
development of any of our drug product candidates or the period, if
any, in which material net cash inflows from our drug product
candidates may commence. This is due to the numerous risks and
uncertainties associated with developing drug product candidates,
including:
●
receiving
less funding than we require;
●
slower
than expected progress in developing Validive, MNPR-201, MNPR-101
or other drug product candidates;
●
higher
than expected costs to produce our current and future drug product
candidates;
●
higher
than expected costs for preclinical testing of our future and
current acquired and/or in-licensed programs;
●
future
clinical trial costs, including an increase in the number, size,
duration, or complexity of future clinical trials;
●
future
clinical trial results;
●
higher
than expected costs associated with attempting to obtain regulatory
approvals, including without limitation additional costs caused by
delays;
●
higher
than expected personnel or other costs, such as adding personnel or
pursuing the acquisition or licensing of additional
assets;
●
higher
than expected costs to protect our intellectual property portfolio
or otherwise pursue our intellectual property
strategy;
●
the
potential benefits of our product candidates over other therapies;
and
●
our
ability to market, commercialize and achieve market acceptance for
any of our product candidates that we are developing or may develop
in the future.
There
are other risks described in Item 1A - “Risk Factors”.
A change in the outcome of any of these variables with respect to
the development of a drug product candidate could mean a
significant change in the costs and timing associated with the
development of that drug product candidate. We expect that research
and development expenses will increase in future periods as a
result of increased personnel, increased consulting, future
preclinical and clinical trial costs, including clinical drug
product manufacturing and related costs.
37
In-process Research and Development
In-process
research and development (“IPR&D”) expense
represents the costs to acquire technologies to be used in research
and development that have not reached technological feasibility,
have no alternative future uses, and are thus expensed as incurred.
IPR&D expense also includes upfront license fees and milestones
paid to collaborators, with no alternative use, which are expensed
as goods are received or services rendered.
General and Administrative Expenses
General
and administrative expenses consist primarily of compensation and
expenses for our executive personnel, stock-based compensation
expense related to stock options issued to our executive team,
legal and audit expenses, general and administrative consulting,
board fees and expenses, patent legal and application fees, and
facilities and related expenses. Future general and administrative
expenses may also include: compensation and expenses related to the
employment of finance, human resources and business development
personnel, depreciation and amortization of general and
administrative fixed assets, investor relations and annual meeting
expense, and stock-based compensation expense related to general
and administrative personnel. We expect that our general and
administrative expenses will increase in future periods as a result
of increased personnel, expanded infrastructure, increased
consulting, legal, accounting and investor relations expenses
associated with being a public company and costs incurred to seek
and establish collaborations with respect to any of our drug
product candidates.
Collaborative Arrangements
We
and our collaborative partners are active participants in a
collaborative arrangement and all parties are exposed to
significant risks and rewards depending on the development and
commercial success of the activities. Contractual payments to the
other parties in the collaboration agreement and costs incurred by
us when we are deemed to be the principal participant for a given
transaction are recognized on a gross basis in research and
development expenses. Royalties and license payments are recorded
as earned.
In May 2015, we entered into a Clinical Trial and Option Agreement
with Cancer Research UK with respect to our drug product candidate
MNPR-101 (formerly huATN-658). Pursuant to this agreement Cancer
Research UK conducted preclinical work, improved the manufacturing,
and planned to conduct a Phase 1a/1b clinical trial in cancer
patients. Under this agreement, Cancer Research UK was to cover all
costs through Phase 1a/1b clinical studies, including
manufacturing. As part of a portfolio reprioritization review,
on March 21, 2018 Cancer Research UK notified us it was
closing its project related to MNPR-101 and would work to make
arrangements to formally terminate the agreement. We are
currently reviewing potential alternative collaboration
opportunities for MNPR-101 and continue to maintain the
program’s intellectual property portfolio.
In addition, we have a non-exclusive license with
XOMA Ltd. for its humanization technology and know-how utilized in
the development of MNPR-101. Under the terms of the license, we are
required to pay developmental and sales milestones which could
reach up to $14.925 million if we achieve all milestones.
The agreement does not require the
payment of sales royalties.
There can be no assurance that we will reach any
milestones.
From
inception in December 2014 through March 1, 2018, no milestones
were met and no royalties were earned, therefore, we did not pay or
accrue/expense any milestone or royalty payments under the CTOA and
XOMA Ltd. license agreement.
License Option Agreement
In
June 2016, we executed an agreement with Onxeo S.A., a French
public company, which gave us the option to license Validive
(clonidine mucobuccal tablet), a mucoadhesive tablet of clonidine
based on the Lauriad mucoadhesive technology to potentially treat
severe oral mucositis in patients undergoing treatment for head and
neck cancers. The pre-negotiated license terms included as part of
the option agreement included clinical, regulatory, developmental
and sales milestones that could reach up to $108 million if we
achieve all milestones, and escalating royalties on net sales from
5 - 10%. On September 8, 2017, we exercised the option to license
Validive in order to commence the clinical development of the drug
product candidate in exchange for a one-time option fee payment of
$1 million.
Under
the agreement, we are required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is generally 20
years from the earliest claimed filing date of a non-provisional
patent application in the applicable country, not taking into
consideration any potential patent term adjustment that may be
filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
38
The
Onxeo license agreement does not have a pre-determined term, but
expires on a product-by-product and country-by-country basis; that
is, the agreement expires with respect to a given product in a
given country whenever our royalty payment obligations with respect
to such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We may also
choose to terminate the agreement, either in its entirety or as to
a certain product and a certain country, by providing Onxeo with
advance notice.
From
the execution of the agreement through March 1, 2018, no milestones
were met and no royalties were earned, therefore, we did not pay or
accrue/expense any milestone or royalty payments under the Onxeo
option agreement.
Income Taxes
We
use an asset and liability approach for accounting for deferred
income taxes, which requires recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in our financial statements, but
have not been reflected in our taxable income. Estimates and
judgments occur in the calculation of certain tax liabilities and
in the determination of the recoverability of certain deferred
income tax assets, which arise from temporary differences and carry
forwards. Deferred income tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income
in effect for the years in which those tax assets and liabilities
are expected to be realized or settled.
We
regularly assess the likelihood that our deferred income tax assets
will be realized from recoverable income taxes or recovered from
future taxable income. To the extent that we believe any amounts
are more likely not to be realized, we record a valuation allowance
to reduce the deferred income tax assets. In the event we determine
that all or part of the net deferred tax assets are not realizable
in the future, an adjustment to the valuation allowance would be
charged to earnings in the period such determination is made.
Similarly, if we subsequently realize deferred income tax assets
that were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in an adjustment
to earnings in the period such determination is made.
Internal
Revenue Code Section 382 provides that, after an ownership change,
the amount of a loss corporation’s net operating loss
(“NOL”) for any post-change year that may be offset by
pre-change losses shall not exceed the section 382 limitation for
that year. Because we will continue to raise equity in the coming
years, section 382 may limit our usage of NOLs in the
future.
Based
on the available evidence, we believe that the Company was not
likely to be able to utilize our minimal deferred tax assets in the
future and, as a result, we recorded a full valuation allowance for
the years ended December 31, 2017 and 2016. We intend to maintain
the valuation allowance until sufficient evidence exists to support
their reversal. We regularly review our tax positions and for a tax
benefit to be recognized, the related tax position must be more
likely than not to be sustained upon examination. Any amount
recognized is generally the largest benefit that is more likely
than not to be realized upon settlement. Our policy is to recognize
interest and penalties related to income tax matters as an income
tax expense. For the years ended December 31, 2017 and 2016, the
Company did not have any interest or penalties associated with
unrecognized tax benefits.
We
are subject to U.S. federal, Illinois and California income taxes.
Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply. We are subject to U.S. federal,
state and local tax examinations by tax authorities for the years
ended December 31, 2017 and 2016. We plan on filing our tax returns
for the year ending December 31, 2017 prior to the respective
filing deadlines in all applicable jurisdictions.
On
December 22, 2017, the Tax Cuts and Jobs Act of 2017 was enacted by
the U.S. President. The Tax Reform Bill is effective as of January
1, 2018. In accordance with ASC guidance, deferred tax
assets/liabilities in our financial statements are to be reflected
at the tax rate in which the deferred tax assets/liabilities are
anticipated to be realized. As a result, we changed the tax rate
for tax provision purposes at December 31, 2017 from 34% to
21%.
Stock-Based Compensation
We
account for stock-based compensation arrangements with employees,
nonemployee directors and consultants using a fair value method,
which requires the recognition of compensation expense for costs
related to all stock-based payments, including stock options. The
fair value method requires us to estimate the fair value of
stock-based payment awards on the date of grant using an option
pricing model.
39
Stock-based
compensation costs for options granted to our employees and
nonemployee directors are based on the fair value of the underlying
option calculated using the Black-Scholes option-pricing model on
the date of grant for stock options and recognized as expense on a
straight-line basis over the requisite service period, which is the
vesting period. Determining the appropriate fair value model and
related assumptions requires judgment, including estimating stock
price volatility, forfeiture rates and expected term. The expected
volatility rates are estimated based on the actual volatility of
comparable public companies over the expected term. We selected
these companies based on comparable characteristics, including
market capitalization, risk profiles, stage of development and with
historical share price information sufficient to meet the expected
life of the stock-based awards. The expected term for options
granted during the years ended December 31, 2017 and 2016 is
estimated using the simplified method. Forfeitures are estimated at
the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. We have not paid
dividends and do not anticipate paying a cash dividend in the
future vesting period and, accordingly, use an expected dividend
yield of zero. The risk-free interest rate is based on the rate of
U.S. Treasury securities with maturities consistent with the
estimated expected term of the awards. The measurement of
consultant share-based compensation is subject to periodic
adjustments as the underlying equity instruments vest and is
recognized as an expense over the period over which services are
rendered.
Stock Option Plan
In
April 2016, our Board and the preferred stockholders representing a
majority in interest of our outstanding stock approved the Amended
and Restated Monopar Therapeutics Inc. 2016 Stock Incentive Plan
(the “Plan”), allowing us to grant up to an aggregate
700,000 shares (as adjusted subsequent to the Conversion) of stock
awards, stock options, stock appreciation rights and other
stock-based awards to our employees, non-employee directors and
consultants. In October 2017, our Board increased the stock option
pool up to 1,600,000 shares. Through December 31, 2017, our Board
granted to Board Members, our Chief Financial Officer, our Acting
Chief Medical Officer, and our Senior Vice President of Clinical
Development stock options to purchase up to an aggregate 555,520
shares of our common stock at an exercise price of $0.001 par value
and stock options to purchase up to an aggregate 103,072 shares of
our common stock at an exercise price of $6.00 based upon third
party valuations of our common stock and based on the price per
share at which common stock was sold in our most recent private
offering.
Under
the Plan, the per share exercise price for the shares to be issued
upon exercise of an option is determined by our Plan administrator,
except that the per share exercise price cannot be less than 100%
of the fair market value per share on the grant date. In connection
with our stock options issued in April 2016, December 2016, and
February 2017, fair market value was established by our Plan
Administrator using recently obtained third party valuation
reports. In connection with our stock options issued in September
2017, November 2017, and January 2018, fair market value was
established by our Plan Administrator based on the price per share
at which common stock was sold in our most recent private offering.
Options generally expire after ten years.
The
fair market value of the 273,000 options granted in April 2016, the
7,000 options granted in December 2016 and the 275,520 options
granted in February 2017 was nominal at the time of grant because
of both the low number of options granted prior to Conversion in
March 2017 and the low exercise price (equal to par value $0.001).
For employees that were previously consultants at the time of
grant, the fair market value during the year ended December 31,
2017 totaled $32,401 of which $26,498 was recorded as research and
development expenses and $5,903 was recorded as general and
administrative expenses. In September 2017, we granted three Board
members options to purchase up to 21,024 shares of our common stock
each. The options for these board members have a six-month vesting
cliff and vest between 24 and 48 months, depending on the Board
member's prior months of service. The fair market value of the
aggregate 63,072 options granted to Board members totaled $20,962
during the year ended December 31, 2017 and was recorded as general
and administrative expenses. In November 2017, we granted options
to purchase up to 40,000 shares of our common stock to an employee.
The options for the employee have a six-month vesting cliff and
vest over 48 months. The fair market value of the 40,000 options
granted to an employee during the year ended December 31, 2017
totaled $5,502 and was recorded as general and administrative
expenses.
We
recognize as an expense the fair value of options granted to
persons who are neither employees nor directors. The fair value of
expensed options was based on the Black-Scholes option-pricing
model assuming the following factors: 6.1 to 5.3 year expected
term, 57% volatility, 2.2% to 1.2% risk free interest rate and zero
dividends. Stock-based compensation expense for non-employees for
the year ended December 31, 2017 and 2016 was $251,842 and $0,
respectively, of which $199,769 and $0, respectively, was recorded
as research and development expenses and $52,073 and $0,
respectively, as general and administrative expenses.
40
Stock
option activity under the Plan from January 1, 2017 through
December 31, 2017 is as follows:
|
|
|
Options Outstanding
|
|
|
|
Options Available
|
Number of Options
|
Weighted-Average Exercise Price
|
|
Balances,
January 1, 2017
|
420,000
|
280,000
|
$0.001
|
|
Increase in option
pool(1)
|
900,000
|
-
|
-
|
|
Granted(2)
|
(378,592)
|
378,592
|
1.63
|
|
Forfeited
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balances,
December 31, 2017
|
941,408
|
658,592
|
0.94
|
(1)
The option pool was
increased to 1,600,000 effective October 26, 2017.
(2)
336,544 options
vest 6/48ths at the six-month
anniversary of grant date and 1/48th per month thereafter, 21,024 options
vest 6/24ths on the six-month anniversary of grant date and 1/24th
per month thereafter, and 21,024 options vest 6/42nds on the
six-month anniversary of grant date and 1/42nd per month
thereafter.
A
summary of options outstanding as of December 31, 2017 is shown
below:
|
Exercise Prices
|
Number of Shares Subject to Options Outstanding
|
Weighted Average Remaining Contractual Term
|
Number of Shares Subject to Options Fully Vested and
Exercisable
|
Weighted Average Remaining Contractual Term
|
|
$0.001
|
555,520
|
8.7
years
|
337,400
|
8.4
years
|
|
$6.00
|
103,072
|
9.6
years
|
-
|
N/A
|
|
|
658,592
|
|
337,400
|
|
No
income tax benefits have been recognized in the statements of
operations for stock-based compensation arrangements.
We
recognize as an expense the fair value of options granted to
persons who are neither our employees nor directors. The fair value
of expensed options is based on the Black-Scholes
option-pricing.
Results of Operations
Comparison of the Years Ended December 31, 2017 and December 31,
2016
The
following table summarizes the results of our operations for the
years ended December 31, 2017 and 2016:
|
|
Year Ended
December 31,
|
|
|
|
(in
thousands)
|
2017
|
2016
|
Increase
(Decrease)
|
|
Revenue
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
Research and
development expenses
|
935
|
280
|
655
|
|
In-process research
and development expenses
|
14,502
|
-
|
14,502
|
|
General and
administrative expenses
|
1,166
|
913
|
253
|
|
|
|
|
|
|
Total operating
expenses
|
16,603
|
1,193
|
15,410
|
|
|
|
|
|
|
Operating
loss
|
(16,603)
|
(1,193)
|
(15,410)
|
|
Interest and other
income
|
48
|
7
|
41
|
|
Net
loss
|
$(16,555)
|
$(1,186)
|
$(15,369)
|
41
R&D Expenses
R&D
expenses for the year ended December 31, 2017 were approximately
$0.94 million, compared to approximately $0.28 million for the year
ended December 31, 2016, an increase of approximately $0.66
million. This increase was primarily attributed to:
|
|
Year ended December 31, 2017 versus year ended December 31,
2016
|
|
Research and Development Expense (in thousands)
|
|
|
Increased
consulting in clinical development for Validive
|
$254
|
|
Stock-based
compensation (non-cash) for consultants
|
200
|
|
Salaries
and benefits for R&D staff hired in Q4 2017
|
152
|
|
Stock-based
compensation (non-cash) for employees in Q4 2017
|
26
|
|
Other,
net
|
23
|
|
Net
increase in R&D expenses
|
$655
|
In-process Research and Development ("IPR&D")
Expenses
IPR&D expenses
for the year ended December 31, 2017 of $14.5 million represents
the $1 million license fee for Validive and $13.5 million
representing the value of MNPR-201, including transaction costs,
acquired from TacticGem LLC in August 2017. IPR&D represents
the costs of acquiring or licensing technologies that have not
reached technological feasibility and have no alternative future
use.
General and Administrative (“G&A”)
Expenses
G&A
expenses for the year ended December 31, 2017 were approximately
$1.18 million, compared to approximately $0.91 million for the year
ended December 31, 2016, an increase of approximately $0.27
million. This increase was primarily attributed to:
|
|
Year ended December 31, 2017 versus year ended December 31,
2016
|
|
General and Administration Exp. (in thousands)
|
|
|
|
|
|
Intellectual
property legal costs for MNPR-201 (GPX-150) and international
filings for MNPR-101
|
$197
|
|
Increase in
CEO’s salary plus new hires in Q4 2017
|
95
|
|
Fees and expenses
for new Board members
|
76
|
|
Stock-based
compensation (non-cash) for consultant
|
52
|
|
Audit services
related to quarterly reviews
|
46
|
|
Stock-based
compensation (non-cash) for new Board members
|
21
|
|
Website
revisions
|
17
|
|
Consulting in 2016
for potential transaction not repeated in 2017
|
(36)
|
|
Legal expenses in
2016 were recorded as G&A expenses, in 2017 were recorded as
IPR&D expense and deferred offering costs (a current
asset)
|
(215)
|
|
|
|
|
Net
increase in G&A expenses
|
$253
|
Interest Income
Interest income for
the year ended December 31, 2017 increased by approximately $0.04
million versus the year ended December 31, 2016 due to higher bank
balances resulting from funds raised in 2017. Interest income was
related to interest earned on our cash equivalent investments in
two business savings accounts and on our escrow
account.
42
Liquidity and Capital Resources
Sources of Liquidity
We have
incurred losses and cumulative negative cash flows from operations
since our inception in December 2014 and, as of December 31, 2017
we had an accumulated deficit of approximately $18.4 million. We
anticipate that we will continue to incur losses for the
foreseeable future. We expect that our research and development and
general and administrative expenses will increase, and, as a
result, we anticipate that we will need to raise additional capital
to fund our operations, which we may seek to obtain through a
combination of equity offerings, debt financings, strategic
collaborations and grant funding. From our inception, through March
1, 2018, we have financed our operations primarily through private
placements of our preferred stock and common stock, the $4.8
million received (net of transaction costs) received in the Gem
Transaction (as defined below), and our Cancer Research UK
collaboration. As of March 1, 2018, we have received net proceeds
of approximately $4.70 million (net of issuance costs) from the
sale of our preferred stock which have been converted into common
stock and we sold 789,674.33 shares of our common stock for net
proceeds of approximately $4.71 million. We anticipate that the
funds raised to-date will fund our minimal operations through March
2019.
We
invest our cash equivalents in a money market account.
Contribution to Capital
In
August 2017, our largest stockholder, Tactic Pharma, LLC,
surrendered 2,888,727.12 shares of common stock back to us as a
contribution to the capital of the Company. This resulted in
reducing Tactic Pharma’s ownership in us from 79.5% to
69.9%.
The Gem Transaction
On
August 25, 2017, Tactic Pharma and Gem Pharmaceuticals formed a
limited liability company, TacticGem, LLC, with Tactic Pharma
contributing 4,111,272.88 shares of our common stock and Gem
contributing assets and $5 million in cash before transaction
costs. TacticGem then contributed the Gem assets and cash to us in
exchange for 3,055,394.12 shares of our common stock. This has
resulted in TacticGem owning 77.1% of our outstanding common stock
as of March 1, 2018. The contribution by TacticGem, made in
conjunction with contributions from outside investors in a private
offering, was intended to qualify for tax-free
treatment.
It is
anticipated that this transaction will increase the Company’s
annual cash burn by at least $750,000 and will be significantly
higher if the Company chooses to conduct clinical trials with the
Gem drug candidate programs.
The Gem
Transaction was recorded on our financial statements for the year
ended December 31, 2017 as follows:
|
Cash
to be recorded on our Balance Sheet
|
$5,000,000
|
|
Assembled
Workforce to be recorded as In-process Research and Development
Expense on our Statement of Operations
|
9,886
|
|
MNPR-201
(GPX-150) recorded as In-process Research and Development Expense
on our Statement of Operations
|
13,491,736
|
|
Total
Gem Transaction
|
$18,501,622
|
Cash Flows
The
following table provides information regarding our cash flows for
the years ended December 31, 2017 and 2016.
|
(in thousands)
|
Year ended
December 31,
|
|
|
|
2017
|
2016
|
Increase
(decrease) year ended December 31, 2017 over December 31,
2016
|
|
|
|
|
|
|
|
Cash used in
operating activities
|
$(2,627)
|
$(1,195)
|
$(1,432)
|
|
Cash provided by
financing activities
|
9,536
|
1,263
|
8,273
|
|
Net change in cash,
cash equivalents and restricted cash
|
$6,909
|
$68
|
$6,841
|
43
During
the years ended December 31, 2017 and 2016, we had net cash inflows
of $6.91 million and $0.07 million, respectively.
Cash Flow Used in Operating Activities
The
increase to cash used in operating activities during the year ended
December 31, 2017 compared to the year ended December 31, 2016 of
approximately $1.43 million was primarily due to the $1.0 million
license fee for Validive paid in 2017 plus the increase in clinical
development consulting for planning our Phase 3 clinical trial for
Validive. Cash used in operating activities of approximately $2.63
million for the year ended December 31, 2017 was primarily a result
of our approximately $16.55 million net loss offset by non-cash
in-process research and development of $13.50 million, non-cash
stock-based compensation of $0.31 million and changes in operating
assets and liabilities of approximately $0.12 million. Cash used in
operating activities of approximately $1.19 million for the year
ended December 31, 2016 was primarily a result of our approximately
$1.19 million net loss.
Cash Flow Used in Investing Activities
There
was no cash provided by or used in investing activities for the
years ended December 31, 2017 and 2016.
Cash Flow Provided by Financing Activities
The
increase of cash provided by financing activities during the year
ended December 31, 2017 compared to the year ended December 31,
2016 of approximately $8.27 million was due to the sale of common
stock during the year ended December 31, 2017 at $6.00 per share
for aggregate net proceeds of $4.70 million plus $4.83 million of
net proceeds from the Gem Transaction compared to $1.26 million
raised during the year ended December 31, 2016 from the sale of
Series A Preferred Stock.
Future Funding Requirements
We have
not generated any revenue from product sales. We do not know when,
or if, we will generate any revenue from product sales. We do not
expect to generate any revenue from product sales unless and until
we obtain regulatory approval of and commercialize any of our
current or future drug product candidates or we out-license or sell
a drug product candidate to another party. At the same time, we
expect our expenses to increase in connection with our ongoing
development activities, particularly as we continue the research,
development, future preclinical and clinical trials of, and seek
regulatory approval for, our current and future drug product
candidates. If we are able to list on Nasdaq or another national
stock exchange, we expect to incur additional costs associated with
operating as a listed public company. In addition, if we obtain
regulatory approval of any of our current and future drug product
candidates, we will need substantial additional funding in
connection with our future continuing operations.
As a
company, we have not completed development of any therapeutic
products. We expect to continue to incur significant expenses and
increasing operating losses for the foreseeable future. We
anticipate that our expenses will increase substantially as
we:
●
advance the
clinical development and execute the regulatory strategy of
Validive;
●
continue the
clinical development of MNPR-201;
●
continue the
preclinical and clinical development of MNPR-101;
●
acquire and/or
license additional pipeline drug product candidates and pursue the
future preclinical and/or clinical development of such drug product
candidates;
●
seek regulatory
approvals for any of our current and future drug product candidates
that successfully complete registration trials;
●
establish a sales,
marketing and distribution infrastructure and increase or develop
our manufacturing capabilities to commercialize any products for
which we may obtain regulatory approval; and
●
add operational,
financial and management information systems and personnel,
including personnel to support our drug product candidate
development and planned commercialization efforts.
44
We
anticipate that the funds raised to-date will fund our minimal
operations through at least the next 12 months. We have based this
estimate on assumptions that may prove to be wrong, and we could
use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated
with the development and commercialization of our drug product
candidates, and the extent to which we enter into collaborations
with third parties to participate in the development and
commercialization of our drug product candidates, we are unable to
estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated drug
product candidate development programs. Our future capital
requirements will depend on many factors, including:
●
the progress of
regulatory interactions and clinical development of
Validive;
●
the progress of
clinical development of MNPR-201;
●
the progress of
preclinical and clinical development of MNPR-101;
●
the number and
characteristics of other drug product candidates that we may
pursue;
●
the scope,
progress, timing, cost and results of research, preclinical
development and clinical trials;
●
the costs, timing
and outcome of seeking and obtaining FDA and international
regulatory approvals;
●
the costs
associated with manufacturing and establishing sales, marketing and
distribution capabilities;
●
our ability to
maintain, expand and defend the scope of our intellectual property
portfolio, including the amount and timing of any payments we may
be required to make in connection with the licensing, filing,
defense and enforcement of any patents or other intellectual
property rights;
●
our need and
ability to hire additional management, scientific and medical
personnel;
●
the effect of
competing products that may limit market penetration of our drug
product candidates;
●
our need to
implement additional internal systems and infrastructure;
and
●
the economic and
other terms, timing and success of our existing collaboration and
licensing arrangements and any collaboration, licensing or other
arrangements into which we may enter in the future, including the
timing of receipt of or payment to or from others of any milestone
or royalty payments under these arrangements
See
Item 1A - “Risk Factors”. In the first quarter of 2018,
expenditures are expected to increase in employee compensation as a
result of hiring various employees and consultants to support the
planning of our Phase 3 clinical trial of Validive, in preparation
for public market listing via the Form 10 process, and in adjusting
employee compensation to align with comparable public companies.
There can be no assurance that any such events will occur. We
intend to continue evaluating drug product candidates for the
purpose of growing our pipeline. Identifying and securing high
quality compounds usually takes time; however, our spending could
be significantly accelerated in 2018 if additional product
candidates are acquired and enter clinical development. In this
event, we may be required to expand our management team, and pay
much higher insurance rates, contract manufacturing costs, contract
research organization fees or other clinical development costs that
are not currently anticipated. We, under this scenario, would plan
to pursue raising additional capital in the next 12 months. The
anticipated operating cost increases from 2018 through 2019 are
expected to be primarily driven by the funding of our planned
Validive Phase 3 clinical program. Office space rent in 2018 and
2019 will also likely increase as a result of requiring additional
space as we hire additional employees.
Until
we can generate a sufficient amount of product revenue to finance
our cash requirements, we expect to finance our future cash needs
primarily through a combination of equity offerings, debt
financings, strategic collaborations and grant funding. To the
extent that we raise additional capital through the sale of equity
or convertible debt securities, the ownership interest of our
stockholders will be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect our
stockholders’ rights. See Item 1A - “Risk Factors
– Existing and new investors will experience dilution as a
result of our option plan and potential future stock sales.”
Debt financing, if available, may involve agreements that include
covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds
through marketing and distribution arrangements or other
collaborations, strategic alliances or licensing arrangements with
other parties, we may have to relinquish valuable rights to our
technologies, future revenue streams, research programs or product
candidates or grant licenses on terms that may not be favorable to
us. If we are unable to raise additional funds through equity or
debt financings when needed, we may be required to delay, limit,
reduce or terminate our pipeline product development or
commercialization efforts or grant rights to others to develop and
market product candidates that we would otherwise prefer to develop
and market ourselves.
45
Contractual Obligations and Commitments
Development and Collaboration Agreements
Onxeo SA
In June
2016, we executed an agreement with Onxeo S.A., a French public
company, which gave us the exclusive option to license (on a
world-wide exclusive basis) Validive (clonidine mucobuccal tablet;
clonidine MBT a mucoadhesive tablet of clonidine based on the
Lauriad mucoadhesive technology) to pursue treating severe oral
mucositis in patients undergoing chemoradiation treatment for head
and neck cancers. The agreement includes clinical, regulatory,
developmental and sales milestones that could reach up to $108
million if we achieve all milestones, and escalating royalties on
net sales from 5 - 10%. In September 2017, we exercised the option
to license Validive from Onxeo for $1 million, but as of March 1,
2018, we have not been required to pay Onxeo any other funds under
the agreement.
Under
the agreement, we are required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is generally 20
years from the earliest claimed filing date of a non-provisional
patent application in the applicable country, not taking into
consideration any potential patent term adjustment that may be
filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The
Onxeo license agreement does not have a pre-determined term, but
expires on a product-by-product and country-by-country basis; that
is, the agreement expires with respect to a given product in a
given country whenever our royalty payment obligations with respect
to such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We may also
choose to terminate the agreement, either in its entirety or as to
a certain product and a certain country, by providing Onxeo with
advance notice.
Given
the strength of the Phase 2 data, we paid the $1 million fee to
Onxeo and exercised the license option in order to advance the
clinical development of Validive. We fully anticipate the need to
raise significant funds to support the completion of clinical
development of Validive.
Cancer Research UK
In July
2015, we entered into a Clinical Trial and Option Agreement
(“CTOA”) with Cancer Research UK and Cancer Research
Technology Limited, a wholly-owned subsidiary of Cancer Research
UK. As part of the CTOA, we were obligated to deposit $0.8 million
in escrow to cover certain potential future claims, intellectual
property infringement costs or termination costs incurred by Cancer
Research UK. Pursuant to this
agreement Cancer Research UK conducted preclinical work, improved
the manufacturing, and planned to conduct a Phase 1a/1b clinical
trial in cancer patients. Under this agreement, Cancer Research UK
was to cover all costs through Phase 1a/1b clinical studies,
including manufacturing. As part of a portfolio reprioritization
review, on March 21, 2018 Cancer Research UK notified us
it was closing its project related to MNPR-101 and would work to
make arrangements to formally terminate the agreement. We are
currently reviewing potential alternative collaboration
opportunities for MNPR-101 and continue to maintain the
program’s intellectual property
portfolio.
XOMA Ltd.
The
intellectual property rights contributed by Tactic Pharma, LLC to
us included the non-exclusive license agreement with XOMA Ltd. for
the humanization technology used in the development of MNPR-101.
Pursuant to such license agreement, we are obligated to pay XOMA
Ltd. clinical, regulatory and sales milestones which could reach up
to $14.925 million if we achieve all milestones for MNPR-101 The
agreement does not require the payment of sales royalties. There
can be no assurance that we will achieve any milestones. As of
March 1, 2018, we had not reached any milestones and had not been
required to pay XOMA Ltd. any funds under this license
agreement.
46
Service Providers
In the
normal course of business, we contract with service providers to
assist in the performance of research and development, financial
strategy, audit, tax and legal support. We can elect to discontinue
the work under these agreements at any time. We could also enter
into collaborative research, contract research, manufacturing and
supplier agreements in the future, which may require upfront
payments and/or long-term commitments of cash.
Office Lease
In May
2016, we executed a six-month office lease in Northbrook, Illinois
for $1,340 per month, which was extended to December 31, 2017.
Effective January 1, 2018, we leased office space in the Village of
Wilmette for $2,379 per month for 24 months. This office space
houses our current headquarters. On November 1, 2017, we executed a
month-to-month office lease in Seattle, Washington for $1,249 per
month for the first three months, but which tiers up to $2,495 on
the last month.
Legal Contingencies
We are
currently not, and to date have never been, a party to any material
legal proceedings.
Indemnification
In the
normal course of business, we enter into contracts and agreements
that contain a variety of representations and warranties and
provide for general indemnification. Our exposure under these
agreements is unknown because it involves claims that may be made
against us in the future, but that have not yet been made. To date,
we have not paid any claims or been required to defend any action
related to our indemnification obligations. However, we may record
charges in the future as a result of these indemnification
obligations.
In
accordance with our Second Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws we have
indemnification obligations to our officers and Board Members for
certain events or occurrences, subject to certain limits, while
they are serving at our request in such capacity. There have been
no claims to date. See Item 1A - “Risk Factors - We have limited the liability of and indemnified
our directors and officers.”
Off-Balance Sheet Arrangements
To
date, we have not had any off-balance sheet arrangements, as
defined under SEC rules.
Recent Accounting Pronouncements
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern,
which provides guidance on determining when and how reporting
companies must disclose going-concern uncertainties in their
financial statements. The ASU requires management to perform
interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date of issuance
of the entity’s financial statements (or within one year
after the date on which the financial statements are available to
be issued, when applicable). Further, a company must provide
certain disclosures if there is “substantial doubt about the
entity’s ability to continue as a going concern.” This
ASU is effective for annual periods ending after December 15, 2016
and interim periods within annual periods beginning after December
15, 2016. Early adoption is permitted. We have adopted this new
accounting standard in our financial statements and footnote
disclosures.
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet
Classification of Deferred Taxes. This is part of FASB’s
simplification initiative. The amendments in this ASU require that
deferred tax liabilities and assets be classified as noncurrent in
a classified statement of financial position. This ASU is effective
for us in the first quarter of 2017. Early adoption is permitted.
We have adopted this ASU and determined that it does not have a
material effect on our financial condition and results of
operations for the year ended December 31, 2017.
In
January 2016, the FASB issued ASU 2016-01, Recognition and
Measurement of Financial Assets and Financial Liabilities. The
purpose is to enhance the reporting model for financial instruments
to provide users of financial statements with more decision-useful
information. This ASU is effective for us in the first quarter of
2018. Early adoption is not permitted except for limited
provisions. We do not expect the adoption of this amendment to have
a material effect on our financial condition and results of
operations.
47
In
February 2016, the FASB issued ASU 2016-02, Leases, which for
operating leases, requires a lessee to recognize a right-of-use
asset and a lease liability, initially measured at the present
value of the lease payments, in its balance sheet. The standard
also requires a lessee to recognize a single lease cost, calculated
so that the cost of the lease is allocated over the lease term, on
a generally straight-line basis. ASU 2016-02 will be effective for
us in the first quarter of 2019, and early adoption is permitted.
We are currently assessing the impact that adopting this new
accounting standard will have on our financial statements and
footnote disclosures.
In
March 2016, the FASB issued ASU 2016-09, Improvements to Employee
Share-Based Payment Accounting, which simplifies several aspects of
the accounting for employee share-based payment transactions for
both public and nonpublic companies, including the accounting for
income taxes, forfeitures, and statutory tax withholding
requirements, as well as classification in the statement of cash
flows. The ASU will be effective for us in the first quarter of
2017, and early adoption is permitted. We have adopted this ASU and
determined that it does not have a material effect on our financial
condition and results of operations for the year ended December 31,
2017.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows
(Topic 230): Restricted Cash. The amendments apply to all entities
that have restricted cash or restricted cash equivalents and are
required to present a statement of cash flows. The amendments
address diversity in practice that exists in the classification and
presentation of changes in restricted cash on the statement of cash
flows. The amendments require that a statement of cash flows
explain the change during the period in the total of cash, cash
equivalents, and amounts generally described as restricted cash or
restricted cash equivalents. As a result, amounts generally
described as restricted cash and restricted cash equivalents should
be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments do not provide a definition
of restricted cash or restricted cash equivalents. The amendments
are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those
fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2018, and interim
periods within fiscal years beginning after December 15, 2019.
Early adoption is permitted. We have early adopted the amendments
and have applied them using a retrospective transition method to
each period presented. Therefore, we have included restricted cash
in cash equivalents and restricted cash on our statements of cash
flows for the years ended December 31, 2017 and 2016.
In
January 2017, the FASB issued ASU No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a Business
(“ASU No. 2017-01”). The amendments in ASU No. 2017-01
clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or
businesses. The definition of a business affects many areas of
accounting including acquisitions, disposals, goodwill and
consolidation. For public companies, the amendments are effective
for annual periods beginning after December 15, 2017, including
interim periods within those periods. For all other companies and
organizations, the amendments are effective for annual periods
beginning after December 15, 2018, and interim periods within
annual periods beginning after December 15, 2019. We are currently
assessing the impact that adopting this new accounting standard
will have on our financial statements and footnote
disclosures.
In May
2017, the FASB issued ASU No. 2017-09, Compensation-Stock
Compensation (Topic 718): Scope of Modification Accounting. The
amendment amends the scope of modification accounting for
share-based payment arrangements, provides guidance on the types of
changes to the terms or conditions of share-based payment awards to
which an entity would be required to apply modification accounting
under ASC 718. This ASU is effective for all entities for annual
periods, and interim periods within those annual periods, beginning
after December 15, 2017. Early adoption is permitted, including
adoption in any interim period for: (a) public business entities
for reporting periods for which financial statements have not yet
been issued, and (b) all other entities for reporting periods for
which financial statements have not yet been made available for
issuance. We are currently assessing the impact that adopting this
new accounting standard will have on our financial statements and
footnote disclosures.
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic
260) Distinguishing Liabilities from Equity (Topic 480) Derivatives
and Hedging (Topic 815) (Part I) Accounting for Certain Financial
Instruments with Down Round Features, (Part II) Replacement of the
Indefinite Deferral for Mandatorily Redeemable Financial
Instruments of Certain Nonpublic Entities and Certain Mandatorily
Redeemable Noncontrolling Interests with a Scope Exception. This
ASU simplifies the accounting for certain financial instruments
with down round features, a provision in an equity-linked financial
instrument (or embedded feature) that provides a downward
adjustment of the current exercise price based on the price of
future equity offerings. Down round features are common in
warrants, preferred shares, and convertible debt instruments issued
by private companies and development-stage public companies. This
new ASU requires companies to disregard the down round feature when
assessing whether the instrument is indexed to its own stock, for
purposes of determining liability or equity classification. The
provisions of this new ASU related to down rounds are effective for
public business entities for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For
all other entities, the amendments are effective for fiscal years
beginning after December 15, 2019, and interim periods within
fiscal years beginning after December 15, 2020. Early adoption is
permitted for all entities. We are currently assessing the impact
that adopting this new accounting standard will have on our
financial statements and footnote disclosures.
48
Item 8. Financial Statements and
Supplementary Data
The
information required to be filed in this item appears on pages F-1
to F-24 of this Annual Report on Form 10-K.
Documents filed as
part of this Annual Report on Form 10-K:
|
|
|
Page
|
|
Report of
Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Balance Sheets
as of December 31, 2017 and 2016
|
|
F-3
|
|
|
|
|
|
Statements of
Operations for the Years Ended December 31, 2017 and
2016
|
|
F-4
|
|
|
|
|
|
Statements of
Stockholders’ Equity for the Years Ended December 31, 2017
and 2016
|
|
F-5
|
|
|
|
|
|
Statements of
Cash Flows for the Years Ended December 31, 2017 and
2016
|
|
F-6
|
|
|
|
|
|
Notes to
Financial Statements
|
|
F-7
to F-24
|
49
PART II – FINANCIAL INFORMATION
Item 9: Changes in and Disagreements
with Accountants on Accounting and Financial
Disclosure
None.
Item 9a: Controls and
Procedures
Our
Chief Executive Officer and Chief Financial Officer have provided
certifications filed as Exhibits 31.1 and 32.1, and 31.2,
respectively. Such certifications should be read in conjunction
with the information contained in this Item 9A for a more complete
understanding of the matters covered by those
certifications.
(a) Management’s Annual Report on Internal Control over
Financial Reporting
Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in Rule
13a15(f) of the Securities Exchange Act of 1934 (the
“Exchange Act”). Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of the financial reporting and the
preparation of financial statements for external purposes in
accordance with U.S. generally accepted accounting principles. This
process includes those policies and procedures (i) that pertain to
the maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of our assets.
(ii) that receipts and expenditures are being made only in
accordance with authorizations of our management and directors.
(iii) that provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition
of our assets that could have a material effect on our financial
statements. and (iv) that provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP. Because of its
inherent limitations, internal control over financial reporting may
not prevent or detect misstatements. Also, projections of any
evaluation of the internal control over financial reporting to
future periods are subject to risk that the internal control may
become inadequate because of changes in conditions, or that the
degree of compliance with policies or procedures may
deteriorate.
This annual report does not include a report of management's
assessment regarding internal controls over financial reporting or
an attestation report of the Company's registered public accounting
firm due to a transition period established by SEC rules for newly
public companies.
(b) Disclosure Controls and Procedures
We
carried out an evaluation, under the supervision and with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures as of December 31, 2017,
pursuant to Rules 13a15(e) and 15d15(e) under the Exchange Act.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and
procedures, as of such date, were effective.
(c) Changes in Internal Control over Financial
Reporting
We have
concluded that the financial statements and other financial
information included in this Annual Report on Form 10-K fairly
present in all material respects our financial condition, results
of operations and cash flows as of, and for, the periods
presented.
There
have been no changes in our internal control over financial
reporting during the fourth quarter and the year ended December 31,
2017 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial
reporting.
50
PART III
Item 10. Directors and Executive
Officers and Corporate Governance.
The
Members of our Board of Directors, each of whom serves until the
next annual meeting of stockholders, and the executive officers of
the Company, each of whom serves at the discretion of the Board of
Directors are as follows:
|
Name
|
|
Age
|
|
Positions
|
|
Director
Since
|
|
Christopher M.
Starr, Ph.D.
|
|
65
|
|
Executive
Chairman, Director, Member of the Audit Committee, the Compensation
Committee, and the Corporate Governance & Nominating
Committee
|
|
December
2014
|
|
|
|
|
|
|
|
|
|
Chandler D.
Robinson, MD MBA MSc
|
|
34
|
|
Chief Executive
Officer, Director
|
|
December
2014
|
|
|
|
|
|
|
|
|
|
Andrew P. Mazar,
Ph.D.
|
|
56
|
|
Executive Vice
President of Research and Development, Chief Scientific Officer,
Director
|
|
December
2014
|
|
|
|
|
|
|
|
|
|
Kim
R. Tsuchimoto
|
|
55
|
|
Chief Financial
Officer
|
|
-
|
|
|
|
|
|
|
|
|
|
Patrice Rioux,
MD Ph.D.
|
|
66
|
|
Acting Chief
Medical Officer
|
|
-
|
|
|
|
|
|
|
|
|
|
Michael J.
Brown, MSc
|
|
60
|
|
Director, Member
of the Audit Committee, the Compensation Committee, and the
Corporate Governance & Nominating Committee
|
|
December
2014
|
|
|
|
|
|
|
|
|
|
Raymond
“Bill” Anderson, MBA
|
|
76
|
|
Director, Chair
of the Audit Committee, Member of the Compensation Committee and
the Corporate Governance & Nominating Committee
|
|
April
2017
|
|
|
|
|
|
|
|
|
|
Arthur Klausner,
MBA
|
|
57
|
|
Director, Member
of the Audit Committee, the Compensation Committee, and the
Corporate Governance & Nominating Committee
|
|
August
2017
|
|
|
|
|
|
|
|
|
|
Kirsten
Anderson
|
|
50
|
|
Senior Vice
President, Clinical Development
|
|
-
|
Backgrounds of our
executive officers and board members are discussed
below.
Executive Officers and Board Members
Christopher M. Starr, PhD - Executive Chairman
Dr.
Starr is a co-founder and has been our Executive Chairman and a
Board Member of ours and our predecessor Monopar Therapeutics, LLC
since its inception in December 2014. Dr. Starr’s primary
responsibility as our Executive Chairman is to work with our Chief
Executive Officer and the rest of our Board to set our strategic
direction and provide guidance to, and oversight of our Chief
Executive Officer. Our Chairman also sets the agenda for Board
meetings and presides over them. Dr. Starr was the co-Founder and
served as the initial chief executive officer (“CEO”)
at Raptor Pharmaceuticals (“Raptor”), a public company
(Nasdaq: RPTP), since its inception in 2006 through December 2014
and continued to serve Raptor as a member of its board of directors
until Raptor was sold to Horizon Pharma plc in October 2016. The
principal business of Raptor is the development and
commercialization of treatments for rare diseases. Dr.
Starr’s primary responsibilities as CEO included the day to
day leadership and performance of Raptor which had one approved
drug marketed in the U.S. and Europe. Dr. Starr co-founded BioMarin
in 1997, a public company (Nasdaq: BMRN) where he last served as
Senior Vice President and Chief Scientific Officer overseeing the
approval of three drugs until starting Raptor in 2006. As Senior
Vice President at BioMarin, Dr. Starr was responsible for managing
a Scientific Operations team of 181 research, process development,
manufacturing and quality personnel through the successful
development of commercial manufacturing processes for its biologic
enzyme replacement therapy and small molecule products, and
supervised the cGMP design, construction and licensing of
BioMarin’s proprietary biological manufacturing facility.
From 1991 to 1997, Dr. Starr supervised research and commercial
programs at BioMarin’s predecessor company, Glyko, Inc.,
where he served as Vice President of Research and Development.
Prior to his tenure at Glyko, Inc., Dr. Starr was a National
Research Council Associate at the National Institutes of Health.
Dr. Starr earned a B.S. from Syracuse University and a Ph.D. in
Biochemistry and Molecular Biology from the State University of New
York Health Science Center, in Syracuse, New York.
51
Chandler D. Robinson, MD MBA MSc - Chief Executive
Officer
Dr.
Robinson is a co-founder and has been our CEO and a Board Member of
ours and our predecessor Monopar Therapeutics, LLC since its
inception in December 2014. Dr. Robinson’s primary
responsibilities as CEO are for our day to day leadership and
performance. Since 2010, Dr. Robinson has been, and continues to
be, a manager of Tactic Pharma LLC (“Tactic”), which he
co-founded and led as CEO until it became a holding company in
April 2014. Tactic acquired and developed preclinical and clinical
stage compounds. In 2010, Tactic acquired a drug on which Dr.
Robinson conducted research at Northwestern University. Tactic
licensed the drug to a company in Europe and manufactured it for
sale on a Named Patient basis throughout Europe. In April 2014,
Tactic sold its remaining rights to the compound to three large
European investment firms and this compound is currently in a Phase
3 clinical trial for Wilson disease. Among his previous
experiences, Dr. Robinson in 2008 worked at Onyx Pharmaceuticals in
their Nexavar marketing division, from 2008 to 2009 as a co-manager
of a healthcare clinic in San Jose CA, from 2004 to present as
Founder and President of an undergraduate research focused
non-profit now in its 14th year, and from 2006 to 2007 as part of a
quantitative internal hedge-fund style team at Bear Stearns
investment bank. He was previously on the board of Wilson
Therapeutics (Nasdaq: WTX) and is currently on the board of
Northwestern University’s Chemistry of Life Processes
Institute. Dr. Robinson graduated summa cum laude from Northwestern
University, earned a master's degree in International Health Policy
and Health Economics from the London School of Economics on a
Fulbright Scholarship, an MBA from Cambridge University on a Gates
Scholarship through Bill Gates’ Trust, and an MD from
Stanford University.
Andrew P. Mazar, PhD – Executive Vice President of Research
and Development, and Chief Scientific Officer
Dr.
Mazar is a co-founder and has been our Chief Scientific Officer and
a Board Member of ours and our predecessor Monopar Therapeutics,
LLC, since inception in December 2014. Dr. Mazar became our
Executive Vice President of Research and Development effective as
of November 1, 2017. Dr. Mazar’s primary responsibilities for
us are the day to day leadership and performance of our research
and development activities. Dr. Mazar has spent 28 years working on
drug discovery and development at the interface of academia and
industry and has founded or co-founded 8 start-up companies to
commercialize new drug discoveries, including Tactic Pharma LLC
(“Tactic”), which acquired and developed preclinical
and clinical stage compounds. He is also internationally recognized
for his basic research work on the role of the urokinase
plasminogen activator (uPA) system in tumor progression as well as
mechanisms of cancer invasion and metastasis. Prior to joining
Tactic in 2010 and the Chemistry of Life Processes Institute at
Northwestern University in 2009, Dr. Mazar was the Chief Scientific
Officer at Attenuon, LLC in San Diego from 2000 to 2009 and led
discovery and development efforts resulting in three drugs entering
oncology clinical trials. Dr. Mazar has now overseen 18
IND-enabling efforts, many of these focused on drugs discovered in
academia.
Dr.
Mazar is the previous Chair of the NCI Nanotechnology Alliance
Animal Model working group (2011-2015) and has been a member of the
NHLBI Scientific Review Board (SRB) for the SMARTT program since
2011. Dr. Mazar served as Associate Editor for Recent Patent
Reviews on Anti - Cancer Drug Discovery (2010-2013) and is
currently a member of the editorial board of Clinical Cancer
Research. He most recently served as a charter member of the NIH
Developmental Therapeutics Study Section (2012-2016), and has also
served on study sections for the NCI, NIDDK, NHLBI, NIH Special
Emphasis Panels, VA Oncology Merit Review, AHA and the Phillip
Morris External Research Program. He is also the co-author of 110
peer reviewed publications and 18 reviews and book chapters, most
recently contributing chapters on Cancer Invasion and Metastasis to
the Oxford Textbook of Clinical Oncology and The Oxford Textbook of
Cancer Biology. Dr. Mazar has founded or advised several start-up
companies over the past 5 years including Tactic Pharma LLC,
Valence Therapeutics, Wilson Therapeutics, Panther Biotechnology,
Lung Therapeutics Inc., Actuate Therapeutics, AvidTox and
Tempus.
Kim R. Tsuchimoto –Chief Financial Officer
Ms.
Tsuchimoto was our Acting Chief Financial Officer since June 2015,
and became employed as our Chief Financial Officer effective
November 1, 2017. Ms. Tsuchimoto spent over nine years at Raptor,
as its Chief Financial Officer from Raptor’s inception in May
2006 until September 2012, as Raptor’s Vice President of
International Finance, Tax & Treasury from September 2012 to
February 2015, and lastly served as Raptor’s Vice President,
Financial Planning & Analysis and Internal Controls from
February to May 2015. Prior to Raptor, Ms. Tsuchimoto spent eight
years at BioMarin and its predecessor, Glyko, Inc., where she held
the positions of Vice President-Treasurer, Vice
President-Controller and Controller. Ms. Tsuchimoto received a B.S.
in Business Administration from San Francisco State University. She
holds an inactive California Certified Public Accountant
license.
52
Patrice Rioux, MD Ph.D. – Acting Chief Medical
Officer
Dr.
Rioux has been our Acting Chief Medical Officer since December
2016. Dr. Rioux’s primary responsibilities include clinical
development and regulatory (FDA & EMA) planning, coordination
of clinical operations and statistical strategy, support of
investor relationship. Dr. Rioux has been deeply involved in
development of drugs for rare diseases for the last 20 years. His
background includes development of drugs and biologic products for
various indications across neurodegenerative diseases, immunology,
pain management, oncology and metabolic diseases. Dr. Rioux has
been performing development, medical/regulatory, and clinical
consulting services through his consulting company, pRx Consulting,
LLC from June 2004 to the present. From 2009 to October 2014, Dr.
Rioux was the Chief Medical Officer at Raptor where he was
responsible for securing regulatory approval of PROCYSBI, a
delayed-release cysteamine for the treatment of a lysosomal storage
disease, nephropathic cystinosis, in both the U.S. and Europe. From
2005 to 2008 he served as the Chief Medical Officer at Edison
Pharmaceuticals, and as from 2000 to 2003, he served as Vice
President Clinical at Repligen, where he gained significant orphan
disease experience in mitochondrial diseases as well as in autism,
and auto-immune diseases. After several years as a clinical
researcher at INSERM (France), he started his career in the
pharmaceutical industry at Biogen in October 1995, working on
multiple sclerosis, before joining Variagenics, Inc. in 1998, one
of the first pharmacogenomic companies. Dr. Rioux received his
Medical Education at Faculté de Médecine
Pitié-Salpetriere, his Ph.D. in Mathematical Statistics at
Faculté des Sciences, and his Degree of Pharmacology
(pharmacokinetics and clinical pharmacology) at Faculté de
Médecine Pitié-Salpetriere.
Kirsten Anderson - Senior Vice President, Clinical
Development
Ms.
Anderson has more than 25 years of experience in the biotech and
pharmaceutical industry, with expertise in oncology drug
development, most recently as an independent clinical development
consultant for us from February 2017 through October 2017. She
became our Senior Vice President of Clinical Development effective
November 1, 2017. From 2008 to 2016, she was at OncoGenex
Pharmaceuticals, where she served as Vice President of Clinical
Operations (March 2015 to November 2016). Since 2008, she has also
held the following positions with OncoGenex: Director, Clinical
Research (2008 to December 2010) and Senior Director, Clinical
Research (January 2012 to February 2015). Prior to joining
OncoGenex, Ms Anderson held clinical trial management positions at
Sonus Pharmaceuticals, Xcyte Therapies, and Immunex, including the
oversight of global clinical operations, drug safety and data
management. She has a laboratory research background and began her
career at the University of Pennsylvania. Ms. Anderson earned a
degree in Biology from the University of Vermont and is completing
her Masters in Biotech Enterprise (expected 2018) from Johns
Hopkins University.
Michael J. Brown, MSc – Board Member
Mr.
Brown has been a Board Member of ours and our predecessor, Monopar
Therapeutics, LLC since its inception in December 2014. Mr. Brown
is also the Administrator of the Monopar 2016 Stock Incentive Plan.
Mr. Brown is the Co-Founder, and since 1994 has served as Chairman,
and since 1996 as CEO, of Euronet Worldwide Inc.
(“Euronet”), a public company (Nasdaq: EEFT) which
offers payment and transaction processing and distribution
solutions to financial institutions, retailers, service providers
and individual consumer. Mr. Brown has been President of Euronet
since December 2014 and also served as President of Euronet from
December 2006 to June 2007. Mr. Brown has been a member of the
Euronet board of directors since December 1996 and also served on
the boards of Euronet’s predecessor companies. He has a
Master of Science in molecular and cellular biology.
Raymond W. Anderson, MBA MS – Board Member
Mr.
Anderson has been a Board Member of Monopar since April 2017. He
has been chair of the audit committee since October 2017. Mr.
Anderson has more than 35 years of biopharmaceutical/medical
technology sector experience, primarily focused in financial
management. Mr. Anderson worked at Dow Pharmaceutical Sciences,
Inc. from July 2003 until June 2010. He most recently served as
Dow’s Managing Director from January 2009 to June 2010, and
previously served as Dow’s Chief Financial Officer and Vice
President, Finance and Administration. Prior to joining Dow in
2003, Mr. Anderson was Chief Financial Officer for Transurgical,
Inc., a private medical technology company. Prior to that, Mr.
Anderson served as Chief Operating Officer and Chief Financial
Officer at BioMarin Pharmaceutical Inc. from June 1998 to January
2002. Prior to June 1998, Mr. Anderson held similar executive-level
positions with other biopharmaceutical companies, including Syntex
Laboratories, Chiron Corporation, Glycomed Incorporated and Fusion
Medical Technologies. Mr. Anderson served as a board member and
chair of the audit committee at Raptor Pharmaceutical Inc. from its
founding in 2006 to its acquisition in 2016. Mr. Anderson also
served as an officer in the U.S. Army Corps of Engineers, as a
strategic planner and operational profit and loss manager at
General Electric and as a finance manager at Memorex. Mr. Anderson
holds an M.B.A. from Harvard University, an M.S. in Administration
from George Washington University and a B.S. in Engineering from
the U.S. Military Academy.
53
Arthur Klausner, MBA – Board Member
Mr.
Klausner has been a consultant to the biopharmaceutical industry
since 2009. He served as Chief Executive Officer of Gem
Pharmaceuticals, LLC (“Gem”) from September 2012 until
Gem’s drug development assets were acquired by us in 2017.
Gem’s lead, Phase 2 drug product candidate was GPX-150
(renamed MNPR-201) (5-imino-13-deoxydoxorubicin), a proprietary
analog of doxorubicin engineered specifically to retain the
anticancer activity of doxorubicin while minimizing toxic effects
on the heart. In addition to his role at Gem, Mr. Klausner served
as CEO of Jade Therapeutics Inc. (“Jade”) from
September 2012 until December 2015. Jade’s focus was on the
development of proprietary, cross-linked hyaluronic acid
formulations for ophthalmic applications until its March 2016
acquisition by EyeGate Pharmaceuticals, Inc. (Nasdaq: EYEG).
Previously, Mr. Klausner spent a total of 18 years at the life
science venture capital firms Domain Associates and Pappas
Ventures, where he was involved in the investment in and subsequent
nurturing of a variety of biotechnology, specialty pharmaceutical,
and medical device companies. During that time, he was a member of
the board of directors at Santarus (acquired by Salix
Pharmaceuticals), X-Ceptor Therapeutics (acquired by Exelixis),
Orexigen Therapeutics, Inc. (Nasdaq: OREX), and Syndax
Pharmaceuticals (Nasdaq: SNDX), and a board observer at Peninsula
Pharmaceuticals (acquired by Johnson & Johnson) and Cerexa
(acquired by Forest Laboratories). Mr. Klausner currently serves on
the board of directors of Cennerv Pharma (S) Pte. Ltd. (Singapore),
and on advisory boards for Neurotez, Inc., and the New York
University Innovation Venture Fund. He received his M.B.A. from the
Stanford University Graduate School of Business and his
undergraduate degree in Biology from Princeton
University.
Agreement Regarding Election of Directors
The
limited liability company agreement of TacticGem provides that the
Manager of TacticGem is required to vote TacticGem’s shares
of our common stock to elect Tactic Pharma’s nominees to our
Board plus one person designated by Gem. The Gem board nomination
right terminates at such time as we achieve a listing on a national
stock exchange (e.g. Nasdaq, the NYSE or similar national stock
exchange). Gem’s initial designee for election to our Board
was Arthur Klausner.
Board Composition and Election of Directors
Independence of the Board of Directors
We
believe it is important to have independent directors on our Board
who can make decisions without being influenced by personal
interests. Additionally, because one of our goals is to qualify for
listing with NADSDAQ we are following the Nasdaq Stock Market
(“Nasdaq”) listing standards, which requires that a
majority of the members of our Board of Directors must qualify as
“independent,” as affirmatively determined by our
Board. Our Board consults with our counsel to ensure that our
Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition
of “independent,” including those set forth in
pertinent listing standards of Nasdaq, as in effect from time to
time.
Consistent
with these considerations, after review of all relevant identified
transactions or relationships between each director, or any of his
family members, and us, our senior management and our independent
registered public accounting firm, our Board has affirmatively
determined that the following directors are independent directors
within the meaning of the applicable Nasdaq listing standards: Dr.
Starr, Mr. Brown, Mr. Anderson and Mr. Klausner. In making this
determination, our Board found that none of the directors had a
material or other disqualifying relationship with us. Dr. Robinson,
our President and Chief Executive Officer, is not an independent
director by virtue of his employment relationship with us, and
similarly Dr. Mazar by virtue of his employment relationship with
us is not an independent director.
There
are no family relationships among any of our directors or executive
officers.
Board Leadership Structure
We
have structured our Board in a way that we believe effectively
serves our objectives of corporate governance and management
oversight. We separate the roles of Chief Executive Officer and
Chairman of the Board in recognition of the differences between the
two roles. We believe that the Chief Executive Officer should be
responsible for Monopar’s day to day leadership and
performance, while our Executive Chairman of the Board should work
with our Chief Executive Officer and the rest of our Board to set
our strategic direction and provide guidance to, and oversight of
our Chief Executive Officer. Our Executive Chairman also sets the
agenda for Board meetings and presides over them.
54
Audit Committee
Our
Board has formed an audit committee. Mr. Anderson has been
appointed as chair of the audit committee. Mr. Anderson is a
financial expert as defined by Nasdaq and is an independent board
member as contemplated by Rule 10A-3 under the Exchange Act. In
addition, Dr. Starr, Mr. Klausner and Mr. Brown have been appointed
as independent members of the audit committee.
The functions of our Audit Committee include,
among other duties and responsibilities:
●
to
assist the Board of Directors in its oversight responsibilities for
the integrity of the Company’s financial
statements;
●
to
assure the quality of the accounting and financial reporting
processes of the Company;
●
to
assure the effectiveness of the Company’s internal controls
over financial reporting;
●
to
assist with the Company’s compliance with legal and
regulatory requirements;
●
to
review and discuss with management and the independent registered
public accounting firm the Company’s annual and quarterly SEC
reports including the audit of the annual financial statements and
the reviews of the quarterly financial statements and related
disclosures;
●
to
be directly responsible for the appointment, compensation,
retention, and oversight of the work of the independent registered
public accounting firm and any other independent registered public
accounting firm performing other audit, review, or attest services
for the Company;
●
to
review and discuss with the Company’s management the risk
assessment and risk management policies of the
Company;
●
to
oversee systems and procedures for the receipt, retention and
resolution of complaints received by the Company regarding
accounting, internal financial controls or auditing matters and for
the confidential and anonymous submission by Company employees of
concerns regarding potential fraud or questionable financial,
accounting, internal financial controls or auditing
matters;
●
to
periodically review and update the Company’s Code of Business
Conduct and Ethics and review programs established to monitor
compliance with and to improve employees’ knowledge of the
Code;
●
to
review and approve or disapprove any transaction required to be
disclosed according to SEC regulations between the Company and any
related party and to oversee the Company’s policies and
procedures for judgments as to related party transactions;
and
●
to
prepare the Audit Committee’s report required by SEC rules,
when such requirement becomes applicable to the
Company.
Code of Conduct and Business Ethics
We have
adopted a Code of Conduct and Business Ethics that is applicable to
our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing
similar functions. It also applies to all of our employees and our
non-employee directors. Our Code of Conduct and Business Ethics is
available on our website, will be provided to any person without
charge upon request, and is filed as an exhibit to this Annual
Report on Form 10-K.
55
Corporate Governance and Nominating Committee
The
Board has formed a Corporate Governance and Nominating Committee
and has appointed Dr. Starr, Mr. Brown, Mr. Anderson and Mr.
Klausner as members of the committee.
It
is anticipated that the functions of our corporate governance and
nominating committee will include, among other things:
●
identifying
individuals qualified to become board members;
●
recommending
to our board the persons to be nominated for election as directors
and to each of the board's committees;
●
reviewing
and making recommendations to the board with respect to management
succession planning;
●
developing
and recommending to the board corporate governance guidelines;
and
●
overseeing
an annual evaluation of the board.
Compensation Committee
Our
Board has also formed a Compensation Committee consisting of Mr.
Brown Dr. Starr, Mr. Anderson and Mr. Klausner as independent
members. It is anticipated that the compensation committee will
engage independent third-party compensation experts as
needed.
The
functions of our Compensation Committee is anticipated to include,
among other things:
●
annually reviewing
and approving corporate goals and objectives relevant to our chief
executive officer's compensation;
●
determining our
chief executive officer's compensation;
●
reviewing and
approving, or making recommendations to our board with respect to,
the compensation of our other executive officers;
●
overseeing an
evaluation of our senior executives;
●
overseeing and
administering our equity incentive plans;
●
reviewing and
making recommendations to our board with respect to director
compensation; and
●
preparing the
annual compensation committee report to the extent required by SEC
rules, when such requirement becomes
applicable to us.
56
Item 11. Executive
Compensation.
Summary Compensation Table
The
following table sets forth for the fiscal years ended December 31,
2017 and 2016, the
compensation of the Company’s Chief Executive Officer and
the Company's
two highest compensated executive
officers whose
compensation exceeded $100,000 during our last fiscal
year.
|
Name and
|
Fiscal
|
Salary
|
Bonus
|
Option Awards
|
All Other Compensation
|
Total
|
|
Positions
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
Chandler D. Robinson, M.D.,
|
2017
|
318,750
|
-
|
23(1)
|
70,000(2)
|
388,773
|
| Chief Executive Officer and Director |
2016
|
300,000
|
|
41(1)
|
75,000(2)
|
375,041
|
|
|
|
|
|
|
|
|
|
Andrew P. Mazar, Ph.D.,
|
2017
|
87,500
|
-
|
220,466(1)
|
238,750(3)
|
546,716
|
| Chief Scientific Officer and Director |
2016
|
-
|
-
|
41(1)
|
197,500(3)
|
197,541
|
|
|
|
|
|
|
|
|
|
Kirsten Anderson,
|
2017
|
43,333
|
25,000
|
5,502
|
78,550
|
152,385
|
| Senior Vice President, Clinical Development(4) |
2016
|
-
|
-
|
-
|
-
|
-
|
(1) In
2016, each of Dr. Robinson and Dr. Mazar was granted options to
purchase up to 84,000 shares of our common stock as discussed below
in the section Outstanding Equity
Awards at Fiscal Year End. Based upon the Black-Scholes
valuation model for stock option compensation expense, the value of
Dr. Robinson’s stock options was $41 and the value of Dr.
Mazar’s stock options was $41 for the year ended December
31, 2016. The options vested 50% on the grant date (April 4, 2016),
25% on the six-month anniversary of the grant date (October 4,
2016) and 25% on the one year anniversary of the grant date (April
3, 2017).
In 2017, each of Dr. Robinson and Dr. Mazar was granted options to
purchase up to 84,000 shares of our common stock as discussed below
in the section Outstanding Equity
Awards at Fiscal Year End. Based upon the Black-Scholes
valuation model for stock option compensation expense, the value of
Dr. Robinson’s stock options outstanding as of December 31,
2017 was $23 and the value of Dr. Mazar’s stock options
outstanding as of December 31, 2017 was $220,466 for the year ended
December 31, 2017. The options granted in 2017 vested 6/48ths on
the six month anniversary of grant date (August 20, 2017) and
1/48th per month thereafter.
(2)
Consisting of an employer funded 401(k) in the amount of
$54,000 and $53,000
for 2017 and 2016,
respectively, plus $16,000 and $22,000 in lieu of
benefits for 2017 and 2016,
respectively.
(3)
Until November 1, 2017, Dr. Mazar was a consultant acting as chief
scientific officer for $225,000 and $197,500 in
consulting fees in 2017 and
2016, respectively, with no additional compensation for
board member services. As of November 1, 2017, Dr. Mazar became
employed as our Executive Vice President of Research and
Development, and Chief Scientific Officer at an annual base salary of $350,000
and an amount in lieu of benefits of $55,000. A pro rata amount of in lieu of
benefits of $13,750 is included in All Other
Compensation.
(4) Until November 1, 2017, Ms. Anderson was a consultant during
2017 providing clinical development strategy for $78,550 in
consulting fees. As of November 1, 2017, Ms. Anderson became
employed as our Senior Vice President, Clinical Development at an
annual base salary of $260,000 and a sign-on bonus of $25,000. On
November 1, 2017, Ms. Anderson was granted options to purchase up
to 40,000 shares of our common stock as discussed below in the
section Outstanding Equity
Awards at Fiscal Year End. Based upon the Black-Scholes
valuation model for stock option compensation expense, the value of
Ms. Anderson’s stock options outstanding as of December 31,
2017 was $5,502. The options vest 6/48ths on the six month
anniversary of grant date (May 1, 2018) and 1/48th per month
thereafter.
57
Employment Agreements
In
December 2016, we entered into an employment agreement with Dr.
Robinson for his role as our chief executive officer. Although we
have been paying Dr. Robinson as our employee since January 1,
2016, we did not enter into a formal employment agreement until
December 2016. Dr. Robinson’s employment agreement is for an
indefinite term (for at-will employment). The agreement was amended
and restated on November 1, 2017.
Under
his employment agreement, Dr. Robinson currently receives a
$375,000 per year base salary, which may be adjusted from time to
time in accordance with normal business practice and in our sole
discretion. In addition, Dr. Robinson will be eligible for an
annual performance bonus, of up to 50% of his base salary, based on
achieving goals as determined by our Board and our Compensation
Committee. Until we obtain retirement and healthcare benefits for
our eligible employees and Dr. Robinson elects to opt in to such
benefits, Dr. Robinson is entitled to an additional salary of at
least $4,583.33 per month (or such greater amount as determined by
our Board) in lieu of such benefits.
On
November 1, 2017, we entered into an employment agreement with Dr.
Mazar for his role as our Executive Vice President of Research and
Development and Chief Scientific Officer. Dr. Mazar’s
employment agreement is for an indefinite term (for at-will
employment). Under his employment agreement, Dr. Mazar receives a
$350,000 per year base salary, which may be adjusted from time to
time in accordance with normal business practice and in our sole
discretion. In addition, Dr. Mazar will be eligible for an annual
performance bonus, of up to 40% of his base salary, based on
achieving goals as determined by our Board and our Compensation
Committee. Until we obtain retirement and healthcare benefits for
our eligible employees and Dr. Mazar elects to opt in to such
benefits, Dr. Mazar is entitled to an additional salary of at least
$4,583.33 per month (or such greater amount as determined by our
Board) in lieu of such benefits.
On
November 1, 2017, we entered into an employment agreement with Ms.
Tsuchimoto for her role as our Chief Financial Officer. Ms.
Tsuchimoto’s employment agreement is for an indefinite term
(for at-will employment). The agreement was amended on March 1,
2018. Under her employment agreement, Ms. Tsuchimoto receives a
$137,500 per year base salary to reflect 50% time, which may be
adjusted from time to time in accordance with normal business
practice and in our sole discretion. Ms. Tsuchimoto is entitled to
an additional salary of up to $1,800 per month in lieu of medical,
dental and vision benefits until such time the Company has such
benefit plans in place. In addition, Ms. Tsuchimoto will be
eligible for an annual performance bonus determined by our Board
and our Compensation Committee.
On
November 1, 2017, we entered into an employment agreement with Ms.
Anderson for her role as our Senior Vice President of Clinical
Development. Ms. Anderson’s employment agreement is for an
indefinite term (for at-will employment). Under her employment
agreement, Ms. Anderson receives a $260,000 per year base salary,
which may be adjusted from time to time in accordance with normal
business practice and in our sole discretion. Ms. Anderson's employment agreement
included a $25,000 sign-on bonus. In addition, beginning in
2018, Ms. Anderson will be eligible for an annual performance bonus
determined by our Board and our Compensation
Committee.
Outstanding Equity Awards at Fiscal Year End
The
following table sets forth outstanding stock option awards held by
named executive officers as of December 31, 2017. There were no outstanding
stock awards as of December 31, 2017.
|
Name
|
|
Number of securities underlying unexercised options (#)
exercisable
|
|
Number of securities underlying unexercised options (#)
unexercisable
|
|
Option exercise price ($)
|
|
Option expiration date
|
|
Chandler D.
Robinson, M.D.
|
|
17,500(1)
84,000(2)
|
|
66,500(1)
-
|
|
$0.001
$0.001
|
|
02/19/2027
04/03/2026
|
|
|
|
|
|
|
|
|
|
|
|
Andrew P. Mazar,
Ph.D
|
|
17,500(1)
84,000(2)
|
|
66,500(1)
-
|
|
$0.001
$0.001
|
|
02/19/2027
04/03/2026
|
|
|
|
|
|
|
|
|
|
|
|
Kirsten
Anderson
|
|
-
(3)
|
|
40,000(3)
|
|
$6.00
|
|
10/31/2027
|
58
(1)
Both Dr. Robinson and Dr. Mazar were granted stock option awards on
February 20, 2017 which vested 6/48ths on the six month anniversary
of grant date (August 20, 2017) and 1/48th per month
thereafter.
(2)
Both Dr. Robinson
and Dr. Mazar were granted stock option awards on April 4, 2016
which vested 50% on the grant date (April 4, 2016), 25% on the
six-month anniversary of the grant date (October 4, 2016) and 25%
on the one year anniversary of the grant date (April 3,
2017).
(3)
Ms. Anderson was granted a stock option award on November 1, 2017
which vests 6/48ths on the six month anniversary of grant date (May
1, 2018) and 1/48th per month thereafter.
Potential Payments upon Termination or Change in
Control
Each of
Dr. Mazar’s and Dr. Robinson’s employment agreements
provides that upon execution and effectiveness of a release of
claims, Dr. Mazar and Dr. Robinson will be entitled to severance
payments if we terminate their employment without cause, as defined
in the employment agreement, or if Dr. Mazar or Dr. Robinson
terminates his employment with us for good reason, as defined in
the employment agreement. If employment terminates under these
circumstances, in each case absent a change in control, as defined
in the employment agreements, we will be obligated for a period of
twelve months, (1) to pay base salary, (2) to provide that any
equity awards will continue vesting, (3) to pay the monthly
premiums for COBRA coverage equal to the amount paid for similarly
situated employees and (4) to the extent allowed by applicable law
and the applicable plan documents, continue to provide all of our
employee benefit plans and arrangements that the employee was
receiving at the time of termination. In addition, equity awards
held by the terminated employee, that vest solely on the passage of
time, will be accelerated by 12 months. If employment terminates
under these circumstances, within 12 months following a change in
control, in addition to the severance described above, we will be
obligated to accelerate in full the vesting of all of the
employee’s outstanding equity awards. In the case of a change in control,
instead of the 12 months of base salary described above, we will be
obligated to provide an amount equal to one-and-a-half times the
sum of the base salary and target bonus for the fiscal year in
which termination occurred. If either of Dr. Mazar’s or Dr.
Robinson’s employment is terminated because of death or
permanent disability, we will be obligated to provide the severance
described above, but for a period of three months instead of twelve
months.
Ms. Anderson’s employment agreement provides that upon
execution and effectiveness of a release of claims, Ms. Anderson
will be entitled to severance payments if we terminate her
employment without cause, as defined in the employment agreement,
or if Ms. Anderson terminates her employment with us for good
reason, as defined in the employment agreement. If employment
terminates under these circumstances, absent a change in control,
as defined in the employment agreement, we will be obligated for a
period of three months to pay base salary, and for a period of six
months (1) to provide that any vested and unexercised equity awards
continue to be exercisable and (2) to pay the monthly premiums for
COBRA coverage. If employment terminates within six months
following a change in control, we will be obligated to pay six
months base salary and monthly premiums for COBRA coverage for six
months and accelerate in full the vesting of all of the
employee’s outstanding equity awards which would be
exercisable for two years from termination. If Ms. Anderson's
employment is terminated because of death or permanent disability,
we will be obligated to provide base salary for two months and
monthly premiums for COBRA coverage for two months.
Stock Option Plan
In
April 2016, our Board and stockholders holding more than a majority
of our outstanding convertible preferred stock approved the Monopar
Therapeutics Inc. 2016 Stock Incentive Plan (as subsequently
amended, the “Plan”), allowing us to grant up to an
aggregate 700,000 shares of stock awards, stock options, stock
appreciation rights and other stock-based awards to employees,
non-employee directors and consultants. Concurrently, our Board
granted to non-employee board members and our acting chief
financial officer stock options to purchase up to an aggregate
273,000 shares of our common stock at an exercise price of $0.001
per share (the par value) based upon a third party valuation of our
common stock. Such stock options vest 50% on grant date, 25% on the
six month anniversary of the grant date and 25% on the one year
anniversary of the grant date. In December 2016, our Board granted
to our acting chief medical officer options to purchase up to 7,000
shares of our common stock. Such options vest monthly over six
months from the grant date. In February 2017, our Board granted to
board members and our acting chief financial officer stock options
to purchase up to an aggregate 275,520 shares of our common stock
at an exercise price of $0.001 per share (the par value) based upon
a third party valuation of our common stock. Such options vest
6/48ths upon the six month anniversary of the grant date and 1/48th
per month thereafter. In September 2017 and November 2017, stock
options to purchase up to an aggregate 103,072 shares of our common
stock were granted at an exercise price of $6.00, based on the
price per share at which common stock was sold in our most recent
private offering. 61,024 of such options vest 6/48ths upon the six
month anniversary of the grant date and 1/48th per month
thereafter, 21,024 of such options vest 6/42nd upon the six month
anniversary of the grant date and 1/42nd per month thereafter and
21,024 of such options vest 6/24ths upon the six month anniversary
of the grant date and 1/24th per month thereafter. On January 1,
2018, our Board granted to our acting chief medical officer options
to purchase up to 32,004 shares of our common stock at an exercise
price of $6 per share based upon the price per share at which
common stock was sold in our most recent private offering, and such
options vest 12,000 on the date of grant and 1,667 options on the
1st of
each month thereafter. All outstanding stock options have a ten
year term. 690,596 stock options were outstanding as of March 1,
2018.
59
Under
the Plan, the per share exercise price for the shares to be issued
upon exercise of an option is to be determined by the Plan
administrator, except that the per share exercise price may be no
less than 100% of the fair market value per share on the grant
date. Fair market value is established by our Board, using third
party valuation reports and recent financings. Stock options
generally expire after ten years.
The
Plan provides that the Plan administrator will be our Board, a
committee designated by our Board, or an individual designee. On
February 28, 2018, our independent Directors approved the
appointment of a committee (the “Plan Administrator
Committee”) consisting of three independent, non-employee
Directors (Dr. Starr, Mr. Brown, and Mr. Anderson) to serve as the
Administrator of our 2016 Stock Incentive Plan. The Plan
Administrator Committee will require a quorum of at least two of
the three Directors on all decisions. The Administrator has
exclusive authority, consistent with laws and the terms of the
Plan, to designate recipients of options to be granted thereunder
and to determine the number and type of options and the number of
shares subject thereto. Prior to February 28, 2018, Mr. Brown was
the Board-representative Administrator of our 2016 Stock Incentive
Plan. In March 2017, at the time of the Conversion, which resulted
in a 70 for 1 split of our common stock, the Administrator effected
the 70 for 1 stock split for the Plan which increased the stock
option pool from 10,000 to 700,000 and changed the stock options
granted in 2016 and in February 2017 by a 70 for 1 factor. No other
features were changed on the outstanding stock options
granted.
The
Plan was subsequently amended and restated in October 2017, which
was approved by stockholders holding more than a majority of our
outstanding common stock, as the Amended and Restated Monopar
Therapeutics Inc. 2016 Stock Incentive Plan, in order to increase
the maximum aggregate grants under the Plan from 700,000 to
1,600,000 shares of stock awards, stock options, stock appreciation
rights and other stock-based awards.
Director Compensation for Fiscal Year Ended December 31,
2017
The
following table sets forth the compensation of our non-employee
Board of Directors during the year ended December 31,
2017.
|
Name
|
Fees earned or paid in cash ($)
|
Option Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
Christopher M.
Starr, Ph.D.
|
100,897
|
23(1)
|
-
|
100,920
|
|
Michael J.
Brown
|
20,000
|
9,652(2)
|
-
|
29,652
|
|
Raymond "Bill"
Anderson
|
37,500
|
5,672(3)
|
-
|
43,172
|
|
Arthur
Klausner
|
14,022
|
5,615(4)
|
-
|
19,637
|
(1)
Based upon the Black-Scholes valuation model for stock option
compensation expense, the value of Dr. Starr’s stock
options outstanding as of
December 31, 2017 was $23 for the year ended December
31, 2017. Dr. Starr
was granted a stock option award on
February 20, 2017 which vested 6/48ths on the six month anniversary
of grant date (August 20, 2017) and 1/48th per month thereafter. In
2016, Dr. Starr was granted a stock option award on April 4, 2016
which vested 50% on the grant date (April 4, 2016), 25% on the
six-month anniversary of the grant date (October 4, 2016) and 25%
on the one year anniversary of the grant date (April 3,
2017).
(2) Based upon the Black-Scholes valuation model for stock option
compensation expense, the value of Mr. Brown’s stock options
outstanding as of December 31, 2017 was $9,652 for the year ended
December 31, 2017. Mr. Brown was granted a stock option award on
September 18, 2017 which vests 6/24ths on the six month anniversary
of grant date (March 18, 2018) and 1/24th per month
thereafter.
(3) Based upon the Black-Scholes valuation model for stock option
compensation expense, the value of Mr. Anderson’s stock
options outstanding as of December 31, 2017 was $5,672 for the year
ended December 31, 2017. Mr. Anderson was granted a stock option
award on September 18, 2017 which vests 6/42nds on the six month
anniversary of grant date (March 18, 2018) and 1/42nd per month
thereafter.
(4) Based upon the Black-Scholes valuation model for stock option
compensation expense, the value of Mr. Klausner’s stock
options outstanding as of December 31, 2017 was $5,615 for the year
ended December 31, 2017. Mr. Klausner was granted a stock option
award on September 1, 2017 which vests 6/48ths on the six month
anniversary of grant date (March 1, 2018) and 1/48th per month
thereafter.
60
Options Exercised and Stock Vested
None of
our executive officers or non-employee directors exercised any
options during the years ended December 31, 2017 and 2016.
Item 12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.
Securities Authorized for Issuance Under Equity Compensation
Plans
The
following table provides information as of December 31, 2017, with
respect to shares of our common stock that may be issued under
existing equity compensation plans. There are no equity
compensation plans that have not been approved by our security
holders.
|
Plan
Category
|
Number of
Securities to be Issued Upon Exercise of Outstanding Options,
Warrants and Rights
|
Weighted
Average Exercise Price of Outstanding Options, Warrants and
Rights
|
Number of
Securities Remaining Available For Future Issuance under Equity
Compensation Plans
|
|
Equity compensation
plans approved by security holders (1)
|
658,592
|
$0.94
|
941,408
|
(1) The
Monopar Therapeutics Inc. 2016 Stock Incentive Plan.
61
The
following table and the related notes present information on the
beneficial ownership of shares of our common stock, our only
outstanding class of stock, as of March 1, 2018 (subsequent to the
Conversion) by:
●
each of our
directors;
●
each of our named
executive officers;
●
all of our current
directors and executive officers as a group; and
●
each person known
by us to beneficially own more than five percent of our common
stock
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting or investment power with respect to the securities.
Shares of our common stock that may be acquired by an individual or
group within 60 days of March 1, 2018, pursuant to the exercise of
options or warrants, are deemed to be outstanding for the purpose
of computing the percentage ownership of such individual or group,
but are not deemed to be outstanding for the purpose of computing
the percentage ownership of any other person shown in the
table.
Except
as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment
power with respect to all shares of common stock shown to be
beneficially owned by them, based on information provided to us by
such stockholders.
|
Name and
Address of Beneficial Owner
*Unless otherwise noted, addresses are:
1000 Skokie Blvd., Suite 350, Wilmette, IL
60091
|
Shares of
Common Stock Beneficially Owned (A)
|
Percent of
Class Held (A)
|
|
TacticGem,
LLC
|
7,166,667(B)
|
77.1%
|
|
Tactic Pharma
LLC
|
4,277,939.88(B)
|
46.0%
|
|
Gem
Pharmaceutical LLC
941
Lake Forest Cir.
Birmingham, AL
35244
|
3,055,394.12(B)
|
32.9%
|
|
Chandler D.
Robinson, Chief Executive Officer and Director
|
122,502.8
|
1.3%
|
|
Christopher M.
Starr, Executive Chairman
|
157,900
|
1.7%
|
|
Andrew P. Mazar,
Executive Vice President of Research and Development, Chief
Scientific Officer and Director
|
122,502.8
|
1.3%
|
|
Michael J.
Brown, Director
|
216,132
|
2.3%
|
|
Raymond
“Bill” Anderson, Director
|
4,504
|
*
|
|
Arthur Klausner,
Director
|
8,066
|
*
|
|
Kim
R. Tsuchimoto, Chief Financial Officer
|
27,860
|
*
|
|
Patrice P.
Rioux, Acting Chief Medical Officer
|
24,001
|
*
|
|
Named executive
officers and directors as a group(C)
|
7,850,135.6
|
81.1%
|
(A)
Beneficial
ownership is based upon 9,291,420.614 shares of our Common Stock
outstanding; and includes common stock options that vest within 60
days after March 1, 2018 as follows – Chandler D. Robinson,
Christopher M. Starr and Andrew P. Mazar options to purchase up to
108,500 shares of common stock, Kim R. Tsuchimoto options to
purchase up to 27,860 shares of common stock and Patrice P. Rioux
options to purchase up to 24,001 shares. These vested option shares
are deemed to be outstanding and beneficially owned by the person
holding the applicable options for the purpose of computing the
percentage ownership of that person, but they are not treated as
outstanding for the purpose of computing the percentage ownership
of any other person.
(B)
Tactic Pharma LLC
(“Tactic Pharma”) shares voting and investment power
over 4,111,272.88 shares of our common stock owned by TacticGem,
and Gem Pharmaceutical LLC (“Gem”) shares voting and
investment power over 3,055,394.12 shares of our common stock owned
by TacticGem, because pursuant to the TacticGem limited liability
company agreement all votes of our common stock (other than votes
for the election of directors) are passed through to Tactic Pharma
and Gem in proportion to their percentage interests in TacticGem,
and after an initial holding period, which ends after we have been
subject to the reporting requirements of the Exchange Act and have
filed all required reports for a period of at least 12 months,
either member of TacticGem can cause up to its proportionate shares
of our common stock to be distributed to it. Tactic Pharma holds
166,667 shares of stock in its own name. Mr. Brown, Dr. Mazar and
Dr. Robinson are managers of Tactic Pharma; because of this, they
control voting and dispositive power over 4,111,272.88 shares of
our common stock owned by TacticGem, and over our Common Stock
owned by Tactic Pharma. Gem is controlled by Pharma Investments,
LLC, which is in turn controlled by Diane M.
Hendricks.
62
(C)
Shares held by
TacticGem are only included in the total beneficial ownership of
our named executive officers and directors because the limited
liability agreement of TacticGem provides that the Manager of
TacticGem will vote our common stock held by TacticGem to elect
Tactic Pharma’s nominees plus one person designated by Gem
(until we achieve listing on a national stock exchange) to our
Board, and acting together the directors are able to control Tactic
Pharma, LLC, and how it selects its nominees for our Board of
Directors.
* Less
than 1%
Item 13. Certain Relationships and
Related Transactions, and Director Independence.
Since
January 2015, we (including as Monopar Therapeutics, LLC) have
engaged in the following transactions with our directors, executive
officers, holders of more than 5% of our voting securities, and
affiliates or immediate family members of our directors, executive
officers and holders of more than 5% of our voting securities, and
our co-founders. We believe that all of these transactions were on
terms as favorable as could have been obtained from unrelated third
parties.
During
the years ended December 31, 2017 and 2016, we paid or accrued
legal fees to Baker & Hostetler, LLP, a large national law firm
in which our Chief Executive Officer’s family member is a law
partner, approximately $300,140 and $54,000, respectively. The
family member billed a de
minimis amount of time on our legal engagement with Baker
& Hostetler, LLP.
Contributions by Tactic Pharma, LLC
We were
initially formed as a Delaware limited liability company in
December 2014, with the name Monopar Therapeutics, LLC, at which
time Tactic Pharma contributed technology and related assets to us,
in exchange for 1,000,000 shares of Series Z Preferred Units, which
were exchanged for 100,000 shares of Series Z Preferred Stock at
the time of our conversion to a corporation. The issued Series Z
Preferred Stock was recorded at par value $0.001 per share on our
balance sheet reflecting the historical capitalized cost basis, due
to the fact that MNPR-101’s development costs were previously
expensed (not capitalized) by Tactic Pharma. In March 2017, the
100,000 shares of Series Z Preferred Stock were converted into
7,000,000 shares of our common stock, $.0001 par value in
connection with the Conversion. See “Conversion of Preferred Stock to Common
Stock”.
In
August 2017, Tactic Pharma surrendered 2,888,727.12 shares of our
common stock back to us as a contribution to the capital of the
Company. This reduced its ownership percentage of our common stock
from 79.5% to 69.9%.
We
reimbursed Tactic Pharma, a de
minimis amount in monthly storage fees during the years
ended December 31, 2017 and 2016. In March 2017, Tactic Pharma
wired $1 million to us in advance of the sale of our common stock
at $6 per share under a private placement memorandum. In April, we
issued to Tactic Pharma 166,667 shares in exchange for the $1
million at $6 per share once we began selling stock to unaffiliated
parties under the private placement memorandum. In August 2017,
Tactic Pharma surrendered 2,888,727.12 shares of our common stock
back to us as a contribution to the capital of the Company. This
resulted in reducing Tactic Pharma’s ownership in us from
79.5% to 69.9%. Following the surrender of the common stock, Tactic
Pharma contributed 4,111,272.88 shares of its holdings in our
common stock to TacticGem pursuant to the Gem Transaction discussed
in detail in Note 6 of our audited financial statements below. As
of December 31, 2017, Tactic Pharma beneficially owned 46% of our
common stock, and TacticGem owned 77% of our common
stock.
Gem Transaction
On June
27, 2017, we signed a term sheet with Gem Pharmaceuticals, LLC
(“Gem”) pursuant to which Gem was to transfer assets
related to certain of its drug product candidate programs to us in
exchange for 32% of our outstanding common stock on a fully-diluted
basis. The Gem transaction was structured through a limited
liability company, TacticGem, which Gem formed with Tactic Pharma,
LLC (“Tactic Pharma”), our largest shareholder at that
time. Gem contributed certain of Gem’s drug product
candidates’ intellectual property and agreements associated
primarily with Gem’s GPX-150 (renamed MNPR-201) drug product
candidate program, along with $5,000,000 in cash (the “Gem
Contributed Assets”) to TacticGem for a 42.633% interest, and
Tactic Pharma contributed 4,111,272.88 shares of our common stock
to TacticGem for a 57.367% interest. Then, TacticGem contributed
the Gem Contributed Assets to us in exchange for 3,055,394.12 newly
issued shares of our common stock (31.4% on a fully-diluted basis)
(the two contributions collectively, the “Gem
Transaction”). The contribution by TacticGem, made in
conjunction with contributions from outside investors in a private
offering, was intended to qualify for tax-free treatment. The Gem
Transaction closed on August 25, 2017. Following the Gem
Transaction, TacticGem owns 7,166,667 shares of our stock. Pursuant
to the TacticGem limited liability company agreement, all votes of
our common stock by TacticGem (aside from the election of our Board
of Directors) is required to be passed through to Tactic Pharma and
Gem based on their percentage interest (currently pursuant to this
voting agreement, Tactic has voting and investment power over
4,111,272.88 shares of our common stock and Gem has voting and
investment power over 3,055,394.12 shares of our common stock).
Neither Gem nor TacticGem was a related person prior to the Gem
Transaction. The TacticGem limited liability company agreement
provides that its manager will vote all shares of our common stock
held by it to elect Tactic Pharma’s nominees to our Board of
Directors plus one person nominated by Gem, initially Arthur
Klausner.
63
Pursuant to the
Conversion and the Gem Transaction and sales of our common stock in
September 2017, Tactic Pharma now holds voting and investment power
over 4,277,939.88 shares of our Common Stock, which is 46.0% of our
outstanding common stock. In the ordinary course of business, we
have reimbursed and continue to reimburse Tactic Pharma for
expenses Tactic Pharma has paid on our behalf, which historically
included legal patent fees and storage rental fees. Certain of our
Board Members and executive officers own and control Tactic Pharma.
Although no single person has a controlling interest in Tactic
Pharma, acting together they are able to control Tactic Pharma and
a large voting block of our common stock.
Stock Purchases by Directors and Executive Officers
The
following table sets forth the number of shares of our common stock
owned by our co-founders; each co-founder purchased such shares at
$3.57 per share (taking into account the Conversion) in
2016.
|
Name
|
Related Person
Status
|
# Shares of
Common Stock
|
Transaction
Value (and Related Person’s Interest)
($)
|
|
Christopher M.
Starr, Ph.D.
|
Executive
Chairman
|
29,400
|
105,000
|
|
Chandler D.
Robinson, M.D.
|
Director, Chief
Executive Officer
|
14,002.3
|
50,010
|
|
Andrew P. Mazar,
Ph.D.
|
Director, Chief
Scientific Officer
|
14,002.3
|
50,010
|
Also,
in 2016, Michael Brown (Director), purchased 210,000 shares of our
common stock (taking into account the Conversion), at $3.57 per
share, for a total transaction value of $750,000.
In
2017, Board members purchased shares of our common stock at $6 per
share, as follows: Dr. Starr purchased 20,000 shares for a
transaction value of $120,000; Mr. Anderson purchased 1,000 shares
for a transaction value of $6,000; and Mr. Klausner purchased 5,000
shares for a transaction value of $30,000.
Promoters and Certain Control Persons
We have
not had any promoters since our formation in December
2014.
Parent Companies
Prior
to the Gem Transaction, Tactic Pharma was our parent company,
having a controlling interest in us. After the Gem Transaction,
TacticGem became our parent company, currently having a 77.1%
controlling interest in us. See “Contributions by Tactic Pharma,
LLC” and “Gem
Transaction”.
Director Independence
We have
decided to follow the Nasdaq Stock Market, or Nasdaq, listing
standards, which require that a majority of the members of our
Board of Directors, or our Board, must qualify as
“independent,” as affirmatively determined by our
Board. Our Board consults with our counsel to ensure that our
Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition
of “independent,” including those set forth in
pertinent listing standards of Nasdaq, as in effect from time to
time.
Consistent with
these considerations, after review of all relevant identified
transactions or relationships between each director, or any of his
family members, and us, our senior management and our independent
registered public accounting firm, our Board has affirmatively
determined that the following four directors are independent
directors within the meaning of the applicable Nasdaq listing
standards: Dr. Starr, Mr. Brown, Mr. Anderson and Mr. Klausner. In
making this determination, our Board found that none of the
directors had a material or other disqualifying relationship with
us. Dr. Robinson, our President and Chief Executive Officer is not
an independent director by virtue of his employment relationship
with us, and similarly, Dr. Mazar by virtue of his employment
relationship with us is not an independent director.
There
are no family relationships among any of our directors or executive
officers.
Relationships Considered in Determining Director
Independence
In
addition to the stock transactions described above, in considering
director independence, we considered the following
transactions:
64
During
the years ended December 31, 2017 and 2016, we were advised by four
members of our Board of Directors, who were Managers of our
predecessor LLC prior to our conversion to a C Corporation. The
four former Managers are also our current common stockholders
(owning approximately an aggregate 3% of our common stock
outstanding as of December 31, 2017). Three of the former Managers
are also Managing Members of Tactic Pharma, LLC, which was, prior
to the Gem Transaction, our largest and controlling stockholder
(owning a 46% beneficial interest in us at December 31, 2017 and in
partnership with Gem through TacticGem owning 77.1%). We paid the
Managing Members of Tactic Pharma, LLC the following during the
years ended December 31, 2017 and 2016: Chandler D. Robinson, our
Co-Founder, Chief Executive Officer, common stockholder, Managing
Member of Tactic Pharma, LLC and former Manager of our predecessor
LLC, $346,545 and $322,000, respectively; and Andrew P. Mazar, our
Co-Founder, Chief Scientific Officer, common stockholder, Managing
Member of Tactic Pharma, LLC and former Manager of our predecessor
LLC, $300,731 and $197,500, respectively. We also paid Christopher
M. Starr, our Co-Founder, Executive Chairman of the Board of
Directors, common stockholder and former Manager of our predecessor
LLC, $100,897 and $96,339 during the years ended December 31, 2017
and 2016, respectively.
In the
normal course of business, our Chief Executive Officer, Board
Members and consultants incur expenses on behalf of us and are
reimbursed within 30 days of submission of relevant expense
reports.
Item 14. Principal Accounting Fees
and Services
The
following is a summary of the fees billed and services provided by
our independent registered public accounting firm, BPM LLP during
the years ended December 31, 2017 and 2016,
respectively.
|
Description of
Services Provided by BPM LLP
|
For the year
ended December 31, 2017
|
For the year
ended December 31, 2016
|
|
Audit
Fees
|
$83,815
|
$32,036
|
|
Audit-Related Fees: These services
relate to assurance and services reasonably related to the
performance of the audit or review of financial statements not
included above.
|
28,325
|
0
|
|
Tax Compliance Fees: These services
relate to the preparation of federal, state and foreign tax returns
and other filings.
|
3,150
|
4,910
|
|
Tax Consulting and Advisory Services:
These services primarily relate to the area of tax strategy and
minimizing Federal, state, local and foreign taxes.
|
1,250
|
|
|
All
Other Fees
|
0
|
35,680
|
65
PART IV
Item 15. Exhibits, Financial
Statement Schedule
(a)
INDEX TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
Report of
Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Balance Sheets
as of December 31, 2017 and 2016
|
|
F-3
|
|
|
|
|
|
Statements of
Operations for the Years Ended December 31, 2017 and
2016
|
|
F-4
|
|
|
|
|
|
Statements of
Stockholders’ Equity for the Years Ended December 31, 2017
and 2016
|
|
F-5
|
|
|
|
|
|
Statements of
Cash Flows for the Years Ended December 31, 2017 and
2016
|
|
F-6
|
|
|
|
|
|
Notes to
Financial Statements
|
|
F-7
to F-24
|
66
(b) Exhibits
The
following exhibits are filed as part of this Annual Report on Form
10-K.
|
Exhibit
|
|
Document
|
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
|
||
|
101.INS
|
|
XBRL
Instance Document
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase
|
Confidential
Information has been omitted and filed separately with the
Securities and Exchange Commission on exhibits marked with (*).
Confidential treatment has been approved with respect to the
omitted information, pursuant to an Order dated January 8,
2018.
67
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) 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.
|
|
Company MONOPAR
THERAPEUTICS INC.
|
|
|
|
|
|
|
|
|
Dated: March 26,
2018
|
By:
|
/s/
Kim
Tsuchimoto
|
|
|
|
|
Kim
Tsuchimoto
|
|
|
|
|
Chief Financial
Officer (Principal Financial Officer)
|
|
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Chandler Robinson and Kim
Tsuchimoto, his attorneyinfact, with the power of
substitution, for him in any and all capacities, to sign any
amendments to this Annual Report on Form 10K and to file the
same, with exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said
attorneysinfact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated:
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/
Chandler Robinson
|
|
|
|
March
26,
2018
|
|
Chandler
Robinson
|
|
Chief
Executive Officer and Director (Principal Executive
Officer)
|
|
|
|
|
|
|
|
|
|
/s/ Kim
Tsuchimoto
|
|
|
|
March
26,
2018
|
|
Kim
Tsuchimoto
|
|
Chief
Financial Officer (Principal Financial Officer and Principal
Accounting Officer)
|
|
|
|
|
|
|
|
|
|
/s/
Andrew Mazar
|
|
|
|
March
26,
2018
|
|
Andrew
Mazar
|
|
Chief
Scientific Officer and Director
|
|
|
|
|
|
|
|
|
|
/s/
Christopher Starr
|
|
|
|
March
26,
2018
|
|
Christopher
Starr
|
|
Executive
Chairman of the Board and Director
|
|
|
|
|
|
|
|
|
|
/s/
Raymond W. Anderson
|
|
|
|
March
26,
2018
|
|
Raymond
W. Anderson
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Michael Brown
|
|
|
|
March
26,
2018
|
|
Michael
Brown
|
|
Director
|
|
|
|
|
|
|
|
|
|
/s/
Arthur Klausner
|
|
|
|
March
26,
2018
|
|
Arthur
Klausner
|
|
Director
|
|
|
68
INDEX TO FINANCIAL STATEMENTS
|
|
|
Page
|
|
Report of
Independent Registered Public Accounting Firm
|
|
F-2
|
|
|
|
|
|
Balance Sheets
as of December 31, 2017 and 2016
|
|
F-3
|
|
|
|
|
|
Statements of
Operations for the Years Ended December 31, 2017 and
2016
|
|
F-4
|
|
|
|
|
|
Statements of
Stockholders’ Equity for the Years Ended December 31, 2017
and 2016
|
|
F-5
|
|
|
|
|
|
Statements of
Cash Flows for the Years Ended December 31, 2017 and
2016
|
|
F-6
|
|
|
|
|
|
Notes to
Financial Statements
|
|
F-7
to F-24
|
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING
FIRM
To the
Stockholders and Board of Directors of
Monopar
Therapeutics Inc.
Opinion on the Financial Statements
We have
audited the accompanying balance sheets of Monopar Therapeutics
Inc. (the "Company") as of December 31, 2017 and 2016, the related
statements of operations, stockholders’ equity and cash
flows, for each of the two years in the period ended December 31,
2017, and the related notes (collectively referred to as the
"financial statements"). In our opinion, the financial statements
present fairly, in all material respects, the financial position of
the Company as of December 31, 2017 and 2016, and the results of
its operations and its cash flows for each of the two years in the
period ended December 31, 2017, in conformity with accounting
principles generally accepted in the United States of
America.
Basis for Opinion
These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the
Company's financial statements based on our audits. We are a public
accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be
independent with respect to the Company in accordance with the U.S.
federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly,
we express no such opinion.
Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
/s/ BPM
LLP
We have
served as the Company's auditor since 2015.
San
Francisco, California
March
26, 2018
F-2
Monopar Therapeutics Inc.
Balance Sheet
|
|
December 31
|
|
|
|
2017
|
2016
|
|
Assets
|
|
|
|
Current
assets:
|
|
|
|
Cash
and cash equivalents
|
$8,981,894
|
$2,072,611
|
|
Prepaid
expenses and other current assets
|
149,342
|
22,562
|
|
Total
current assets
|
9,131,236
|
2,095,173
|
|
|
|
|
|
Restricted
cash
|
800,031
|
800,393
|
|
|
|
|
|
Total
assets
|
$9,931,267
|
$2,895,566
|
|
Liabilities and Equity
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts
payable and accrued expenses
|
$311,867
|
$64,510
|
|
Total
current liabilities
|
311,867
|
64,510
|
|
Long
term liabilities
|
—
|
—
|
|
|
|
|
|
Total
liabilities
|
311,867
|
64,510
|
|
Commitments
and contingencies (Note 9)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred
stock, par value of $0.001 per share, zero shares authorized at
December 31, 2017, and 200,000 shares authorized at December 31,
2016; 115,894 shares issued and outstanding, aggregate liquidation
preference of $34,768,140 at December 31, 2016
|
—
|
116
|
|
Common
stock, par value of $0.001 per share, 40,000,000 authorized,
9,291,421 shares issued and outstanding at December 31, 2017; zero
shares issued and outstanding at December 31, 2016
|
9,291
|
—
|
|
Additional
paid-in capital
|
28,037,889
|
4,703,848
|
|
Accumulated
deficit
|
(18,427,780)
|
(1,872,908)
|
|
Total
stockholders’ equity
|
9,619,400
|
2,831,056
|
|
Total
liabilities and stockholders’ equity
|
$9,931,267
|
$2,895,566
|
The
accompanying notes are an integral
part of
these financial statements.
F-3
Monopar Therapeutics Inc.
Statements of Operations
|
|
December 31,
|
|
|
|
2017
|
2016
|
|
Revenues
|
$—
|
$—
|
|
|
—
|
—
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
935,319
|
280,355
|
|
In-process
research and development
|
14,501,622
|
—
|
|
General
and administrative
|
1,166,186
|
912,474
|
|
Total
operating expenses
|
16,603,127
|
1,192,829
|
|
Loss
from operations
|
(16,603,127)
|
(1,192,829)
|
|
Other
income:
|
|
|
|
Interest
and other income
|
48,255
|
7,232
|
|
Net
loss
|
$(16,554,872)
|
$(1,185,597)
|
|
Net
loss per share:
|
|
|
|
Basic
and diluted
|
$(1.89)
|
N/A
|
|
Weighted
average shares outstanding:
|
|
|
|
Basic
and diluted
|
8,782,037
|
N/A
|
F-4
Monopar Therapeutics Inc.
Statement of Stockholders’ Equity
|
|
Series A and Z Preferred Stock
|
Common Stock
|
Additional Paid-
|
Accumulated
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
in Capital
|
Deficit
|
Total Equity
|
|
Balance at
January 1, 2016
|
111,644
|
112
|
0
|
—
|
3,441,352
|
(687,311)
|
2,754,153
|
|
Issuance of
Series A Preferred Stock at $300 per share for cash, net of $12,500
issuance costs
|
4,250
|
4
|
—
|
—
|
1,262,496
|
|
1,262,500
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(1,185,597)
|
(1,185,597)
|
|
Balance at
December 31, 2016
|
115,894
|
116
|
0
|
—
|
4,703,848
|
(1,872,908)
|
2,831,056
|
|
Conversion
of preferred stock to common stock
|
(115,894)
|
(116)
|
8,335,080
|
8,335
|
(8,219)
|
—
|
—
|
|
Issuance of
common stock at $6 per share for cash, net of $32,400 issuance
costs
|
—
|
—
|
789,674
|
790
|
4,704,856
|
—
|
4,705,646
|
|
Tactic
Pharma shares surrendered
|
—
|
—
|
(2,888,727)
|
(2,889)
|
2,889
|
—
|
—
|
|
Shares
issued in Gem transaction, net of issuance costs of
$169,257
|
—
|
—
|
3,055,394
|
3,055
|
18,329,310
|
—
|
18,332,365
|
|
Non-cash
stock compensation
|
—
|
—
|
—
|
—
|
305,205
|
—
|
305,205
|
|
Net
loss
|
—
|
—
|
—
|
—
|
—
|
(16,554,872)
|
(16,554,872)
|
|
Balance at
December 31, 2017
|
—
|
$—
|
9,291,421
|
$9,291
|
$28,037,889
|
$(18,427,780)
|
$9,619,400
|
The
accompanying notes are an integral
part of
these financial statements.
F-5
Monopar Therapeutics Inc.
Statement of Cash Flows
|
|
December 31,
|
|
|
|
2017
|
2016
|
|
Cash flows from operating activities:
|
|
|
|
Net
loss
|
$(16,554,872)
|
$(1,185,597)
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
Stock
compensation expense (non-cash)
|
305,205
|
—
|
|
In
process research and development (non-cash)
|
13,501,622
|
—
|
|
Changes in operating assets and liabilities, net
|
|
|
|
Prepaid
expenses and other current assets
|
(126,780)
|
298
|
|
Accounts
payable and accrued expenses
|
247,357
|
(9,333)
|
|
Net
cash used in operating activities
|
(2,627,468)
|
(1,194,632)
|
|
Cash flows from financing activities:
|
|
|
|
Proceeds
from sale of Series A Preferred Stock, net of $12,500 of issuance
costs
|
—
|
1,262,500
|
|
Cash
received from Gem, net of $169,257 of transaction
costs
|
4,830,743
|
—
|
|
Proceeds
from the sale of common stock, net of $32,400 of issuance
costs
|
4,705,646
|
—
|
|
Net
cash provided by financing activities
|
9,536,389
|
1,262,500
|
|
Net
increase in cash, cash equivalents and restricted cash
|
6,908,921
|
67,868
|
|
Cash, cash equivalents and restricted cash at beginning of
period
|
2,873,004
|
2,805,136
|
|
Cash, cash equivalents and restricted cash at end of
period
|
$9,781,925
|
$2,873,004
|
|
Supplemental disclosure of non-cash items for cash flow
information:
|
|
|
|
Value
of shares issued in Gem transaction
|
18,332,365
|
-
|
The
accompanying notes are an integral
part of
these financial statements.
F-6
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Note
1 - Nature of Business and Liquidity
Nature of Business
Monopar
Therapeutics Inc. (the ”Company”) is an emerging
biopharmaceutical company focused on developing innovative drug
candidates to improve clinical outcomes in cancer patients. Monopar
currently has three compounds in development: Validive®
(clonidine mucobuccal tablet; clonidine MBT), a Phase 3-ready,
first-in-class mucoadhesive local anti-inflammatory tablet for the
prevention and treatment of radiation induced severe oral mucositis
(“SOM”) in oropharyngeal cancer patients; MNPR-201 (GPX-150;
5-imino-13-deoxydoxorubicin), a proprietary topoisomerase-II-alpha
targeted analog of
doxorubicin engineered specifically to retain the anticancer
activity while minimizing toxic effects on the heart; and MNPR-101
(formerly huATN-658), a near-to-the-clinic humanized monoclonal
antibody, which targets the urokinase plasminogen activator
receptor (“uPAR”), for the treatment of advanced solid
cancers.
The
Company was originally formed in the State of Delaware on December
5, 2014 as a limited liability company (“LLC”) and on
December 16, 2015 converted to a C Corporation in a tax-free
exchange. In March 2017, the Company’s Series A Preferred
Stock and Series Z Preferred Stock converted into common stock at a
conversion rate of 1.2 for 1 and 1 for 1, respectively, along with
a concurrent common stock split of 70 for 1 which eliminated all
shares of Series A Preferred Stock and Series Z Preferred Stock.
All references to common stock authorized, issued and outstanding
and common stock options take into account the 70 for 1 stock
split.
Liquidity
The
Company has incurred an accumulated loss of approximately $18.4
million as of December 31, 2017. To date, the Company has primarily
funded its operations with the net proceeds from private placements
of convertible preferred stock and common stock and from the cash
provided in the Gem transaction discussed in detail in Note 6
below. Management believes that currently available resources will
provide sufficient funds to enable the Company to meet its minimum
obligations through March 2019. The Company’s ability to fund
its future operations, including the clinical development of
Validive, is dependent primarily upon its ability to execute on its
business strategy and obtain additional funding or execute
collaboration research transactions. There can be no certainty that
future financing or collaborative research transactions will
occur.
Note 2 - Significant Accounting Policies
Basis of Presentation
These
financial statements include the books of Monopar Therapeutics
Inc., its French branch and its wholly-owned French subsidiary,
Monopar Therapeutics, SARL and have been prepared in accordance
with accounting principles generally accepted in the United States
(“GAAP”) and include all disclosures required by GAAP
for financial reporting. The principal accounting policies applied
in the preparation of these financial statements are set out below
and have been consistently applied in all periods presented. The
Company has been primarily involved in performing research
activities, developing product technologies, and raising capital to
support and expand these activities.
Comprehensive Loss
Comprehensive loss
represents net loss plus any gains or losses not reported in the
statements of operations, such as foreign currency translations
gains and losses that are typically reflected on a company’s
statements of stockholders’ equity. There were no differences
between net loss for the years ended December 31, 2017 and 2016,
and comprehensive loss for those periods.
F-7
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and reported amounts of revenues
and expenses in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Going Concern Assessment
The
Company adopted Accounting Standards Updates (“ASU”)
2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern, which the Financial Accounting Standards
Board (“FASB”) issued to provide guidance on
determining when and how reporting companies must disclose
going-concern uncertainties in their financial statements. The ASU
requires management to perform interim and annual assessments of an
entity’s ability to continue as a going concern within one
year of the date of issuance of the entity’s financial
statements (or within one year after the date on which the
financial statements are available to be issued, when applicable).
Further, a company must provide certain disclosures if there is
“substantial doubt about the entity’s ability to
continue as a going concern.” In February 2018, the Company
analyzed its minimum cash requirements through March 2019 and has
determined that, based upon the Company’s current available
cash, the Company has no substantial doubt about its ability to
continue as a going concern.
Cash Equivalents
The
Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. Cash
equivalents as of December 31, 2017 and December 31, 2016 consist
entirely of money market accounts.
Restricted Cash
On July
9, 2015, the Company entered into a Clinical Trial and Option
Agreement (“CTOA”) with Cancer Research UK. Pursuant to
the CTOA, the Company deposited $0.8 million into an escrow account
to cover certain future indemnities, claims or potential
termination costs incurred by Cancer Research UK. Restricted cash
was $0.8 million as of December 31, 2017 and December 31,
2016.
Prepaid Expenses
Prepayments are
expenditures for goods or services before the goods are used or the
services are received and are charged to operations as the benefits
are realized. Prepaid expenses include insurance premiums and
software costs that are expensed monthly over the life of the
contract and prepaid legal patent fees that will be expensed as
incurred.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and restricted
cash. The Company maintains cash and cash equivalents at one
financial institution and restricted cash at another financial
institution. As of December 31, 2017, and December 31, 2016, cash
and cash equivalents and restricted cash balances at these two
financial institutions were in excess of the $250,000 Federal
Deposit Insurance Corporation (“FDIC”) insurable
limit.
Fair Value of Financial Instruments
For
financial instruments consisting of cash and cash equivalents,
prepaid expenses, deferred offering costs, accounts payable and
accrued expenses, the carrying amounts are reasonable estimates of
fair value due to their relatively short maturities.
F-8
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
The Company adopted Accounting Standard
Codification (“ASC”) 820, Fair Value Measurements and
Disclosures, as amended,
addressing the measurement of the fair value of financial assets
and financial liabilities. Under this standard, fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement
date.
In
determining fair values of all reported assets and liabilities that
represent financial instruments, the Company uses the carrying
market values of such amounts. The
standard establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources.
Unobservable inputs reflect a
reporting entity’s pricing an asset or liability developed based on the best information available
in the circumstances. The fair value hierarchy consists of
the following three levels:
Level 1 - instrument valuations are
obtained from real-time quotes for transactions in active exchange
markets involving identical assets.
Level 2 - instrument valuations are
obtained from readily-available pricing sources for comparable
instruments.
Level 3 - instrument valuations are
obtained without observable market values and require a high-level
of judgment to determine the fair value.
Determining which
category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy
disclosures each reporting period. There were no transfers between
Level 1, 2 or 3 of the fair value hierarchy during the years ended
December 31, 2017 and 2016. The following table presents the assets
and liabilities recorded that are reported at fair value on our
balance sheets on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
|
December 31,
2017
|
Level
1
|
Level
2
|
Total
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$8,872,982
|
$-
|
$8,872,982
|
|
Restricted
cash(2)
|
31
|
800,000
|
800,031
|
|
Total
|
$8,873,013
|
$800,000
|
$9,673,013
|
(1)
Cash equivalents
represent the fair value of the Company’s investments in two
money market accounts at December 31, 2017.
(2)
Restricted cash
represents the fair value of the Company’s investments in an
$800,000 certificate of deposit and $31 in a money market account
at December 31, 2017.
|
December 31,
2016
|
Level
1
|
Level
2
|
Total
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$2,009,018
|
$-
|
$2,009,018
|
|
Restricted
cash(2)
|
393
|
800,000
|
800,393
|
|
Total
|
$2,009,411
|
$800,000
|
$2,809,411
|
(1)
Cash equivalents
represent the fair value of the Company’s investments in a
money market account at December 31, 2016.
(2)
Restricted cash
represents the fair value of the Company’s investments in an
$800,000 certificate of deposit and $393 in a money market account
at December 31, 2016.
Net Loss per Share
Net
loss per share for the year ended December 31, 2017 is calculated
by dividing net loss by the weighted-average shares of common stock
outstanding during the period. Diluted net loss per share for the
year ended December 31, 2017 is calculated by dividing net loss by
the weighted-average shares of common stock outstanding and
potential
F-9
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
shares
of common stock during the period. As of December 31, 2017,
potentially dilutive securities included 658,592 options to
purchase common stock.
During
the year ended December 31, 2016 there were no shares of common
stock outstanding.
Research and Development Expenses
Research and
development (“R&D”) costs are expensed as incurred.
Major components of research and development expenses include
salaries and benefits paid to the Company’s R&D staff,
fees paid to consultants and to the entities that conduct certain
development activities on the Company’s behalf and materials
and supplies.
The
Company accrues and expenses the costs for clinical trial
activities performed by third parties based upon estimates of the
percentage of work completed over the life of the individual study
in accordance with agreements established with contract research
organizations and clinical trial sites. The Company determines the
estimates through discussions with internal clinical personnel and
external service providers as to progress or stage of completion of
trials or services and the agreed upon fee to be paid for such
services. Costs of setting up clinical trial sites for
participation in the trials are expensed immediately as research
and development expenses. Clinical trial site costs related to
patient enrollment are accrued as patients are entered into the
trial. During the year ended December 31, 2017 and 2016, the
Company had no clinical trials in progress.
In-process Research and Development
In-process research
and development expense represents the costs to acquire
technologies to be used in research and development that have not
reached technological feasibility, have no alternative future uses
and thus are expensed as incurred. IPR&D expense also includes
upfront license fees and milestones paid to collaborators, with no
alternative use, which are expensed as goods are received or
services rendered.
Collaborative Arrangements
The
Company and its collaborative partner are active participants in a
collaborative arrangement and all parties are exposed to
significant risks and rewards depending on the technical and
commercial success of the activities. Contractual payments to the
other party in the collaboration agreement and costs incurred by
the Company when the Company is deemed to be the principal
participant for a given transaction are recognized on a gross basis
in research and development expenses. Royalties and license
payments are recorded as earned.
During
the years ended December 31, 2017 and 2016, no milestones were met
and no royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty payments.
Licensing Agreements
The
Company has various agreements to license technology utilized in
the development of its programs. The licenses contain success
milestone obligations and royalties on future sales. During the
year ended December 31, 2017 and 2016, no milestones were met and
no royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty payments under any of its
license agreements.
Patent Costs
The
Company expenses costs relating to issued patents and patent
applications, including costs relating to legal, renewal and
application fees, as a component of general and administrative
expenses in its statements of operations.
F-10
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Income Taxes
From
December 2014 to December 16, 2015, the Company was an LLC taxed as
a partnership under the Internal Revenue Code, during which period
the members separately accounted for their pro-rata share of
income, deductions, losses, and credits of the Company. On December
16, 2015, the Company converted from an LLC to a C Corporation.
Beginning on December 16, 2015, the Company uses an asset and
liability approach for accounting for deferred income taxes, which
requires recognition of deferred income tax assets and liabilities
for the expected future tax consequences of events that have been
recognized in its financial statements, but have not been reflected
in its taxable income. Estimates and judgments occur in the
calculation of certain tax liabilities and in the determination of
the recoverability of certain deferred income tax assets, which
arise from temporary differences and carry forwards. Deferred
income tax assets and liabilities are measured using the currently
enacted tax rates that apply to taxable income in effect for the
years in which those tax assets and liabilities are expected to be
realized or settled.
The
Company regularly assesses the likelihood that its deferred income
tax assets will be realized from recoverable income taxes or
recovered from future taxable income. To the extent that the
Company believes any amounts are more likely not to be realized,
the Company records a valuation allowance to reduce the deferred
income tax assets. In the event the Company determines that all or
part of the net deferred tax assets are not realizable in the
future, an adjustment to the valuation allowance would be charged
to earnings in the period such determination is made. Similarly, if
the Company subsequently realizes deferred income tax assets that
were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in an adjustment
to earnings in the period such determination is made.
Internal Revenue
Code Section 382 provides that, after an ownership change, the
amount of a loss corporation’s net operating loss
(“NOL”) for any post-change year that may be offset by
pre-change losses shall not exceed the section 382 limitation for
that year. Because the Company will continue to raise equity in the
coming years, section 382 may limit the Company’s usage of
NOLs in the future.
Based
on the available evidence, the Company believed it was not likely
to utilize its minimal deferred tax assets in the future and as a
result, the Company recorded a full valuation allowance as of
December 31, 2017 and 2016. The Company intends to maintain the
valuation allowance until sufficient evidence exists to support
their reversal. The Company regularly reviews its tax positions and
for a tax benefit to be recognized, the related tax position must
be more likely than not to be sustained upon examination. Any
amount recognized is generally the largest benefit that is more
likely than not to be realized upon settlement. The Company’s
policy is to recognize interest and penalties related to income tax
matters as an income tax expense. For the years ended December 31,
2017 and 2016, the Company did not have any interest or penalties
associated with unrecognized tax benefits.
The
Company is subject to U.S. Federal, Illinois and California income
taxes. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply. The Company was incorporated on
December 16, 2015 and is subject to U.S. Federal, state and local
tax examinations by tax authorities for the years ended December
31, 2017 and 2016 and for the short tax period December 16, 2015 to
December 31, 2015. The Company does not anticipate significant
changes to its current uncertain tax positions through December 31,
2017. The Company plans on filing its tax returns for the year
ending December 31, 2017 prior to the filing deadlines in all
jurisdictions.
F-11
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Stock-Based Compensation
The
Company accounts for stock-based compensation arrangements with
employees, nonemployee directors and consultants using a fair value
method, which requires the recognition of compensation expense for
costs related to all stock-based payments, including stock options.
The fair value method requires the Company to estimate the fair
value of stock-based payment awards on the date of grant using an
option pricing model.
Stock-based
compensation costs for options granted to employees and nonemployee
directors are based on the fair value of the underlying option
calculated using the Black-Scholes option-pricing model on the date
of grant for stock options and recognized as expense on a
straight-line basis over the requisite service period, which is the
vesting period. Determining the appropriate fair value model and
related assumptions requires judgment, including estimating stock
price volatility, forfeiture rates and expected term. The expected
volatility rates are estimated based on the actual volatility of
comparable public companies over the expected term. The Company
selected these companies based on comparable characteristics,
including enterprise value, risk profiles, stage of development and
with historical share price information sufficient to meet the
expected life of the stock-based awards. The expected term for
options granted to date is estimated using the simplified method.
Forfeitures are estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from
those estimates. The Company has not paid dividends and does not
anticipate paying a cash dividend in the future vesting period and,
accordingly, uses an expected dividend yield of zero. The risk-free
interest rate is based on the rate of U.S. Treasury securities with
maturities consistent with the estimated expected term of the
awards. The measurement of consultant share-based compensation is
subject to periodic adjustments as the underlying equity
instruments vest and is recognized as an expense over the period
over which services are rendered.
Recent Accounting Pronouncements
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which
provides guidance on determining when and how reporting companies
must disclose going-concern uncertainties in their financial
statements. The ASU requires management to perform interim and
annual assessments of an entity’s ability to continue as a
going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, a company must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going concern.” This
ASU became effective for annual periods ending after December 15,
2016 and interim periods within annual periods beginning after
December 15, 2016. The Company has adopted this new accounting
standard in its financial statements and footnote
disclosures.
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred
Taxes. This is part of FASB’s simplification
initiative. The amendments in this ASU require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. This ASU became effective for the
Company in the first quarter of 2017. The Company has adopted this
ASU and determined that it does not have a material effect on its
financial condition and results of operations for the year ended
December 31, 2017.
In
January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities. The purpose is to enhance
the reporting model for financial instruments to provide users of
financial statements with more decision-useful information. This
ASU is effective for the Company in the first quarter of 2018.
Early adoption is not permitted except for limited provisions. The
Company does not expect the adoption of this amendment to have a
material effect on its financial condition and results of
operations.
F-12
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
In
February 2016, the FASB issued ASU 2016-02, Leases, which for operating leases,
requires a lessee to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease
payments, in its balance sheet. The standard also requires a lessee
to recognize a single lease cost, calculated so that the cost of
the lease is allocated over the lease term, generally on a
straight-line basis. ASU 2016-02 will be effective for the Company
in the first quarter of 2019, and early adoption is permitted. The
Company is currently assessing the impact that adopting this new
accounting standard will have on its financial statements and
footnote disclosures.
In
March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the
accounting for employee share-based payment transactions for both
public and nonpublic companies, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. The ASU
became effective for the Company in the first quarter of 2017. The
Company has adopted this ASU and determined that it does not have a
material effect on its financial condition and results of
operations for the year ended December 31, 2017.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):Restricted
Cash. The amendments apply to all entities that have
restricted cash or restricted cash equivalents and are required to
present a statement of cash flows. The amendments address diversity
in practice that exists in the classification and presentation of
changes in restricted cash on the statement of cash flows. The
amendments require that a statement of cash flows explain the
change during the period in the total of cash, cash equivalents,
and amounts generally described as restricted cash or restricted
cash equivalents. As a result, amounts generally described as
restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the
statement of cash flows. The amendments do not provide a definition
of restricted cash or restricted cash equivalents. The amendments
are effective for public business entities for fiscal years
beginning after December 15, 2017, and interim periods within those
fiscal years. For all other entities, the amendments are effective
for fiscal years beginning after December 15, 2018, and interim
periods within fiscal years beginning after December 15, 2019.
Early adoption is permitted. The Company has early adopted the
amendments and has applied them using a retrospective transition
method to each period presented. Therefore, the Company has
included restricted cash in cash equivalents and restricted cash on
its statements of cash flows for the years ended December 31, 2017
and 2016.
In
January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business (“ASU No.
2017-01”). The amendments in ASU No. 2017-01 clarify the
definition of a business with the objective of adding guidance to
assist entities with evaluating whether transactions should be
accounted for as acquisitions (or disposals) of assets or
businesses. The definition of a business affects many areas of
accounting including acquisitions, disposals, goodwill and
consolidation. For public companies, the amendments are effective
for annual periods beginning after December 15, 2017, including
interim periods within those periods. For all other companies and
organizations, the amendments are effective for annual periods
beginning after December 15, 2018, and interim periods within
annual periods beginning after December 15, 2019. The Company is
currently assessing the impact that adopting this new accounting
standard will have on its financial statements and footnote
disclosures.
In May
2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):
Scope of Modification Accounting. The amendment amends the
scope of modification accounting for share-based payment
arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an
entity would be required to apply modification accounting under ASC
718. This ASU is effective for all entities for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period for: (a) public business entities for
reporting periods for which financial statements have not yet been
issued, and (b) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The Company is currently assessing the impact that adopting this
new accounting standard will have on its financial statements and
footnote disclosures.
F-13
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260) Distinguishing
Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic
815) (Part I) Accounting for Certain Financial Instruments with
Down Round Features, (Part II) Replacement of the Indefinite
Deferral for Mandatorily Redeemable Financial Instruments of
Certain Nonpublic Entities and Certain Mandatorily Redeemable
Noncontrolling Interests with a Scope Exception. This ASU
simplifies the accounting for certain financial instruments with
down round features, a provision in an equity-linked financial
instrument (or embedded feature) that provides a downward
adjustment of the current exercise price based on the price of
future equity offerings. Down round features are common in
warrants, convertible preferred shares, and convertible debt
instruments issued by private companies and development-stage
public companies. This new ASU requires companies to disregard the
down round feature when assessing whether the instrument is indexed
to its own stock, for purposes of determining liability or equity
classification. The provisions of this new ASU related to down
rounds are effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments are
effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15,
2020. Early adoption is permitted for all entities. The Company is
currently assessing the impact that adopting this new accounting
standard will have on its financial statements and footnote
disclosures.
Note 3 - Capital Stock
On
December 16, 2015, the Company converted from an LLC to a C
Corporation at which time the Company effected a 1 for 10 reverse
stock split. All references to preferred stock authorized, issued
and outstanding and common stock authorized take into account the 1
for 10 reverse stock split. In March 2017, the Company’s
Series A Preferred Stock and Series Z Preferred Stock converted to
common stock at a conversion rate of 1.2 for 1 and 1 for 1,
respectively, along with a simultaneous common stock split of 70
for 1 and the elimination all shares of Series A Preferred Stock
and Series Z Preferred Stock (collectively, the
“Conversion”). 100,000 shares of Series Z Preferred
Stock were converted into 7,000,000 shares of common stock and
15,894 shares of Series A Preferred Stock were converted into
1,335,079 shares of common stock. All references to common stock
authorized, issued and outstanding and common stock options take
into account the 70 for 1 stock split.
Holders
of the common stock are entitled to receive such dividends as may
be declared by the Board of Directors out of funds legally
available therefor. Upon dissolution and liquidation of the
Company, holders of the common stock are entitled to a ratable
share of the net assets of the Company remaining after payments to
creditors of the Company. The holders of shares of common stock are
entitled to one vote per share for the election of directors and on
all other matters submitted to a vote of stockholders.
The
Company’s amended and restated certificate of incorporation
authorizes the Company to issue 40,000,000 shares of common stock
with a par value of $0.001 per share.
Contribution to Capital
In
August 2017, the Company’s largest stockholder, Tactic
Pharma, LLC (“Tactic Pharma”), surrendered 2,888,727.12
shares of common stock back to the Company as a contribution to the
capital of the Company. This resulted in reducing Tactic
Pharma’s ownership in Monopar from 79.5% to
69.9%.
Sales of Common Stock
Pursuant to an
active private placement memorandum, during the period from July 1,
2017 through September 30, 2017, Monopar sold 448,834 shares of
common stock at $6 per share for proceeds of approximately $2.7
million. This financing closed on September 30, 2017.
F-14
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Issuance of Common Stock in the Gem Transaction
Pursuant to the Gem
Transaction, discussed in detail in Note 6 below, the Company
issued 3,055,394.12 shares of its common stock in exchange for cash
and intellectual property related to GPX-150 (renamed
MNPR-201).
As of
December 31, 2017, the Company had 9,291,420.614 shares of common
stock issued and outstanding. The Company no longer has any shares
of preferred stock authorized or outstanding.
In
April 2016, the Company adopted the 2016 Stock Incentive Plan and
the Company’s Board of Directors reserved 700,000 shares of
common stock for issuances under the plan (as adjusted subsequent
to the Conversion). In October 2017, the Company’s Board of
Directors increased the stock option pool to 1,600,000 shares of
common stock.
Note 4 - Stock Option Plan
In
April 2016, the Company’s Board of Directors and the
convertible preferred stockholders representing a majority of the
Company’s outstanding stock approved, the Monopar
Therapeutics Inc. 2016 Stock Incentive Plan (the
“Plan”) allowing the Company to grant up to an
aggregate 700,000 shares of stock awards, stock options, stock
appreciation rights and other stock-based awards to employees,
directors and consultants. Concurrently, the Board of Directors
granted to certain Board members and the Company’s acting
chief financial officer stock options to purchase up to an
aggregate 273,000 shares of the Company’s common stock at an
exercise price of $0.001 par value based upon a third-party
valuation of the Company’s common stock.
In
December 2016, the Board of Directors granted stock options to
purchase up to 7,000 shares of the Company’s common stock at
an exercise price of $0.001 par value to the Company’s acting
chief medical officer.
In
February 2017, the Board of Directors granted to certain Board
members and the Company’s acting chief financial officer
stock options to purchase up to an aggregate 275,520 shares of the
Company’s common stock at an exercise price of $0.001 par
value based upon a third-party valuation of the Company’s
common stock. In September 2017, the Board of Directors represented
by the designated Plan Administrator, granted options to purchase
up to 21,024 shares of common stock to each of the three new Board
members at an exercise price of $6 per share based on the price per
share at which common stock was sold in the Company’s most
recent private offering.
Under
the Plan, the per share exercise price for the shares to be issued
upon exercise of an option shall be determined by the Plan
administrator, except that the per share exercise price shall be no
less than 100% of the fair market value per share on the grant
date. Fair market value is established by the Company’s Board
of Directors, using third party valuation reports and recent
financings. Options generally expire after ten years.
F-15
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Stock
option activity under the Plan was as follows:
|
|
|
Options Outstanding
|
|
|
|
Options Available
|
Number ofOptions
|
Weighted-Average Exercise Price
|
|
Balances at January 1, 2016
|
—
|
—
|
$—
|
|
Initial
option pool
|
700,000
|
|
|
|
Granted
(1)
|
(280,000)
|
280,000
|
0.001
|
|
Forfeited
|
—
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
|
Balances at December 31, 2016
|
420,000
|
280,000
|
0.001
|
|
Option
pool increase (2)
|
900,000
|
—
|
—
|
|
Granted
(3)
|
(378,592)
|
378,592
|
1.63
|
|
Forfeited
|
—
|
—
|
—
|
|
Exercised
|
—
|
—
|
—
|
|
Balances at December 31, 2017
|
941,408
|
658,592
|
0.94
|
(1)
273,000 options
vested 50% upon grant date, 25% upon the 6-month anniversary of
grant date and 25% upon the 1-year anniversary of grant date; 7,000
options vested monthly over 6 months.
(2)
In October 2017,
the Company’s Board of Directors increased the option pool to
1,600,000 shares.
(3)
336,544 options
vest 6/48ths at the six-month anniversary of grant date and 1/48th
per month thereafter 21,024 options vest 6/24ths on the six-month
anniversary of grant date and 1/24th per month thereafter; and
21,024 options vest 6/42nds on the six-month anniversary of grant
date and 1/42nd per month thereafter.
A
summary of options outstanding as of December 31, 2017 is shown
below:
|
Exercise Prices
|
Numberof Shares Outstanding
|
Weighted Average Remaining Contractual Term
|
Number of Shares Fully Vested and Exercisable
|
Weighted Average Remaining Contractual Term
|
|
$0.001
|
555,520
|
8.7
years
|
337,400
|
8.4
years
|
|
$6.00
|
103,072
|
9.6
years
|
—
|
N/A
|
|
|
658,592
|
|
337,400
|
|
During
the years ended December 31, 2017 and 2016, the Company recognized
$26,864 and $0 of employee and non-employee director stock-based
compensation expense as general and administrative expenses,
respectively, and $26,499 and $0 as research and development
expenses, respectively. The compensation expense is allocated on a
departmental basis, based on the classification of the option
holder. No income tax benefits have been recognized in the
statements of operations for stock-based compensation
arrangements.
F-16
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
The
Company recognizes as an expense the fair value of options granted
to persons who are neither employees nor directors. The fair value
of expensed options was based on the Black-Scholes option-pricing
model assuming the following factors: 6.1 to 5.3 years expected
term, 57% volatility, 2.2% to 1.2% risk free interest rate and zero
dividends. The expected
term for options granted to date is estimated using the simplified
method. Stock-based compensation expense for non-employees for the
years ended December 31, 2017 and 2016 was $251,842 and $0,
respectively, of which $199,769 and $0, respectively was recorded
as research and development expenses and $52,073 and $0,
respectively, as general and administrative expenses. For the years
ended December 31, 2017 and 2016: the weighted average grant date
fair value was $0.88 and $0.00 per share, respectively; and the
fair value of shares vested were approximately $0.3 million and
nominal, respectively. At December 31, 2017, the aggregate
intrinsic value was approximately $3.3 million of which
approximately $2.0 million was vested and approximately $1.3
million is expected to vest and the weighted average exercise price
in aggregate was $0.94 which includes $0.001 for fully vested stock
options and $1.93 for stock options expected to vest. At December
31, 2017 unamortized unvested balance of stock base compensation
was $925,126, to be amortized over 3.3 years.
Note 5 - Development and Collaboration Agreements
Onxeo SA
The
pre-negotiated Onxeo license agreement for Validive included as
part of the option agreement includes clinical, regulatory,
developmental and sales milestones that could reach up to $108
million if the Company achieves all milestones, and escalating
royalties on net sales from 5 - 10%. On September 8, 2017, the
Company exercised the option, and therefore was required to pay
Onxeo the $1 million fee under the option and license
agreement.
Under
the agreement, the Company is required to pay royalties to Onxeo on
a product-by-product and country-by-country basis until the later
of (1) the date when a given product is no longer within the scope
of a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is generally 20
years from the earliest claimed filing date of a non-provisional
patent application in the applicable country, not taking into
consideration any potential patent term adjustment that may be
filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The
Onxeo license agreement does not have a pre-determined term, but
expires on a product-by-product and country-by-country basis; that
is, the agreement expires with respect to a given product in a
given country whenever the Company’s royalty payment
obligations with respect to such product have expired. The
agreement may also be terminated early for cause if either the
Company or Onxeo materially breach the agreement, or if either the
Company or Onxeo become insolvent. The Company may also choose to
terminate the agreement, either in its entirety or as to a certain
product and a certain country, by providing Onxeo with advance
notice.
The
Company plans to internally develop Validive with the near-term
goal of commencing a Phase 3 clinical trial, which, if successful,
may allow the Company to apply for marketing approval within the
next few years. The Company will need to raise significant funds to
support the further development of Validive.
Cancer
Research UK
In May 2015, the Company entered into a CTOA with
Cancer Research UK and Cancer Research Technology Limited, a
wholly-owned subsidiary of Cancer Research UK. As part of the CTOA,
the Company was obligated to submit $0.8 million in escrow to cover
certain potential future claims, intellectual property infringement
costs or termination costs incurred by Cancer Research UK.
Pursuant to
this agreement Cancer Research UK conducted preclinical work,
improved the manufacturing, and planned to conduct a Phase 1a/1b
clinical trial in cancer patients. As part of a portfolio
reprioritization review, on March 21, 2018 Cancer
Research UK notified the Company that it was terminating the CTOA
and would work to transfer to the Company the data generated under
the CTOA. The Company is currently reviewing potential
alternative collaboration opportunities for MNPR-101 and continues
to maintain the program’s intellectual property
portfolio.
F-17
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
XOMA Ltd.
The
intellectual property rights contributed by Tactic Pharma to the
Company included the non-exclusive license agreement with XOMA Ltd.
for the humanization technology used in the development of
MNPR-101. Pursuant to such license agreement, the Company is
obligated to pay XOMA Ltd. clinical, regulatory and sales
milestones for MNPR-101 that could reach up to $14.925 million if
the Company achieves all milestones. The agreement does not require
the payment of sales royalties. There can be no assurance that the
Company will reach any milestones. As of December 31, 2017, the
Company has not reached any milestones and has not been required to
pay XOMA Ltd. any funds under this license agreement.
Note 6 - The Gem Transaction
On
August 25, 2017, the Company executed definitive agreements with
Gem Pharmaceuticals, LLC (“Gem”), pursuant to which Gem
formed a limited liability company, TacticGem LLC
(“TacticGem”) with Tactic Pharma, the Company’s
largest shareholder at that time. Gem contributed certain of
Gem’s drug candidates’ intellectual property and
agreements associated primarily with Gem’s GPX-150 (renamed
MNPR-201) drug candidate program, along with $5,000,000 in cash
(the “Gem Contributed Assets”) to TacticGem for a
42.633% interest, and Tactic Pharma contributed 4,111,272.88 shares
of common stock of Monopar to TacticGem for a 57.367% interest.
Then, TacticGem contributed the Gem Contributed Assets to the
Company in exchange for 3,055,394.12 newly issued shares of common
stock of the Company (31.4% on a fully-diluted basis) (the two
contributions collectively, the “Gem Transaction”). The
Gem Transaction closed on August 25, 2017. Following the Gem
Transaction, TacticGem owns 7,166,667 (77.1%) shares of
Monopar’s common stock as of December 31, 2017.
The
transaction was recorded as an asset acquisition on August 25, 2017
as follows:
|
Cash
recorded on the Company’s Balance Sheet
|
$5,000,000
|
|
Assembled
Workforce recorded as In-process Research and Development Expense
on
the
Company’s Statement of Operations
|
9,886
|
|
MNPR-201
(GPX-150) recorded as In-process Research and Development Expense
on
the
Company’s Statement of Operations
|
13,491,736
|
|
Total
Gem Transaction
|
$18,501,622
|
Within
90 days of the effective date of the transaction, the Company was
required to use its best efforts to file a Form 10 to register its
common stock under the Securities Exchange Act of 1934. The Company
filed its Form 10 on November 9, 2017. Additionally, Arthur
Klausner, current CEO of Gem, has been added to the Company’s
Board of Directors and will remain on the Board of Directors at
least until the Company achieves a listing on a major stock
exchange (such as Nasdaq or NYSE). Richard Olson and Gerald Walsh,
CSO and President of Gem, respectively, have been retained with
one-year consulting agreements to aid in an efficient transfer of
Gem’s GPX-150 (renamed MNPR-201) and associated
programs.
It is
anticipated that this transaction will increase the Company’s
annual cash burn by at least $750,000, and will be significantly
higher if the Company chooses to conduct clinical trials with the
Gem drug candidate programs.
F-18
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Note 7 - Related Party Transactions
During
the years ended December 31, 2017 and 2016, the Company was advised
by four members of its Board of Directors, who were Managers of the
LLC prior to the Company’s conversion to a C Corporation. The
four former Managers are also current common stockholders (owning
approximately an aggregate 3% of the common stock outstanding as of
December 31, 2017). Three of the former Managers are also Managing
Members of Tactic Pharma the Company’s largest and
controlling stockholder (beneficially owning 46% of the Company at
December 31, 2017 and in partnership with Gem through TacticGem
owning 77%). Monopar paid Managing Members of Tactic Pharma the
following during the years ended December 31, 2017 and 2016:
Chandler D. Robinson, the Company’s Co-Founder, Chief
Executive Officer, common stockholder, Managing Member of Tactic
Pharma and former Manager of the predecessor LLC $346,545 and
$322,000, respectively; and Andrew P. Mazar, the Company’s
Co-Founder, Chief Scientific Officer, common stockholder, Managing
Member of Tactic Pharma and former Manager of the predecessor LLC,
$300,731 and $197,500, respectively. The Company also paid
Christopher M. Starr, the Company’s Co-Founder, Executive
Chairman of the Board of Directors, common stockholder and former
Manager of the predecessor LLC $100,897 and $96,339 during the
years ended December 31, 2017 and 2016, respectively.
In the
normal course of business, the Company’s Chief Executive
Officer, Board Members and consultants incur expenses on behalf of
the Company and are reimbursed within 30 days of submission of
relevant expense reports.
The
Company reimbursed Tactic Pharma, a de minimis amount in monthly storage
fees during the years ended December 31, 2017 and 2016. In March
2017, Tactic Pharma wired $1 million to the Company in advance of
the sale of the Company’s common stock at $6 per share under
a private placement memorandum. In April, the Company issued to
Tactic Pharma 166,667 shares in exchange for the $1 million at $6
per share once the Company began selling stock to unaffiliated
parties under the private placement memorandum. In August 2017,
Tactic Pharma surrendered 2,888,727 shares of common stock back to
the Company as a contribution to the capital of the Company. This
resulted in reducing Tactic Pharma’s ownership in Monopar
from 79.5% to 69.9%. Following the surrender of the common stock,
Tactic Pharma contributed 4,111,272.88 shares of its holdings in
Monopar’s common stock to TacticGem pursuant to the Gem
Transaction discussed in detail in Note 6 above. As of December 31,
2017, Tactic Pharma beneficially owned 46% of Monopar’s
common stock, and TacticGem owned 77% of Monopar’s common
stock.
During
the years ended December 31, 2017 and 2016, the Company paid or
accrued legal fees to a large national law firm, in which a family
member of the Company’s Chief Executive Officer is a law
partner, approximately $300,140 and $54,000, respectively. The
family member personally billed a de minimis amount of time on the
Company’s legal engagement with the law firm in these
periods.
Note 8 – Income Taxes
ASC 740
requires that the tax benefit of net operating losses, temporary
differences, and credit carryforwards be recorded as an asset to
the extent that management assesses that realization is "more
likely than not." Realization of the future tax benefits is
dependent on the Company's ability to generate sufficient taxable
income within the carryforward period. The Company has reviewed the
positive and negative evidence relating to the realizability of the
deferred tax assets and has concluded that the deferred tax assets
are not more likely than not to be realized with the exception of
$4,358 of U.S. Federal R&D tax credits. These tax credits will
be utilized to reduce payroll taxes in 2018. Accordingly, the
valuation allowance has not been released related to these assets
with the exception of $4,000 in U.S. Federal R&D tax credits.
The valuation allowance increased by approximately $470,000 and
$460,000 during the years ended December 31, 2017 and 2016,
respectively.
F-19
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
The
provision for income taxes for December 31, 2017 and 2016 consists
of the following:
|
|
As of December
31,
|
|
|
|
2017
|
2016
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
800
|
800
|
|
Total
current
|
800
|
800
|
|
Deferred:
|
|
|
|
Federal
|
980,176
|
463,520
|
|
State
|
25,169
|
71,734
|
|
Total
deferred
|
1,005,345
|
535,254
|
|
Full valuation
allowance
|
(1,000,987)
|
(535,254)
|
|
Total
provision(1)
|
$(3,558)
|
$800
|
(1)
Total provision
consists of U.S. Federal R&D credits, net of California minimum
tax.
The
difference between the effective tax rate and the U.S. federal tax
rate is as follows:
|
|
%
|
|
Federal income
tax
|
34.00%
|
|
State income taxes,
less federal benefit
|
0.07%
|
|
Tax
credits
|
0.09%
|
|
Permanent
differences
|
-27.38%
|
|
Tax basis
intangibles
|
-4.90%
|
|
Change in valuation
allowance
|
-1.88%
|
|
Other (Release of
VA)
|
0.03%
|
|
Effective tax rate
benefit (expense)
|
0.03%
|
F-20
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Deferred tax assets
and liabilities consist of the following:
|
|
As of December 31,
|
|
|
|
2017
|
2016
|
|
Deferred
tax assets:
|
|
|
|
Net
operating loss carryforwards
|
$186,019
|
$111,245
|
|
Tax
credit carryforwards
|
30,143
|
4,470
|
|
Stock
compensation
|
58,536
|
—
|
|
Intangible
asset basis differences
|
730,647
|
419,539
|
|
Gross
deferred tax assets
|
1,005,345
|
535,254
|
|
Valuation
allowance
|
(1,000,987)
|
(535,254)
|
|
Total
deferred tax assets, net of valuation allowance
|
4,358
|
0
|
|
Deferred
tax liabilities:
|
|
|
|
Net
deferred tax liability
|
—
|
—
|
|
Net
deferred taxes
|
$4,358
|
$0
|
As of
December 31, 2017, Company had federal net operating loss
carryforwards of approximately $820,000 which will begin to expire
in 2035 for federal tax purposes. At December 31, 2017, the Company
had state net operating loss carryforwards of approximately
$260,000 which will begin to expire in 2027. The net operating loss
related deferred tax assets do not include excess tax benefits from
employee stock option exercises.
As of
December 31, 2017, Company had R&D credit carryforwards of
approximately $19,000 and $14,000 available to reduce future
taxable income, if any, for both federal and state income tax
purposes, respectively. In addition, Company had $4,358 available
to reduce future payroll taxes, if any, for Federal tax purposes.
The federal R&D credit carryforwards expire beginning 2035 and
Illinois R&D credit carryforwards expire beginning
2020.
The Tax
Reform Act of 1986 limits the use of net operating carryforwards in
certain situations where changes occur in the stock ownership of a
company. In the event the Company has had a change in ownership,
utilization of the carryforwards could be limited. The Company has
not performed such a study.
On
January 1, 2015, the Company adopted the provisions of FASB
Accounting Standards Codification (ASC 740-10), "Accounting for Uncertainty in Income
Taxes." ASC 740-10 prescribes a comprehensive model for the
recognition, measurement, presentation and disclosure in financial
statements of any uncertain tax positions that have been taken or
expected to be taken on a tax return. The cumulative effect of
adopting ASC 740-10 resulted in no adjustment to retained earnings
as of December 31, 2017. It is Company's policy to include
penalties and interest expense related to income taxes as a
component of other expense and interest expense, respectively, as
necessary.
No
liability related to uncertain tax positions is recorded on the
financial statements related to uncertain tax positions. There are
no unrecognized tax benefits as of December 31, 2017. The Company
does not expect that uncertain tax benefits will materially change
in the next 12 months.
F-21
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Company
files U.S. federal, California and Illinois State tax returns.
Company is subject to California State minimum franchise taxes. All
tax returns will remain open for examination by the federal and
state taxing authorities for three and four years, respectively,
from the date of utilization of any net operating loss
carryforwards or R&D credits.
On
December 22, 2017, the Tax Cuts and
Jobs Act of 2017 was enacted by the U.S. President. The Tax
Cuts and Jobs Act of 2017 is
effective as of January 1, 2018. In accordance with ASC guidance,
deferred tax assets/liabilities in the Company’s financial
statements are to be reflected at the tax rate in which the
deferred tax assets/liabilities are anticipated to be realized. As
a result, the Company changed the tax rate for tax provision
purposes at December 31, 2017 from 34% to 21%. This resulted in a
reduction of the value of the Company’s deferred tax asset
balances in the amount of approximately $176,000.
Note
9 – Commitments and Contingencies
Development
and Collaboration Agreements
The
intellectual property rights contributed by Tactic Pharma, LLC to
the Company included the non-exclusive license agreement with XOMA
Ltd. for the humanization technology used in the development of
MNPR-101. Pursuant to such license agreement, the Company is
obligated to pay XOMA Ltd. clinical, regulatory and sales
milestones for MNPR-101 and zero royalties. As of December 31,
2017, the Company has not reached any milestones and has not been
required to pay XOMA Ltd. any funds under this license
agreement.
Leases
The
Company leases office space at 500 Mercer St., Seattle, WA. The
lease commenced on November 1, 2017 and is extendable on a
month-to-month basis. Commencing January 1, 2018, the Company
entered into a lease for its executive headquarters at 1000 Skokie
Blvd., Suite 350, Wilmette, IL. The lease term is January 1, 2018
through December 31, 2019. The future lease commitments as
presented below include amounts for these two leases.
|
2018
|
$30,234
|
|
2019
|
30,234
|
|
2020
|
-
|
|
Total
future lease payments
|
$60,468
|
Legal
Contingencies
The
Company is subject to claims and assessments from time to time in
the ordinary course of business. The Company’s management
does not believe that any such matters, individually or in the
aggregate, will have a material adverse effect on the
Company’s business, financial condition, results of
operations or cash flows.
F-22
MONOPAR THERAPEUTICS INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2017
Indemnification
In the
normal course of business, the Company enters into contracts and
agreements that contain a variety of representations and warranties
and provide for general indemnification. The Company’s
exposure under these agreements is unknown because it involves
claims that may be made against the Company in the future, but that
have not yet been made. To date, the Company has not paid any
claims or been required to defend any action related to its
indemnification obligations. However, the Company may record
charges in the future as a result of these indemnification
obligations.
In
accordance with its amended and restated certificate of
incorporation and bylaws, the Company has indemnification
obligations to its officers and directors for certain events or
occurrences, subject to certain limits, while they are serving at
the Company’s request in such capacity. There have been no
claims to date.
Note 10 - Subsequent Events
Cancer
Research UK Termination of CTOA
On
March 21, 2018 Cancer Research UK notified the Company that it was
terminating the CTOA and would work to transfer to the Company the
data and know-how generated under the CTOA. The Company is
currently reviewing potential alternative collaboration
opportunities for MNPR-101 and continues to maintain the
program’s intellectual property portfolio.
The
Company has evaluated all events occurring from December 31, 2017
through March 26,
2018, the date which these financial statements were available to
be issued, and did not identify any additional material disclosable
subsequent events.
F-23
Schedule
II: Valuation and Qualifying Accounts
Valuation
Allowance for Deferred Tax Assets
|
|
Year Ended December
31,
|
|
|
(In thousands)
|
2017
|
2016
|
|
Balance at
beginning of year
|
$535,254
|
$75,251
|
|
Additions to
charged to expenses/other accounts
|
465,733
|
460,003
|
|
Balance
at end of year
|
$1,000,987
|
$535,254
|
F-24