Unassociated Document
As
filed with the Securities and Exchange Commission on May
22, 2008
Registration
No.
333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
DC 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER
THE
SECURITIES ACT OF 1933
VioQuest
Pharmaceuticals, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
(State
or jurisdiction
of
incorporation or organization)
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2834
(Primary
Standard Industrial
Classification
Code Number)
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58-1486040
(I.R.S.
Employer
Identification
No.)
|
|
|
|
180
Mount Airy Road, Suite 102
Basking
Ridge, NJ 07920
(Address
and telephone number of principal executive offices and principal
place of
business)
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|
Brian
Lenz
Chief
Financial Officer
VioQuest
Pharmaceuticals, Inc.
180
Mount Airy Road, Suite 102
Basking
Ridge, NJ 07920
Telephone:
(908)
766-4400
Facsimile:
(908)
766-4455
(Name,
address and telephone number of agent for service)
|
|
Copies
to:
Christopher
J. Melsha, Esq.
Maslon
Edelman Borman & Brand, LLP
90
South 7th Street, Suite 3300
Minneapolis,
Minnesota 55402
Telephone:
(612) 672-8200
Facsimile:
(612) 672-8397
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Approximate
date of commencement of proposed sale to the public:
As soon
as practicable after the effective date of this registration
statement.
If
any of
the securities being registered on this Form are to be offered on a delayed
or
continuous basis pursuant to Rule 415 under the Securities Act of 1933,
check the following box. x
If
this
Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.
o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
Indicate
by check mark whether the registrant is a large accelerated filed, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
See
the definitions of “large accelerated filed,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company x
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CALCULATION
OF REGISTRATION FEE
Title of each class of securities
to be registered
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Amount to be
registered (1) (2)
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Proposed maximum offering
price per share (3)
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|
Proposed maximum aggregate
offering price (3)
|
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Amount of
registration fee
|
|
Common stock,
par value $0.001 per share
|
|
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10,413,409
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$
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.604
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$ |
6,290,203 |
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$
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247.19
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(1) |
There
is also being registered hereunder an indeterminate number of additional
shares of common stock as shall be issuable pursuant to Rule 416
to
prevent dilution resulting from stock splits, stock dividends or
similar
transactions.
|
(2) |
The
offering price has been estimated solely for the purpose of computing
the
amount of the registration fee in accordance with Rule 457(o). Our
common
stock is not traded on any national exchange or unsolidated reporting
system and was determined by reference to the price at which shares
were
recently sold in a private placement. The offering price is a fixed
price
at which the selling shareholders may sell their shares until our
common
stock is quoted on the OTC Bulletin Board, at which time the shares
may be
sold at prevailing market or privately negotiated prices. There is
no
certainty that a market maker will agree to file the necessary documents
with the National Association of Securities Dealers, Inc., which
operates
the OTC Bulletin Board, for purposes of obtaining a price quotation
for
our common stock, nor is there any certainty that such an application
for
quotation will be approved.
|
(3) |
Estimated
solely for the purpose of computing the amount of the registration
fee
pursuant to Rule 457 under the Securities Act of 1933, determined
arbitrarily (please see “Determination of Offering
Price”).
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to such
Section 8(a), may determine.
A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
state.
Subject
to completion, dated May 22, 2008
OFFERING
PROSPECTUS
VioQuest
Pharmaceuticals, Inc.
10,413,409
Shares
Common
Stock
The
selling stockholders identified on pages 16-18 of this prospectus are offering
on a resale basis a total of 10,413,409 shares of our common stock, including
3,743,146 shares issuable upon the exercise of outstanding warrants. We will
not
receive any proceeds from the sale of these shares by the selling
stockholders.
Our
common stock is quoted on the OTC Bulletin Board under the symbol “VOQP.” On May
__, 2008, the last sale price for our common stock as reported on the OTC
Bulletin Board was $ .
The
securities offered by this prospectus involve a high degree of
risk.
See
“Risk Factors” beginning on page 9.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined that this prospectus
is truthful or complete. A representation to the contrary is a criminal
offense.
The
date
of this Prospectus
is ,
2008.
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Page
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Prospectus
Summary
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4
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Risk
Factors
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9
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Note
Regarding Forward Looking Statements
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15
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Use
of Proceeds
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15
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Selling
Stockholders
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16
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Plan
of Distribution
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19
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Description
of Capital Stock
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21
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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25
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Description
of Business
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38
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Management
and Board of Directors
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51
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Security
Ownership of Certain Beneficial Owners and Management
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62
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Transactions
with Related Persons, Promoters and Certain Control
Persons
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63
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Material
Changes
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64
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Where
You Can Find More Information
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64
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Validity
of Common Stock
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64
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Experts
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64
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Disclosure
Of Commission Position On Indemnification For Securities Act
Liabilities
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64
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Financial
Statements
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F-1
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PROSPECTUS
SUMMARY
This
summary provides a brief overview of the key aspects of this offering. Because
it is only a summary, it does not contain all of the detailed information
contained elsewhere in this prospectus or in the documents included as exhibits
to the registration statement that contains this prospectus. Accordingly, you
are urged to carefully review this prospectus in its entirety.
Our
Company
Product
Pipeline
VioQuest
Pharmaceuticals, Inc. is a biopharmaceutical company focused on the acquisition,
development and commercialization of clinical stage drug therapies targeting
both the molecular basis of cancer and side effects of cancer treatment. Our
lead compound under development is Xyfid™ (1% topical
uracil) for the treatment and prevention of Hand-Foot Syndrome (“HFS”), a common
and serious side effect of chemotherapy treatments. In parallel, Xyfid is also
being developed to treat dry skin conditions and manage the burning and itching
associated with various diseases of the skin, or dermatoses. We expect to
initiate a Phase IIb program for Xyfid in 2008 for HFS, and are exploring a
parallel 510(k) Premarket Notification submission during 2008 for Xyfid to
treat
various dermatoses. Additionally, we are developing VQD-002 (triciribine
phosphate monohydrate or TCN-P), a small molecule anticancer compound that
inhibits activation of protein kinase B (PKB or AKT), a key component of a
signaling pathway known to promote cancer cell growth and survival as well
as
resistance to chemotherapy and radiotherapy. VQD-002 is currently in Phase
I
clinical development for multiple tumor types and we expect to advance VQD-002
into Phase II clinical development during 2008. We are also developing
Lenocta™
(sodium stibogluconate), which we previously referred to as VQD-001, a
selective, small molecule inhibitor of certain protein tyrosine phosphatases
(“PTPs”), such as SHP-1, SHP-2 and PTP1B, with demonstrated anti-tumor activity
against a wide spectrum of cancers both alone and in combination with other
approved immune activation agents, including IL-2 and interferons. Lenocta
is
currently in a Phase IIa clinical trial as a potential treatment for melanoma,
renal cell carcinoma, and other solid tumors. In addition to its potential
role
as a cancer therapeutic, sodium stibogluconate has been approved in most of
the
world for first-line treatment of leishmaniasis, an infection typically found
in
tropic and sub-tropic developing countries. Based on historical published data
and a large observational study by the U.S. Army, data from approximately 400
patients could be utilized to support a New Drug Application (“NDA”) with the
U.S. Food and Drug Administration (“FDA”) in 2008. Lenocta has been granted
Orphan Drug status for leishmaniasis. To date, we have not received approval
for
the sale of any of our drug candidates in any market and, therefore, have not
generated any product sales from our drug candidates.
Xyfid™
(1% Topical Uracil)
A
pilot
clinical study of seven patients has shown topical application of Xyfid to
patients’ hands and feet to be effective in preventing the recurrence of
HFS, the dose limiting effect from the use of Xeloda™ (capecitabine or 5-FU).
The FDA has granted Xyfid fast track designation for the prevention of HFS
in
patients receiving capecitabine for the treatment of advanced metastatic breast
cancer. There are no existing treatments or preventions for HFS. The only way
to
reduce HFS in patients who receive capecitabine or 5-FU is to lower the dosing
levels, or completely stop the use, of capecitabine; however, capecitabine
dose
reductions may diminish chemotherapeutic efficacy in the treatment of
life-threatening cancer. We expect to initiate a Phase IIb program for Xyfid™ in
the first half of 2008.
We
may
pursue FDA approval of Xyfid as a medical device pursuant to Section 510(k)
of
the Food Drug and Cosmetic Act, or FDCA. This process is generally known as
510(k) clearance. Some low risk devices are exempt from this requirement.
Devices deemed by the FDA to pose the greatest risk, such as life-sustaining,
life-supporting or implantable devices, or devices deemed not substantially
equivalent to a previously cleared 510(k) device, are placed in Class III,
requiring pre-market approval, or PMA approval. When a 510(k) clearance is
required, the device sponsor must submit a premarket notification demonstrating
that its proposed device is substantially equivalent to a previously cleared
510(k) device or a device that was in commercial distribution. The evidence
required to prove substantial equivalence varies with the risk posed by the
device and its complexity. After a device receives 510(k) clearance for a
specific intended use, any modification that could significantly affect its
safety or effectiveness, or that would constitute a major change in its intended
use, design or manufacture, will require a new 510(k) clearance or could require
a PMA approval application. We are currently exploring a strategy of pursuing
510(k) clearance as a means of seeking FDA approval of Xyfid. We believe that
both Epiceram® and Xclair® provide substantial predicate device equivalence for
our 510(k) submission for Xyfid. Our strategy with Xyfid would be based upon
the
same skin irritant indication as Epiceram®, where we could use our uracil-based
product to treat the initial symptoms of HFS, to act as a barrier or protectant
to the skin’s environment, which is well documented to include erythema and may
progress to burning pain with dryness, cracking, desquamation, ulceration and
oedema. If we are not successful in obtaining 510(k) clearance for Xyfid, our
regulatory strategy for Xyfid would be the more conventional pathway for
pharmaceutical products under the FDCA.
VQD-002
(tricirbine phosphate monohydrate)
We
are
currently evaluating VQD-002 in patients with hyper-activated,
phosphorylated AKT in two Phase I/IIa studies, with
up
to 42 patients at the Moffitt Cancer Center in solid tumors and at the M.D.
Anderson Cancer Center in hematological tumors, with particular attention in
leukemias.
We
expect to complete our Phase I/IIa solid and hematologic tumor studies in 2008.
We expect to initiate Phase II studies in 2008. VQD-002 is a nucleoside analog
that was previously advanced into clinical trials by the National Cancer
Institute in the 1980s and early 1990s, and showed compelling anti-cancer
activities. In the first quarter of 2008, VQD-002 received orphan drug
designation by the FDA for the treatment of multiple myeloma. We filed with
the
FDA an IND relating to VQD-002, which was accepted in April 2006. Pursuant
to
this IND, we are currently evaluating the safety, tolerability and activity
of
VQD-002 and its ability to reduce AKT phosphorylation in our two Phase I/IIa
clinical trials.
Lenocta™
(sodium stibogluconate)
We
are
currently evaluating Lenocta in combination with alpha interferon (“IFN
a-2b”)
in
a Phase IIa study, with up to 54-patients at the M.D. Anderson Cancer Center
and
the University of New Mexico, with advanced malignancies and solid tumors that
have been non-responsive in previous cytokine therapy. We expect to complete
enrollment in our Phase IIa solid tumor trial in 2008. Lenocta has shown to
be
an inhibitor of multiple protein tyrosine phosphatases (PTPases), specifically
the SRC homology PTPases such as SHP-1, SHP-2 and PTP1B. We filed with the
FDA
an IND for Lenocta, which the FDA accepted in August 2006, allowing us to
commence clinical trials of Lenocta. Potential advantages of Lenocta over
existing therapies include Lenocta’s long history of use, acceptable toxicity,
known safety profiles, and efficacy in preclinical cancer models.
Lenocta
is a pentavalent antimonial drug that has been in use for over 50 years in
parts
of Africa and Asia for the treatment of leishmaniasis (a protozoan disease).
According to the World Health Organization, leishmaniasis currently threatens
350 million men, women, and children in 88 countries around the world. This
drug
is currently being used to treat military personnel serving in parts of the
world where leishmaniasis is prevalent, and we are currently in collaboration
with the U.S. Army under an executed Cooperative Research and Development
Agreement. In the second half of 2006, Lenocta received orphan drug designation
by the FDA for the treatment of leishmaniasis.
Overview
of Drug Development Status
To
date,
we have not received approval for the sale of any drug candidates in any market
and, therefore, have not generated any revenues from our drug candidates. The
successful development of our product candidates is highly uncertain. Product
development costs and timelines can vary significantly for each product
candidate and are difficult to accurately predict. Various laws and regulations
also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of each product. The lengthy process of seeking these
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Any failure
by us
to obtain, or any delay in obtaining, regulatory approvals could materially
adversely affect our business.
Assuming
we do not encounter any unforeseen safety issues or other during the course
of
developing our product candidates, we do not expect to complete the development
of: Xyfid until approximately 2008 through a 510(k) submission, 2010 for Xyfid
through an NDA submission, and 2013 for oncology indications of VQD-002 and
Lenocta, if ever. In addition, as we continue the development of our product
candidates, our research and development expenses will significantly increase.
Accordingly, our success depends not only on the safety and efficacy of our
product candidates, but also on our ability to finance the development of these
product candidates. Our major sources of working capital have been proceeds
from
various private financings, primarily private sales of our common stock and
other equity securities.
Corporate
Information
We
were
originally formed in October 2000, as a Pennsylvania limited liability company
under the name Chiral Quest, LLC. In February 2003, we completed a reverse
acquisition of Surg II, Inc., a publicly-held Minnesota shell corporation and
were renamed to Chiral Quest, Inc. In August 2004, we then changed our name
to
VioQuest Pharmaceuticals, Inc. and formed Chiral Quest, Inc. as our wholly-owned
subsidiary. In October 2005, we reincorporated under Delaware law by merging
into a wholly-owned subsidiary VioQuest Delaware, Inc., incorporated under
Delaware law as the surviving corporation and our wholly-owned subsidiary.
Immediately following the reincorporation, we acquired Greenwich Therapeutics,
Inc., a privately-held, New York City based drug development company, in a
merger transaction in which we merged our wholly-owned subsidiary VioQuest
Delaware, Inc. with and into Greenwich Therapeutics, with Greenwich Therapeutics
remaining as the surviving corporation and our wholly-owned subsidiary. As
a
result of the acquisition of Greenwich Therapeutics, we acquired the rights
to
develop and commercialize two oncology drug candidates – Lenocta, and
VQD-002.
In
July
2007, we sold all of our shares of capital stock of our Chiral Quest subsidiary.
Chiral Quest provided innovative chiral products, technology and custom
synthesis services to pharmaceutical and final chemical companies in all stages
of a products’ life cycle.
Lenocta™
is our trademark for our sodium stibogluconate product candidate. Xyfid™ is the
trademark for our topical uracil product candidate. All other trademarks and
tradenames mentioned in this prospectus are the property of their respective
owners. We have applied for rights to the Lenocta and Xyfid trademarks
from the U.S. Patent and Trademark Office.
Our
executive offices are located at 180 Mount Airy Road, Suite 102, Basking Ridge,
New Jersey 07920 and our telephone number is (908) 766-4400. Our Internet site
is www.vioquestpharm.com.
Risk
Factors
For
a
discussion of some of the risks you should consider before purchasing shares
of
our common stock, you are urged to carefully review and consider the section
entitled “Risk Factors” beginning on page 9 of this prospectus.
The
Offering
The
selling stockholders identified on pages 16-18 of this prospectus are offering
on a resale basis a total of 10,413,409 shares of our common stock, as
follows:
·
|
243,397
shares of our common stock issuable at a price of $4.00 per share
upon
exercise of warrants issued to the investors in our 2007 private
placement
of our convertible promissory notes;
|
|
|
·
|
5,774,167
shares of our common stock underlying 3,464.5 shares of our Series
A
Convertible Preferred Stock convertible at a price of $0.60 per share
issued to the investors in our private placement of Series A Convertible
Preferred stock;
|
|
|
·
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2,887,083
shares of our common stock issuable at a price of $1.00 per share
upon the
exercise of warrants issued to the investors in our private placement
of
Series A Convertible Preferred stock;
|
|
|
·
|
896,096
shares of our common stock underlying 3,405.165 shares of our Series
B
Convertible Preferred Stock convertible at a price of $3.80 per share
as
issued to our former note holders upon the conversion of the note’s
principal and accrued interest into shares of our Series B Convertible
Preferred Stock;
|
|
|
·
|
492,416
shares of our common stock issuable at a price of $0.80 per share
upon the
exercise of warrants issued to the placement agents in connection
with our
private placement of Series A Preferred Stock.
|
|
|
|
120,250
shares of our common stock issuable at a price of $4.20 per share upon
the
exercise of warrants issued to the placement agents in connection with
our
private placement of our convertible promissory
notes. |
|
Common
stock offered
|
10,413,409 shares
|
|
Common
stock outstanding before the offering(1)
|
5,461,644 shares
|
|
Common
stock outstanding after the offering(2)
|
15,875,053
shares
|
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Common
Stock OTC Bulletin Board symbol
|
VOQP.OB
|
|
(1)
|
Based
on the number of shares outstanding as of May 19, 2008, not including
2,738,382 shares issuable upon exercise of various warrants and options
to
purchase common stock.
|
|
(2) |
Assumes
the issuance of all shares offered hereby that are issuable upon
exercise
of warrants.
|
Recent
Developments
Reverse
Stock Split
On
April
25, 2008, we effected a 1-for-10 reverse stock split of our common stock. Upon
the effective time of the split, each shareholder owning 10 shares of pre-split
common stock received 1 share of post-split common stock. In lieu of fractional
shares, each record holder of securities at the effective time, who would
otherwise have been entitled to receive a fractional security is entitled to,
upon surrender of such holder's certificates representing pre-split securities,
a cash payment (without interest). Pursuant to the reverse stock split, all
of
our warrants, options, and conversion ratios were adjusted accordingly. Unless
otherwise noted in this prospectus, all of the figures for the number of
outstanding shares of common stock and shares of common stock underlying
preferred stock, warrants, and options contained herein have been adjusted
to
reflect the 1-for-10 reverse split.
Note
Offering
On
June
29, 2007 and July 3, 2007, we issued a series of convertible promissory notes
resulting in aggregate gross proceeds of $3.7 million. As a condition to
the
initial closing of the private placement of our Series A Convertible Preferred
Stock, a majority of the principal amount outstanding under these notes agreed
to convert all principal, together with accrued interest, into approximately
3,405 shares of our newly-designated Series B Convertible Preferred Stock.
Each
share of Series B Convertible Preferred Stock is convertible into shares
of our
common stock at $4.00 per share, or approximately 896,096 shares of common
stock
in the aggregate.
Offering
of Preferred Stock
On
March
14, 2008, we issued 765 shares of Series A Convertible Preferred Stock at a
price of $1,000 per share resulting in aggregate gross proceeds of $765,000.
On
April 9, 2008, we issued 2,194.5 shares of Series A Convertible Preferred Stock
at a price of $1,000 per share resulting in aggregate gross proceeds of $2.2
million, and reissued the shares originally issued on March 14, 2008. Each
share
of Series A Convertible Preferred Stock sold is convertible into shares of
our
common stock at $0.60 per share, or approximately 4.93 million shares of common
stock in the aggregate. In addition, two investors elected to convert a portion
of the principal and unpaid but accrued interest of their note into 505 shares
of Series A Convertible Preferred Stock on the same terms as their purchase
of
Series A Convertible Preferred Stock. We also issued to investors five-year
warrants to purchase, an aggregate of approximately 2.88 million shares of
our
common stock at an exercise price of $1.00 per share. In connection with the
offering, we engaged Paramount as our placement agent. In consideration for
the
placement agent’s services, we paid an aggregate of approximately $207,000 in
commissions to Paramount in connection with the offering. We also paid to
Paramount $35,000 as a non-accountable expense allowance. In addition, we issued
to Paramount five-year warrants to purchase, an aggregate of approximately
492,416 shares of common stock, which are exercisable at a price of $0.80 per
share.
A
description of the rights of the Series A Convertible Preferred Stock and
the
Series B Convertible Preferred Stock may be found below under “Description of
Capital Stock.”
RISK
FACTORS
Risks
Related to Our Business
We
urgently require immediate additional financing in order to continue the
development of our products and otherwise develop our business operations.
Such
financing may not be available on acceptable terms, if at
all.
Following
the completion of our private placement of our Series A Convertible Preferred
Stock, we believe that our current capital will be adequate to fund our
operations through the third quarter of 2008. However, changes may occur that
would consume available capital resources before that time. Our combined capital
requirements will depend on numerous factors, including: costs associated with
our drug development process, and costs of clinical programs, changes in our
existing collaborative relationships, the cost of filing, prosecuting, defending
and enforcing patent claims and other intellectual property rights and the
outcome of any potentially related litigation or other dispute, acquisition
of
technologies, costs associated to the development and regulatory approval
progress of our drug compounds, costs relating to milestone payments to our
licensors, license fees and manufacturing costs, the hiring of additional people
in the clinical development and business development areas. We will most likely
require additional financing by as early as the third quarter of 2008 in order
to continue operations. The most likely source of such financing includes
private placements of our equity or debt securities or bridge loans to us from
third party lenders, or by potentially sublicensing our rights to our
products.
Additional
capital that may be needed by us in the future may not be available on
reasonable terms, or at all. If adequate financing is not available, we may
be
required to terminate or significantly curtail our development programs, or
enter into arrangements with collaborative partners or others that may require
us to relinquish rights to certain of our technologies, or potential markets
that we would not otherwise relinquish. Alternatively, we may be required to
cease our operations altogether, in which case our stockholders may lose their
entire investment in our company.
Our
management anticipates incurring losses for the foreseeable
future.
Since
inception, the Company has incurred an accumulated deficit of $42,513,278
through March 31, 2008. For the three months ended March 31, 2008 and 2007,
the
Company had losses from continuing operations of $3,080,981 and $2,256,778,
respectively, and used $1,060,445 and $1,347,108 of cash in continuing operating
activities for the three months ended March 31, 2008 and 2007, respectively.
For
the three months ended March 31, 2008 and 2007, the Company had a net loss
of
$3,080,981 and a net loss of $2,518,253 (which included $2,256,778 from
continuing operations), respectively. As of March 31, 2008, the Company had
a
working capital deficit of $2,801,606 and cash and cash equivalents of $305,561.
We expect operating losses to continue for the foreseeable future and there
can
be no assurance that we will ever be able to operate profitably.
We
have no meaningful operating history on which to evaluate our business or
prospects.
We
commenced operations in October 2000 through our former Chiral Quest business,
which we sold in July 2007. In August 2004, we determined to become engaged
in
the drug development business and acquired rights to our first two drug
candidates in October 2005 through our acquisition of Greenwich Therapeutics.
In
March 2007, we acquired the rights to our third drug candidate from Fiordland
Pharmaceuticals, Inc. Therefore, we have only a limited operating history on
which you can base an evaluation of our business and prospects. Accordingly,
our
business prospects must be considered in light of the risks, uncertainties,
expenses and difficulties frequently encountered by companies in their early
stages of development, particularly companies in new and rapidly evolving
markets, such as drug development, fine chemical, pharmaceutical and
biotechnology markets.
We
have not made a required milestone payment to The Cleveland Clinic Foundation
pursuant to the Lenocta license agreement.
During
the last quarter of 2007, we achieved a milestone that required us to make
a
milestone payment to The Cleveland Clinic Foundation pursuant to the Lenocta
license agreement. We have informed The Cleveland Clinic Foundation of the
milestone and to date we have paid two-thirds of the milestone payment and
expect to pay the final one-third by the end of June 2008.
Our
operating results will fluctuate, making it difficult to predict our results
of
operations in any future period.
As
we
develop our business, we expect our operating results to vary significantly
from
quarter-to-quarter. As a result, quarter-to-quarter comparisons of our operating
results may not be meaningful. In addition, due to the fact that we have little
or no significant operating history with our new technology, we cannot predict
our future revenues or results of operations accurately. Our current and future
expense levels are based largely on our planned expenditures.
A
small group of persons is able to exert significant control over
us.
Dr.
Lindsay A. Rosenwald is the chairman and sole owner of Paramount BioCapital,
Inc. and such affiliates. Dr. Rosenwald beneficially owns approximately 11.6%
of
our outstanding common stock, and several trusts for the benefit of Dr.
Rosenwald and his family beneficially own 6.6% of our outstanding common stock.
Although Dr. Rosenwald does not have the legal authority to exercise voting
power or investment discretion over the shares held by those trusts, he
nevertheless may have the ability to exert significant influence over
us.
From
the rights we have obtained to develop and commercialize our drug candidates,
we
will require significant additional financing, which may not be available on
acceptable terms and will significantly dilute your ownership of our common
stock.
We
will
not only require additional financing to develop and bring the drug to market.
Our future capital requirements will depend on numerous factors,
including:
|
•
|
the
terms of our license agreements pursuant to which we obtain the right
to
develop and commercialize drug candidates, including the amount of
license
fees and milestone payments required under such
agreements;
|
|
•
|
the
results of any clinical trials;
|
|
•
|
the
scope and results of our research and development
programs;
|
|
•
|
the
time required to obtain regulatory
approvals;
|
|
•
|
our
ability to establish and maintain marketing alliances and collaborative
agreements; and
|
|
•
|
the
cost of our internal marketing
activities.
|
We
require significant additional capital in the immediate near future to operate
our business. The most likely source of such financing includes private
placements of our equity or debt securities or bridge loans to us from third
party lenders. If adequate funds are not available, we will be required to
delay, scale back or eliminate a future drug development program or obtain
funds
through arrangements with collaborative partners or others that may require
us
to relinquish rights to technologies or products that we would not otherwise
relinquish. In addition, if we do not receive substantial additional capital
in
the immediate near future, we may also be required to cease operations
altogether, in which case you would likely lose all of your
investment.
We
will continue to experience significant negative cash flow for the foreseeable
future and may never become profitable.
Because
drug development takes several years and is extremely expensive, we expect
that
our drug development subsidiary will incur substantial losses and negative
operating cash flow for the foreseeable future, and may never achieve or
maintain profitability, even if we succeed in acquiring, developing and
commercializing one or more drug candidates. In connection with our proposed
drug development business, we also expect to continue to incur significant
operating and capital expenditures and anticipate that our expenses will
increase substantially in the foreseeable future as we:
|
•
|
acquire
the rights to develop and commercialize a drug
candidate;
|
|
•
|
undertake
pre-clinical development and clinical trials for drug candidates
that we
acquire;
|
|
•
|
seek
regulatory approvals for drug
candidates
|
|
•
|
implement
additional internal systems and
infrastructure;
|
|
•
|
lease
additional or alternative office facilities;
and
|
|
•
|
hire
additional personnel.
|
Our
drug
development business may not be able to generate revenue or achieve
profitability. Our failure to achieve or maintain profitability could negatively
impact the value of our common stock.
If
we are not able to obtain the necessary U.S. or worldwide regulatory approvals
to commercialize any product candidates that we acquire, we will not be able
to
sell those products.
We
will
need FDA approval to commercialize drug candidates in the U.S. and approvals
from the FDA equivalent regulatory authorities in foreign jurisdictions to
commercialize our product candidates in those jurisdictions. In order to obtain
FDA approval of a drug candidate, we will be required to first submit to the
FDA
for approval an IND, which will set forth our plans for clinical testing of
a
particular drug candidate.
When
the
clinical testing for our product candidates is complete, we will then be
required to submit to the FDA a New Drug Application, or NDA, demonstrating
that
the product candidate is safe for humans and effective for its intended use.
This demonstration will require significant research and animal tests, which
are
referred to as pre-clinical studies, as well as human tests, which are referred
to as clinical trials. Satisfaction of the FDA’s regulatory requirements
typically takes many years, depends upon the type, complexity and novelty of
the
product candidate and requires substantial resources for research, development
and testing. The FDA has substantial discretion in the drug approval process
and
may require us to conduct additional pre-clinical and clinical testing or to
perform post-marketing studies. The approval process may also be delayed by
changes in government regulation, future legislation or administrative action
or
changes in FDA policy that occur prior to or during our regulatory review.
Delays in obtaining regulatory approvals may:
|
•
|
delay
commercialization of, and our ability to derive product revenues
from, a
drug candidate;
|
|
•
|
impose
costly procedures on us; and
|
|
•
|
diminish
any competitive advantages that we may otherwise
enjoy.
|
Even
if
we comply with all FDA requests, the FDA may still ultimately reject an NDA.
Failure to obtain FDA approval of a drug candidate will severely undermine
our
business development by reducing our ability to recover the development costs
expended in connection with a drug candidate and realize any profit from
commercializing a drug candidate.
In
foreign jurisdictions, we will be required to obtain approval from the
appropriate regulatory authorities before we can commercialize our drugs.
Foreign regulatory approval processes generally include all of the risks
associated with the FDA approval procedures described above.
Clinical
trials are very expensive, time-consuming and difficult to design and
implement.
Assuming
we are able to acquire the rights to develop and commercialize a product
candidate, we will be required to expend significant time, effort and money
to
conduct human clinical trials necessary to obtain regulatory approval of any
product candidate. Human clinical trials are very expensive and difficult to
design and implement, in part because they are subject to rigorous regulatory
requirements. The clinical trial process is also time consuming. We estimate
that clinical trials of any product candidate will take at least several years
to complete. Furthermore, failure can occur at any stage of the trials, and
we
could encounter problems that cause us to abandon or repeat clinical trials.
The
commencement and completion of clinical trials may be delayed by several
factors, including:
|
•
|
unforeseen
safety issues;
|
|
•
|
determination
of dosing issues;
|
|
•
|
lack
of effectiveness during clinical
trials;
|
|
•
|
slower
than expected rates of patient
recruitment;
|
|
•
|
inability
to monitor patients adequately during or after treatment;
and
|
|
•
|
inability
or unwillingness of medical investigators to follow our clinical
protocols.
|
In
addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if
the
FDA finds deficiencies in our IND submissions or the conduct of these
trials.
The
results of any clinical trial may not support the results of pre-clinical
studies relating to our product candidate, which may delay development of any
product candidate or cause us to abandon development
altogether.
Even
if
any clinical trials we undertake with respect to a future product candidate
that
we acquire are completed as planned, we cannot be certain that their results
will support the findings of pre-clinical studies upon which a development
plan
would be based. Success in pre-clinical testing and early clinical trials does
not ensure that later clinical trials will be successful, and we cannot be
sure
that the results of later clinical trials will replicate the results of prior
clinical trials and pre-clinical testing. The clinical trial process may fail
to
demonstrate that our product candidates are safe for humans and effective for
indicated uses. This failure may cause us to delay the development of a product
candidate or even to abandon development altogether. Such failure may also
cause
delay in other product candidates. Any delay in, or termination of, our clinical
trials will delay the filing of our NDAs with the FDA and, ultimately, our
ability to commercialize our product candidates and generate product
revenues.
If
physicians and patients do not accept and use our drugs after regulatory
approvals are obtained, we will not realize sufficient revenue from such product
to cover our development costs.
Even
if
the FDA approved any product candidate that we acquired and subsequently
developed, physicians and patients may not accept and use them. Acceptance
and
use of the product candidates we acquire (if any) will depend upon a number
of
factors including:
|
•
|
perceptions
by members of the health care community, including physicians, about
the
safety and effectiveness of our
drugs;
|
|
•
|
cost-effectiveness
of our product relative to competing
products;
|
|
•
|
availability
of reimbursement for our products from government or other healthcare
payers; and
|
|
•
|
effectiveness
of marketing and distribution efforts by us and our licensees and
distributors, if any.
|
Because
our drug development business plan contemplates that substantially all of any
future revenues we will realize will result from sales of product candidates
that we develop, the failure of any of drugs we acquire and develop to find
market acceptance would significantly and adversely affect our ability to
generate cash flow and become profitable.
We
intend to rely upon third-party researchers and other collaborators who will
be
outside our control and may not devote sufficient resources to our
projects.
We
intend
to collaborate with third parties, such as drug investigators, researchers
and
manufacturers, in the development of any product candidate that we acquire.
Such
third parties, which might include universities and medical institutions, will
likely conduct the necessary pre-clinical and clinical trials for a product
candidate that we develop. Accordingly, our successful development of any
product candidate will likely depend on the performance of these third parties.
These collaborators will not be our employees, however, and we may be unable
to
control the amount or timing of resources that they will devote to our programs.
For example, such collaborators may not assign as great a priority to our
programs or pursue them as diligently as we would if we were undertaking such
programs ourselves. If outside collaborators fail to devote sufficient time
and
resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, will be delayed. These collaborators may also have
relationships with other commercial entities, some of whom may compete with
us
in the future. If our collaborators were to assist our competitors at our
expense, the resulting adverse impact on our competitive position could delay
the development of our drug candidates or expedite the development of a
competitor’s candidate.
We
will rely exclusively on third parties to formulate and manufacture our product
candidates.
We
do not
currently have, and have no current plans to develop, the capability to
formulate or manufacture drugs. Rather, we intend to contract with one or more
manufacturers to manufacture, supply, store and distribute drug supplies that
will be needed for any clinical trials we undertake. If we received FDA approval
for any product candidate, we would rely on one or more third-party contractors
to manufacture our drugs. Our anticipated future reliance on a limited number
of
third-party manufacturers will expose us to the following risks:
|
•
|
We
may be unable to identify manufacturers on commercially reasonable
terms
or at all because the number of potential manufacturers is limited
and the
FDA must approve any replacement contractor. This approval would
require
new testing and compliance inspections. In addition, a new manufacturer
would have to be educated in, or develop substantially equivalent
processes for, production of our products after receipt of FDA approval,
if any.
|
|
•
|
Our
third-party manufacturers might be unable to formulate and manufacture
our
drugs in the volume and of the quality required to meet our clinical
needs
and commercial needs, if any.
|
|
•
|
Our
future contract manufacturers may not perform as agreed or may not
remain
in the contract manufacturing business for the time required to supply
our
clinical trials or to successfully produce, store and distribute
our
products.
|
|
•
|
Drug
manufacturers are subject to ongoing periodic unannounced inspection
by
the FDA, the DEA, and corresponding state agencies to ensure strict
compliance with good manufacturing practice and other government
regulations and corresponding foreign standards. We do not have control
over third-party manufacturers’ compliance with these regulations and
standards.
|
|
•
|
If
any third-party manufacturer makes improvements in the manufacturing
process for our products, we may not own, or may have to share, the
intellectual property rights to the
innovation.
|
We
may be
unable to identify manufacturers on acceptable terms or at all because the
number of potential manufacturers is limited and the FDA must approve any
replacement contractor. This approval would require new testing and compliance
inspections. In addition, a new manufacturer would have to be educated in,
or
develop substantially equivalent processes for, production of our products
after
receipt of FDA approval, if any.
If
we are not able to successfully compete against other drug companies, our
business will fail.
The
market for new drugs is characterized by intense competition and rapid
technological advances. If any drug candidate that we develop receives FDA
approval, we will likely compete with a number of existing and future drugs
and
therapies developed, manufactured and marketed by others. Existing or future
competing products may provide greater therapeutic convenience or clinical
or
other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost or with fewer side-effects. If our
products fail to capture and maintain market share, we may not achieve
sufficient product revenues and our business will suffer.
We
will
be competing against fully integrated pharmaceutical companies and smaller
companies that are collaborating with larger pharmaceutical companies, academic
institutions, government agencies and other public and private research
organizations. Many of these competitors have drug candidates already approved
or in development. In addition, many of these competitors, either alone or
together with their collaborative partners, operate larger research and
development programs and have substantially greater financial resources than
we
do, as well as significantly greater experience in:
|
•
|
undertaking
pre-clinical testing and human clinical
trials;
|
|
•
|
obtaining
FDA and other regulatory approvals of
drugs;
|
|
•
|
formulating
and manufacturing drugs; and
|
|
•
|
launching,
marketing and selling drugs.
|
Risks
Related to Our Securities
Trading
of our common stock is limited, which may make it difficult for you to sell
your
shares at times at prices that you feel are
appropriate.
Trading
of our common stock, which is conducted on the OTC Bulletin Board, has been
limited. This adversely effects the liquidity of our common stock, not only
in
terms of the number of shares that can be bought and sold at a given price,
but
also through delays in the timing of transactions and reduction in security
analysts’ and the media’s coverage of us. This may result in lower prices for
our common stock than might otherwise be obtained and could also result in
a
larger spread between the bid and asked prices for our common
stock.
Because
it is a “penny stock,” it will be more difficult for you to sell shares of our
common stock.
In
addition, our common stock is considered a “penny stock” under SEC rules because
it has been trading on the OTC Bulletin Board at a price lower than $5.00.
Broker-dealers who sell penny stocks must provide purchasers of these stocks
with a standardized risk-disclosure document prepared by the SEC. This document
provides information about penny stocks and the nature and level of risks
involved in investing in the penny-stock market. A broker must also give a
purchaser, orally or in writing, bid and offer quotations and information
regarding broker and salesperson compensation, make a written determination
that
the penny stock is a suitable investment for the purchaser, and obtain the
purchaser’s written agreement to the purchase. Broker-dealers also must provide
customers that hold penny stocks in their accounts with such broker-dealer
a
monthly statement containing price and market information relating to the penny
stock. If a penny stock is sold to you in violation of the penny stock rules,
you may be able to cancel your purchase and get your money back. The penny
stock
rules may make it difficult for you to sell your shares of our stock, however,
and because of the rules, there is less trading in penny stocks. Also, many
brokers simply choose not to participate in penny-stock transactions.
Accordingly, you may not always be able to resell shares of our common stock
publicly at times and prices that you feel are appropriate.
Our
stock price is, and we expect it to remain, volatile, which could limit
investors’ ability to sell stock at a profit.
The
volatile price of our stock makes it difficult for investors to predict the
value of their investment, to sell shares at a profit at any given time, or
to
plan purchases and sales in advance. A variety of factors may affect the market
price of our common stock. These include, but are not limited to:
|
•
|
announcements
of technological innovations or new commercial products by our competitors
or us;
|
|
•
|
developments
concerning proprietary rights, including
patents;
|
|
•
|
regulatory
developments in the United States and foreign
countries;
|
|
•
|
economic
or other crises and other external
factors;
|
|
•
|
period-to-period
fluctuations in our revenues and other results of
operations;
|
|
•
|
changes
in financial estimates by securities analysts;
and
|
|
•
|
sales
of our common stock.
|
We
will
not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily
be
indicative of our future performance.
In
addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance
of
individual companies. These broad market and industry factors may seriously
harm
the market price of our common stock, regardless of our operating
performance.
Because
we do not expect to pay dividends, you will not realize any income from an
investment in our common stock unless and until you sell your shares at
profit.
We
have
never paid dividends on our common stock and do not anticipate paying any
dividends for the foreseeable future. You should not rely on an investment
in
our stock if you require dividend income. Further, you will only realize income
on an investment in our shares in the event you sell or otherwise dispose of
your shares at a price higher than the price you paid for your shares. Such
a
gain would result only from an increase in the market price of our common stock,
which is uncertain and unpredictable.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Certain
statements contained in this prospectus that are forward-looking in nature
are
based on the current beliefs of our management as well as assumptions made
by
and information currently available to management, including statements related
to the markets for our products, general trends in our operations or financial
results, plans, expectations, estimates and beliefs. In addition, when used
in
this prospectus, the words “may,” “could,” “should,”
“anticipate,” “believe,” “estimate,” “expect,”
“intend,” “plan,” “predict” and similar expressions and their
variants, as they relate to us or our management, may identify forward-looking
statements. These statements reflect our judgment as of the date of this
prospectus with respect to future events, the outcome of which are subject
to
risks, which may have a significant impact on our business, operating results
or
financial condition. You are cautioned that these forward-looking statements
are
inherently uncertain. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
or
outcomes may vary materially from those described herein. We undertake no
obligation to update forward-looking statements. The risks identified under
the
heading “Risk Factors” in this prospectus, among others, may impact
forward-looking statements contained in this prospectus.
USE
OF PROCEEDS
We
will
not receive any proceeds from the resale of any of the shares offered by this
prospectus by the selling stockholders.
SELLING
STOCKHOLDERS
The
following table sets forth the number of shares of the common stock owned
by the
selling stockholders as of May 15, 2008, and after giving effect to this
offering. The percentage indicated for each selling stockholder in the column
entitled “percentage beneficial ownership after the offering” assumes the sale
of all the shares offered by this prospectus.
Shares
Issued Pursuant to Note Offering and Conversion to Series B Convertible
Preferred Stock
Selling
Stockholder
|
Shares
Beneficially Owned Before
Offering
|
Number
of Shares of Common Stock
Issuable Upon:
|
Percentage
Beneficial Ownership After
Offering
|
Conversion
of Series B Convertible
Preferred
Stock
|
Warrants
+
|
Neel
B. Ackerman and Martha N. Ackerman
|
110,376
(1)
|
55,630
|
13,157
|
*
|
Vincent
M. Aita
|
31,009
(2)
|
2,781
|
657
|
*
|
Jesus
A. Anaya
|
8,591
|
6,947
|
1,644
|
-
|
Lucille
S. Ball Revocable Trust (a)
|
29,214
|
23,622
|
5,592
|
|
Lee
P. Bearsch
|
17,184
|
13,895
|
3,289
|
-
|
David
Benadum
|
20,486
(3)
|
5,563
|
1,315
|
*
|
Frank
Calcutta
|
66,710
(4)
|
41,722
|
9,868
|
*
|
Duane
Clarkson
|
22,340
|
18,064
|
4,276
|
-
|
Clarkson
Trust (b)
|
46,399
|
13,895
|
3,289
|
-
|
Cranshire
Capital, LP (c)
|
111,087
(5)
|
69,478
|
16,447
|
*
|
CSA
Biotechnology Fund I, LLC (d)
|
1,965,014
(6)
|
216,112
|
82,236
|
*
|
Michael
Cushing
|
17,184
|
13,895
|
3,289
|
-
|
Ennino
DePianto
|
16,151
(7)
|
6,947
|
1,644
|
*
|
Praful
Desai
|
32,599
(8)
|
20,861
|
4,934
|
*
|
Gregg
Dovolis
|
32,599
(8)
|
20,861
|
4,934
|
*
|
John
O. Dunkin
|
30,804
(3)
|
13,907
|
3,289
|
*
|
Franz
Family Trust (e)
|
8,597
|
6,953
|
1,644
|
-
|
Stephen
Gerber
|
34,393
|
27,815
|
6,578
|
-
|
Daniel
E. Greenleaf
|
189,512
(9)
|
4,867
|
1,151
|
-
|
Robert
Guercio
|
39,403
(3)
|
20,861
|
4,934
|
*
|
Robert
Joseph
|
8,591
|
6,947
|
1,644
|
-
|
Ronald
P. Laurain
|
8,597
|
6,953
|
1,644
|
-
|
Stephen
H. Lebovitz
|
8,597
|
6,953
|
1,644
|
-
|
Brian
Lenz
|
53,571
(10)
|
75
|
328
|
*
|
S.
Alan Lisenby
|
78,806
(11)
|
41,722
|
9,868
|
*
|
M.H.
Yokoyama & J.S. Venuti Family Trust dated 4/95 (f)
|
4,295
|
3,473
|
822
|
-
|
Joe
Nitti
|
3,436
|
2,779
|
657
|
-
|
Thomas
& Denise M. Nudo
|
77,386
|
62,584
|
14,802
|
-
|
Alan
Platner
|
18,149
(12)
|
6,947
|
1,644
|
*
|
David
Pudelsky & Nancy Pudelsky
|
21,657
(13)
|
8,344
|
1,973
|
*
|
Louis
R. Reif
|
54,731
(9)
|
22,252
|
5,263
|
*
|
Suzanne
Schiller
|
15,401
(7)
|
6,953
|
1,644
|
*
|
George
L. Seward
|
8,591
|
6,947
|
1,644
|
-
|
Jerome
Shinkay
|
8,597
|
6,953
|
1,644
|
-
|
William
Silver
|
15,401
(7)
|
6,953
|
1,644
|
*
|
Vernon
L. Simpson
|
8,591
|
6,947
|
1,644
|
-
|
Lucile
Slocum
|
42,635
(4)
|
22,252
|
5,263
|
*
|
Pershing
LLC as Custodian for Howard M. Tanning
|
84,571
(1)
|
34,768
|
8,223
|
*
|
Carolyn
Taylor
|
43,463
(14)
|
27,815
|
6,578
|
*
|
Michael
Weiser
|
200,601
(15)
|
2,781
|
657
|
3.6
|
Lindsay
A. Rosenwald
|
636,002 (16)
|
-
|
12,105
|
4.0
|
GunnAllen
Financial, Inc.
|
75,250
|
-
|
75,250
|
-
|
Harris
Lydon
|
|
-
|
32,895
|
-
|
Shares
Issued Pursuant to Private Placement of Series A Convertible Preferred Stock
Selling
Stockholder
|
Shares
Beneficially Owned Before
Offering
|
Number
of Shares of Common Stock
Issuable Upon:
|
|
Conversion
of Series A Convertible
Preferred
Stock
|
Exercise
of
Warrants
+
|
Percentage
Beneficial Ownership
After
Offering
|
AB
Capital, L.P. (g)
|
150,000
|
100,000
|
50,000
|
-
|
Adams
Market Neutral, LLLP (h)
|
75,000
|
50,000
|
25,000
|
-
|
Fernando
Ahumada
|
100,000
|
66,667
|
33,333
|
-
|
Jorge
Ahumada
|
50,000
|
33,333
|
16,667
|
-
|
Balanced
Investment, LLC (i)
|
187,500
|
125,000
|
62,500
|
-
|
Alp
Benadrete
|
56,250
|
37,500
|
18,750
|
-
|
Izzet
Benadrete
|
125,000
|
83,333
|
41,667
|
-
|
Capretti
Grandi, LLC (j)
|
1,250,000
(18)
|
833,333
|
416,667
|
-
|
Tim
P. Cooper
|
50,000
|
33,333
|
16,667
|
-
|
Russell
H. Ellison
|
25,000
|
16,667
|
8,333
|
-
|
Rafit
Eskenazi
|
170,000
|
113,333
|
56,667
|
-
|
Steven
T. Glass
|
62,500
|
41,667
|
20,833
|
-
|
Ben
Heller
|
200,000
|
133,333
|
66,667
|
-
|
Elliot
H. Herskowitz IRA Rollover
|
125,000
|
83,333
|
41,667
|
-
|
Neil
Herskowitz IRA Rollover
|
125,000
|
83,333
|
41,667
|
-
|
High
Glen Properties Limited (k)
|
250,000
|
166,667
|
83,333
|
-
|
David
Jaroslawicz
|
200,000
|
133,333
|
66,667
|
-
|
Daniel
U. Kelves & BettyAnn Kelves
|
12,500
|
8,333
|
4,167
|
-
|
Charles
Hartman King
|
62,500
|
41,667
|
20,833
|
-
|
CSA
Biotechnology Fund II, LLC (l)
|
1,965,014
(6)
|
1,666,667
|
833,333
|
*
|
Klaus
Kretschmer
|
500,000
|
333,334
|
166,667
|
-
|
Nicholas
B. Kronwall Trust Dated 11/12/69
|
25,000
|
16,667
|
8,333
|
-
|
Brian
Lenz
|
53,571
(9)
|
16,667
|
8,333
|
*
|
Javier
Livas
|
25,000
|
16,667
|
8,333
|
-
|
Harris
Lydon
|
232,895 (17)
|
16,667
|
183,333
|
-
|
Susan
and Harry Newton, JTWROS
|
125,000
|
83,333
|
41,667
|
-
|
Mario
Pasquel and Begona Miranda
|
25,000
|
16,667
|
8,333
|
-
|
Neal
Polan
|
62,500
|
41,667
|
20,833
|
-
|
Elke
R de Ramirez
|
25,000
|
16,667
|
8,333
|
-
|
Riverside
Contracting, LLC (m)
|
375,000
|
250,000
|
125,000
|
-
|
Robert
Roth
|
25,000
|
16,667
|
8,333
|
-
|
Roberto
Segovia
|
22,500
|
15,000
|
7,500
|
-
|
South
Ferry #2 LP (n)
|
1,250,000
|
833,333
|
416,667
|
-
|
Starlight
Investment Holdings Limited (o)
|
250,000
|
166,667
|
83,333
|
-
|
Tokenhouse
Trading PTE Ltd. (p)
|
125,000
|
83,333
|
41,667
|
-
|
Lindsay
A. Rosenwald |
636,002 (16) |
-
|
251,666
|
4.0
|
Karl
Ruggeberg |
40,667 |
-
|
40,667
|
-
|
Justin Welling |
1,667 |
-
|
1,667
|
-
|
Ece
Marcelli |
23,416 |
-
|
23,416
|
-
|
+
Warrants listed here are excluded from mention in the footnotes
below.
*
Less
than 1%.
(1)
Includes warrant to purchase 10,780 shares.
(2)
Includes options to purchase 1,290 shares.
(3)
Includes warrant to purchase 3,528 shares.
(4)
Includes warrant to purchase 3,920 shares.
(5)
Includes warrant to purchase 10,666 shares.
(6)
Includes warrant to purchase 416,667 shares. Stockholder is also referenced
in
the table with respect to the Series A Convertible Preferred Stock.
(7)
Includes warrant to purchase 1,764 shares.
(8)
Includes warrant to purchase 1,764 shares.
(9)
In
addition to the shares being registered, represents (i) 8,000 shares owned
by
stockholder; and (ii) shares issuable upon exercise of options to purchase
175,494 shares.
(10)
|
In
addition to the shares being registered, represents: (i) shares
issuable
upon exercise (at a price of $16.70 per share) of an option to
purchase
1,500 shares; (ii) shares issuable upon exercise (at a price of
$14.00 per
share) of an option to purchase 2,500 shares; (iii) shares issuable
upon
exercise (at a price of $10.80 per share) of an option, 6,000 shares
of
which were vested as of January 24, 2008; (iv) shares issuable
upon
exercise (at a price of $10.30 per share) of an option 6,667 shares
of
which vested as of November 29, 2007; (v) shares issuable upon
exercise
(at a price of $8.50 per share) of an option, of which 6,667 shares
were
vested as of March 31, 2008; (vi) shares issuable upon exercise
(at a
price of $5.50 per share) of an option, 3,334 shares of which will
vest on
May 11, 2008; and (vii) 1,500 shares of common stock. Stockholder
is also
referenced in the table with respect to the Series A Convertible
Preferred
Stock. Mr. Lenz is our Chief Financial
Officer.
|
(11)
Includes warrant to purchase 7,056 shares.
(12)
Includes warrant to purchase 2,478 shares.
(13)
Includes warrant to purchase 2,940 shares.
(14)
Includes warrant to purchase 2,350 shares.
(15)
In
addition to the shares being registered, represents: (i) 161,206 shares owned
by, and 28,000 shares issuable upon the exercise of a warrant; (ii) 1,290
shares
issuable upon exercise (at a price of $19.60 per share) of an option which
fully
vested on October 28, 2006; and (iii) 6,667 shares issuable upon exercise
(at a
price of $3.80 per share) of an option, which vests as of July 11, 2008.
Mr.
Weiser is one of our directors.
(16)
In
addition to the shares being registered, represents: (i) 204,400 shares
owned by stockholder; (ii) 128,548 shares issuable upon exercise of warrants;
and (iii) 39,283 shares held by Paramount BioSciences, LLC, of which stockholder
is the sole member. It does not include shares held by Capretti
Grandi as otherwise disclosed in this table.
(17)
Stockholder is also referenced in this table with respect to the Series A
Convertible Preferred Stock.
(18)
Dr.
Lindsay Rosenwald is a controlling executive of Capretti Grandi, LLC. Based
on a
Schedule 13G/A filed on December 31, 2007, and Dr. Rosenwald may also be
deemed
to beneficially own the following securities (which are not included in the
table above for Capretti): (i) 128,548 shares issuable upon the exercise
of
warrants; and (ii) 39,283 shares held by Paramount BioCapital Investments,
LLC
of which Dr. Rosenwald is the managing member.
(a)
Richard Clarkson, Trustee of the Lucille S. Ball Revocable Trust, has voting
and/or dispositive control over the shares held by such selling
stockholder.
(b)
Richard Clarkson, Trustee of the Clarkson Trust, has voting and/or dispositive
control over the shares held by such selling stockholder.
(c)
Michael Kopin, President of Downsview Capital, Inc., the General Partner
of
Cranshire Capital, L.P., has sole voting and/or dispositive control over
the
shares held by such selling stockholder.
(d)
Taylor McElroy, Manager of CSA Biotechnology Fund I, LLC, has voting and/or
dispositive control over the shares held by such selling
stockholder.
(e)
David
and Nicole Franz, Trustees of the Franz Family Trust, have voting and/or
dispositive control over the shares held by such selling
stockholder.
(f)
Jaye
Venuti and Michael Yokohama, Trustees of the M.H. Yokohama & J.S. Venuti
Family Trust, have voting and/or dispositive control over the shares held
by
such selling shareholder.
(g)
Trygue Mikkelsen, Managing Partner of AB Capital, LP, has voting and/or
dispositive control over the shares held by such selling
shareholder.
(h)
Patrick Adams, Managing Partner of Adams Market Neutral, LLLP, has voting
and/or
dispositive control over the shares held by such selling
shareholder.
(i)
Alonso Diaz, the Investment Adviser of Balanced Investment, LLC, has voting
and/or dispositive control over the shares held by such selling
shareholder.
(j)
Lindsay A. Rosenwald, the Member Manager of Capretti Grandi, LLC, has voting
and/or dispositive control over the shares held by such selling
shareholder.
(k)
David
Ulmer, Vice President of High Glen Properties Limited, has voting and/or
dispositive control over the shares held by such selling
shareholder.
(l)
Madding King, the Managing Member of CSA Biotechnology Fund II, LLC, has
voting
and/or dispositive control over the shares held by such selling
shareholder.
(m)
Neil
Herskowitz, the Managing Member of Riverside Contracting, LLC, has voting
and/or
dispositive control over the shares held by such selling
stockholder
(n)
Morris Wolfson, Portfolio Manager at South Ferry #2, LP, has voting and/or
dispositive control over the shares held by such selling
stockholder.
(o)
David
Jenner and Nicola Hodge, Directors of Starlight Investment Holding Limited,
have
voting and/or dispositive control over the shares held by such selling
shareholder.
(p)
The
following persons share voting and investment control over the shares held
by
such selling stockholder: Angela Alabons, Rocio Benalcazar, Sonja Beskid,
Monique Bhullar, Veronica Boss, Jonathan Boroski, Kay Bower, Ingrid Boyd,
Isabelle Cadosch, Anne Davidsson, Angela Delgado, Daniel Des Roches, Juliet
Diaz
Wiederkehr, Gordana Djurin, Yuko Eggmann-Murakami, Gordana Elliott, Jeremias
Fernandes, Raelene Gabrielli, Helen Godwin, Christine Green, Shakera Johnson,
Tanya Knowles, Cristina Lepori, Laura Lees, Terence Loh, Tim Parkinson, Gayathri
Perera, Cecile Pernet, Marek Ponte, Rita Serena, Lisa Siu, Nina Stanic, Kenton
Strachan, Monica Stricker, Rave Thlagarajan, Evelyn Tay, Laura Thompson,
Oksana
Thorn, Noel Took, Stephen Upton, Oilvija Vencov, Daved Van Heerden, Narae
Walks,
Steven Weekes, Maria Weigel, Adzam Yosuf, or Jasmina
Zivkovic.
PLAN
OF DISTRIBUTION
We
are
registering the shares offered by this prospectus on behalf of the selling
stockholders. The selling stockholders, which as used herein includes donees,
pledgees, transferees or other successors-in-interest selling shares of common
stock or interests in shares of common stock received after the date of this
prospectus from a selling stockholder as a gift, pledge, partnership
distribution or other transfer, may, from time to time, sell, transfer or
otherwise dispose of any or all of their shares of common stock or interests
in
shares of common stock on any stock exchange, market or trading facility on
which the shares are traded or in private transactions. These dispositions
may
be at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the
time
of sale, or at negotiated prices. To the extent any of the selling stockholders
gift, pledge or otherwise transfer the shares offered hereby, such transferees
may offer and sell the shares from time to time under this prospectus, provided
that this prospectus has been amended under Rule 424(b)(3) or other applicable
provision of the Securities Act to include the name of such transferee in the
list of selling stockholders under this prospectus.
The
selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
|
|
block
trades in which the broker-dealer will attempt to sell the shares
as
agent, but may position and resell a portion of the block as principal
to
facilitate the transaction;
|
|
|
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
|
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
|
|
privately
negotiated transactions;
|
|
|
|
short
sales;
|
|
|
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
|
|
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per share;
|
|
|
|
a
combination of any such methods of sale; and
|
|
|
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders might be, and any broker-dealers that act in connection
with the sale of securities will be, deemed to be “underwriters” within the
meaning of Section 2(11) of the Securities Act, and any commissions received
by
such broker-dealers and any profit on the resale of the securities sold by
them
while acting as principals will be deemed to be underwriting discounts or
commissions under the Securities Act.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this
prospectus.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement that
includes this prospectus effective until the earlier of (1) such time as all
of
the shares covered by this prospectus have been disposed of pursuant to and
in
accordance with the registration statement or (2) the date on which the shares
may be sold pursuant to Rule 144 of the Securities Act.
Shares
Eligible For Future Sale
Upon
completion of this offering and assuming the issuance of all of the shares
covered by this prospectus that are issuable upon the exercise or conversion
of
convertible securities, there will be 18,613,435 shares of our common stock
issued and outstanding. The shares purchased in this offering will be freely
tradable without registration or other restriction under the Securities Act,
except for any shares purchased by an “affiliate” of our company (as defined in
the Securities Act).
Our
currently outstanding shares that were issued in reliance upon the “private
placement” exemptions provided by the Securities Act are deemed “restricted
securities” within the meaning of Rule 144. Restricted securities may not be
sold unless they are registered under the Securities Act or are sold pursuant
to
an applicable exemption from registration, including an exemption under Rule
144
of the Securities Act.
In
general, under Rule 144 as currently in effect, any person (or persons whose
shares are aggregated) including persons deemed to be affiliates, whose
restricted securities have been fully paid for and held for at least six months
from the later of the date of issuance by us or acquisition from an affiliate,
may sell such securities in broker’s transactions or directly to market makers.
Affiliates may only sell in any three month period that number of shares that
does not exceed the greater of 1 percent of the then-outstanding shares of
our
common stock or the average weekly trading volume of our shares of common stock
in the over-the-counter market during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain notice requirements
and
the availability of current public information about our company. After one
year
has elapsed from the later of the issuance of restricted securities by us or
their acquisition from an affiliate, such securities may be sold without
limitation by persons who are not affiliates under the rule.
Following
the date of this prospectus, we cannot predict the effect, if any, that sales
of
our common stock or the availability of our common stock for sale will have
on
the market price prevailing from time to time. Nevertheless, sales by existing
stockholders of substantial amounts of our common stock could adversely affect
prevailing market prices for our stock.
DESCRIPTION
OF CAPITAL STOCK
General
Our
certificate of incorporation, as amended to date, authorizes us to issue up
to
200,000,000 shares of Common Stock and 10,000,000 shares of preferred stock.
As
of the date of this prospectus, we have 5,461,644 shares of Common Stock issued
and outstanding, 3,464.5 shares of Series A Convertible Preferred Stock issued
and outstanding, and 3,405.165 shares of Series B Convertible Preferred Stock
issued and outstanding. The transfer agent and registrar for our capital stock
is Wells Fargo Bank Minnesota, N.A., St. Paul, Minnesota. On March 13, 2008,
we
filed a Certificate of Designation with the Secretary of State of the State
of
Delaware establishing our Series A Convertible Preferred Stock and the Series
B
Convertible Preferred Stock.
Common
Stock
Holders
of our Common Stock are entitled to one vote for each share on all matters
to be
voted on by our stockholders. Holders of our Common Stock do not have any
cumulative voting rights. Common stockholders are entitled to share ratably
in
any dividends that may be declared from time to time on the Common Stock by
our
Board of Directors from funds legally available for dividends. Holders of Common
Stock do not have any preemptive right to purchase shares of Common Stock.
There
are no conversion rights or sinking fund provisions for our Common
Stock.
Description
of the Series A Convertible Preferred Stock
Conversion
Ratio
We
issued
an aggregate of 3,464.5 shares of our newly-designated Series A Convertible
Preferred Stock (the “Series A Stock”) on March 14 and April 9, 2008. The
offering price per share of Series A Stock was $1,000. The initial conversion
ratio of the Series A Stock was one share of Common Stock for $0.06 (the “Series
A Conversion Ratio”). The Series A Conversion Ratio is subject to standard
anti-dilution adjustments for corporate events, including but not limited to
stock splits, combinations and recapitalizations. Pursuant to our reverse
1-for-10 stock split, the Series A Conversion Ratio has been adjusted to one
share of Common Stock for $0.60. The Series A Stock shall convert to Common
Stock upon the earlier of (i) the holder’s election to convert the Series A
Stock and the conversion shall occur at a price equal to the Conversion Ratio,
or (ii) the closing sale price of the Common Stock equaling at least $0.38
per
share (or $3.80 per share pursuant to our 1-for-10 reverse stock split), as
adjusted for stock splits, combinations, and similar events, for 20 consecutive
Trading Days and such conversion shall occur at a price equal to the Conversion
Ratio.
Voting
Rights
The
holders of shares of Series A Stock will vote together with all other holders
of
our voting stock on all matters submitted to a vote of holders generally, with
the holder of each share of Series A Stock being entitled to one vote for each
share of Common Stock into which such shares of Series A Stock could then be
converted.
Dividend
The
Series A Stock shall be entitled to an annual dividend equal to 6% of the
applicable issuance price per annum, payable semi-annually in cash or shares
of
Common Stock, at our option; provided,
that
the dividend shall only be payable in shares if such shares are registered
for
resale on an effective registration statement on the date of payment. If we
choose to pay any dividend in shares of Common Stock, the price per share for
purposes of calculating the number of shares of Common Stock to be issued shall
be equal to 90% of the average closing price of the Common Stock for the 20
Trading Days prior to the date that such dividend payment becomes payable.
“Trading Days” shall mean any day on which the national securities exchange or
quotation service on which the Common Stock is listed or quoted is open for
trading in equity securities.
Anti-Dilution
The
Series A Stock will be protected against dilution if we effect a subdivision
or
combination of our outstanding Common Stock or in the event of a
reclassification, stock dividend, or other distribution payable in our
securities and the Series A Stock has full-ratchet anti-dilution protection,
subject to standard exceptions.
Liquidation
Preference
In
the
event of a liquidation, bankruptcy, dissolution or similar proceeding, the
holders of the Series A Stock shall rank pari
passu
with the
Series B Stock and shall receive an amount equal to 100% of the original
Offering Price plus any accrued but unpaid dividends (the “Series A Liquidation
Preference”). In the event that we are unable to lawfully pay the Series A
Liquidation Preference and Series B Liquidation Preference, the Series A Stock
shall receive a pro rata share of the assets with the Series B Stock. After
payment of the Series A Liquidation Preference and Series B Liquidation
Preference, the Series A Stock shall then be entitled to receive their pro
rata
share of the remaining assets available for distribution to stockholders on
an
“as if” converted basis, together with the holders of the Common Stock and any
other junior stock.
Redemption
Right
In
the
event that there has not been a voluntary conversion or mandatory conversion
of
the Series A Stock by July 3, 2009, the holders of Series A Stock shall have
a
right to require us to repurchase their Series A Stock out of funds lawfully
available (the “Series A Redemption Right”). The Series A Redemption Right
shall rank pari
passu
with the
Series B Redemption Right. The redemption price (the
“Series A Redemption Amount” and, together with the Series B Redemption Amount,
the “Aggregate Redemption Amount”)
shall
equal the Offering Price (subject to appropriate adjustment in the event of
any
stock dividends, stock splits, or other similar event), plus any declared and
unpaid dividends. The Series A Redemption Right shall terminate upon the
closing of a Series B Qualified Financing. To
the
extent we have insufficient funds as of the date of redemption (the “Redemption
Date”) to pay the Aggregate Redemption Amount in full, we shall redeem the
Series A Stock and the Series B Stock on a pro rata basis.
Description
of the Series B Convertible Preferred Stock
Conversion
of Bridge Notes to Series B Stock
On
March
13, 2008, we converted our outstanding Bridge Notes into our newly-designated
Series B Convertible Preferred Stock (the “Series B Stock”). Our former Bridge
Note Holders received one share of Series B Stock for each $1,000 of unpaid
principal and accrued but unpaid interest on such Holder’s Bridge Note (the
“Series B Price”). Bridge Note Holders shall receive fractional shares of Series
B Stock for any unpaid principal and accrued but unpaid interest in excess
of a
multiple of $1,000 on such Holder’s Bridge Note.
Conversion
Each
share of Series B Stock will be convertible, at the option of the Series B
holder thereof, at any time and from time to time. The initial conversion ratio
of the Series B Stock shall be one share of Common Stock for $0.38, subject
to
adjustment (the “Series B Conversion Ratio”). The Series B Conversion Ratio
shall be subject to standard anti-dilution adjustments for corporate events,
including but not limited to stock splits, combinations and recapitalizations.
Pursuant to our 1-for-10 reverse stock split, the Series B Conversion Ratio
is
now one share of Common Stock for $3.80.
The
Series B Stock shall convert into Common Stock automatically upon the earlier
of: (i) the Closing Sale Price of the Common Stock equaling at least $0.38
per
share (or $3.80 per share pursuant to our 1-for-10 reverse stock split),as
adjusted for stock splits, combinations and similar events) for twenty (20)
consecutive Trading Days and shall convert at such price; (ii) the final closing
of a Series B Qualified Financing, or (iii) the Sale of the Company that does
not occur in connection with Series B Qualified Financing.
A
“Series
B Qualified Financing” means our next equity financing (or series of related
equity financings) in which we receive at least $7,000,000 in gross aggregate
proceeds resulting (before brokers’ fees or other transaction related expenses,
and excluding any such proceeds resulting from this Offering or any transaction
arising hereunder).
In
the
event of the final closing of a Series B Qualified Financing, each share of
Series A Stock and Series B Stock shall be converted to the equity security,
or
the securities convertible or exchangeable into equity securities, offered
in
such financing on the terms and conditions set forth in the Series B Qualified
Financing and at a price equal to the lesser of (a) the lowest price paid per
security in the Series B Qualified Financing, or (b) $0.60 per security (as
adjusted for stock splits, combinations, and similar events).
A
“Sale
of the Company” means a transaction (whether by merger, consolidation, sale or
transfer of our capital stock or otherwise) with one or more non-affiliates,
pursuant to which such party or parties acquire (i) our capital stock possessing
the voting power to elect a majority of our board of directors; or (ii) all
or
substantially all of our assets determined on a consolidated basis; provided,
however,
that a
transaction (or series of related transactions) pursuant to which the
then-existing holders of our capital stock immediately prior to such transaction
(or series of related transactions) continue to own, directly or indirectly,
a
majority of the outstanding shares of our capital stock or such other resulting,
surviving or combined company resulting from such transaction (or series of
related transactions) shall not be deemed to be a “Sale of the Company.” The
price per share with respect to an automatic conversion of the Series B Stock
triggered by a Sale of the Company will be equal to the quotient obtained by
dividing (x) the value of the aggregate consideration (as defined in the
Certificate of Designation of the Series A Convertible Preferred Stock and
Series B Convertible Preferred Stock of VioQuest Pharmaceuticals, Inc.) received
in such Sale of the Company less any of our indebtedness then outstanding by
(y)
the number of shares of Common Stock then outstanding on a fully diluted basis
(not including conversion of the then outstanding shares Series B Stock or
exercise of the then outstanding warrants issued to the Bridge Note Holders
in
connection with their purchase of Bridge Notes).
Series
B Redemption Right
In
the
event that there has not been a voluntary conversion or mandatory conversion
of
the Series B Stock by July 3, 2009, the holders of Series B Stock shall have
a
right to require us to repurchase their Series B Stock out of funds lawfully
available (the “Series B Redemption Right”). The Series B Redemption Right
shall rank pari
passu
with the
Series A Redemption Right. The redemption price (the “Series B Redemption
Amount”) shall equal the Series B Price (subject to appropriate adjustment in
the event of any stock dividends, stock splits, or other similar event), plus
any declared and unpaid dividends. To
the
extent we have insufficient funds as of Redemption Date to pay the Aggregate
Redemption Amount in full, we shall redeem the Series A Stock and the Series
B
Stock on a pro rata basis.
Voting
Rights
The
Series B Stock holders will only have those voting rights as set forth in
Delaware General Corporation Law.
Dividend
The
shares of Series B Stock shall be entitled to a dividend, payable in cash or
shares of Common Stock at our option, equal to (i) 8% per annum of the Series
B
Price, commencing on the closing date of the Offering, and accruing through
July
3, 2008, (ii) 12% per annum for the year beginning on July 4, 2008 and ending
on
July 3, 2009, and (iii) thereafter the shares of Series B Stock shall be
entitled to a dividend equal to 16% per annum. If we choose to pay any dividend
in shares of Common Stock, the dividend shall be payable in shares of Common
Stock only if such shares are registered for resale on an effective registration
statement on the date of payment. If we choose to pay any dividend in shares
of
Common Stock, the price per share for purposes of calculating the number of
shares of Common Stock to be issued shall be equal to 90% of the average closing
price of the Common Stock for the twenty (20) Trading Days prior to the date
that such dividend payment becomes payable.
Anti-Dilution
The
Series B Stock will be protected against dilution if we effect a subdivision
or
combination of our outstanding Company Common Stock or in the event of a
reclassification, stock dividend, or other distribution payable in our
securities.
Liquidation
Preference
In
the
event of a liquidation, bankruptcy, dissolution or similar proceeding, the
holders of the Series B Stock shall rank pari
passu
with the
Series A Stock and shall receive an amount equal to 100% of the Series B Price
plus any accrued but unpaid dividends (the “Series B Liquidation Preference”).
In the event that we are unable to lawfully pay the Series B Liquidation
Preference and the Series A Liquidation Preference, the Series B Stock shall
receive a pro rata share of the assets with the Series A Stock.
Warrants
and Options
Market
for Common Stock
Since
April 30, 2008, our common stock has traded on the OTC Bulletin Board under
the
symbol “VOQP.OB.” Prior to April 30, 2008, our common stock traded under the
symbol “VQPH.OB.” The following table lists the high and low sale price for our
common stock as quoted by the OTC Bulletin Board during each quarter within
the
last two completed fiscal years and the quarter ended December 31, 2007, as
adjusted pursuant to our 1-for-10 reverse stock split. These quotations reflect
inter-dealer prices, without retail mark-up, markdown, or commission and may
not
represent actual transactions.
Quarter
Ended
|
|
High
|
|
Low
|
|
March
31, 2006
|
|
|
8.50
|
|
|
8.10
|
|
June
30, 2006
|
|
|
8.00
|
|
|
7.70
|
|
September
30, 2006
|
|
|
6.50
|
|
|
6.00
|
|
December
31, 2006
|
|
|
5.30
|
|
|
4.30
|
|
March
31, 2007
|
|
|
7.50
|
|
|
4.50
|
|
June
30, 2007
|
|
|
6.40
|
|
|
3.60
|
|
September
30, 2007
|
|
|
5.50
|
|
|
2.50
|
|
December
31, 2007
|
|
|
3.70
|
|
|
0.90
|
|
March
31, 2008
|
|
|
2.00
|
|
|
0.50
|
|
On
May
19, 2008, the closing sale price of our common stock was $0.55.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND
RESULTS OF OPERATIONS
You
should read the following discussion of our results of operations and financial
condition in conjunction with the financial statements contained in this
prospectus beginning at page F-1. This discussion includes “forward-looking”
statements that reflect our current views with respect to future events and
financial performance. We use words such as we “expect,”
“anticipate,” “believe,” and “intend” and similar expressions to identify
forward-looking statements. Investors should be aware that actual results may
differ materially from our expressed expectations because of risks and
uncertainties inherent in future events, particularly those risks identified
in
the “Risk Factors” section of this prospectus, and should not unduly rely on
these forward looking statements.
Overview
We
are a
biopharmaceutical company focused on the acquisition, development and
commercialization of clinical stage drug therapies targeting both the molecular
basis of cancer and side effects of cancer treatment. Our lead compound under
development is Xyfid (1% topical uracil) for the treatment and prevention of
Hand-Foot Syndrome (“HFS”), a common and serious side effect of chemotherapy
treatments. In parallel, Xyfid is also being developed to treat dry skin
conditions and manage the burning and itching associated with various diseases
of the skin, or dermatoses. We expect to initiate a Phase IIb program for Xyfid
in 2008 for HFS, and are exploring a parallel 510(k) Premarket Notification
submission during 2008 for Xyfid to treat various dermatoses. Additionally,
we
are developing VQD-002 (triciribine phosphate monohydrate or TCN-P), a small
molecule anticancer compound that inhibits activation of protein kinase B (PKB
or AKT), a key component of a signaling pathway known to promote cancer cell
growth and survival as well as resistance to chemotherapy and radiotherapy.
VQD-002 is currently in Phase I clinical development for multiple tumor types
and we expect to advance VQD-002 into Phase II clinical development during
2008.
We are also developing Lenocta (sodium stibogluconate), which we previously
referred to as VQD-001, a selective, small molecule inhibitor of certain protein
tyrosine phosphatases (“PTPs”), such as SHP-1, SHP-2 and PTP1B, with
demonstrated anti-tumor activity against a wide spectrum of cancers both alone
and in combination with other approved immune activation agents, including
IL-2
and interferons. Lenocta is currently in a Phase IIa clinical trial as a
potential treatment for melanoma, renal cell carcinoma, and other solid tumors.
In addition to its potential role as a cancer therapeutic, sodium stibogluconate
has been approved in most of the world for first-line treatment of
leishmaniasis, an infection typically found in tropic and sub-tropic developing
countries. Based on historical published data and a large observational study
by
the U.S. Army, data from approximately 400 patients could be utilized to support
a New Drug Application (“NDA”) with the U.S. Food and Drug Administration
(“FDA”) in 2008. Lenocta has been granted Orphan Drug status for leishmaniasis.
To date, we have not received approval for the sale of any of our drug
candidates in any market and, therefore, have not generated any product sales
from our drug candidates.
Through
our drug development business, we acquire, develop, and intend to commercialize
novel drug therapies targeting both the molecular basis of cancer and side
effects of treatment. Through our acquisition of Greenwich Therapeutics, Inc.
in
October 2005, we obtained the rights to develop and commercialize two oncology
drug candidates - Lenocta and VQD-002. We hold our rights to Lenocta and
VQD-002, pursuant to license agreements with The Cleveland Clinic Foundation
and
the University of South Florida Research Foundation, respectively. In March
2007, the Company acquired license rights to develop and commercialize Xyfid.
The Company’s rights to Xyfid are governed by a license agreement with
Asymmetric Therapeutics, LLC and Onc Res, Inc., as assigned to the Company
by
Fiordland Pharmaceuticals, Inc. These licenses give us the right to develop,
manufacture, use, commercialize, lease, sell and/or sublicense Lenocta, VQD-002
and Xyfid.
Xyfid™
(1% uracil topical)
VioQuest
has been developing Xyfid for the treatment and prevention of palmar-plantar
erythrodysesthesia (PPE), also known as hand-foot syndrome (HFS), a relatively
common dose-limiting side effect of cytotoxic chemotherapy - most frequently
fluoropyrimidines, such as continuous infusion 5-fluorouracil (5-FU), and the
oral 5-FU prodrug capecitabine (Xeloda® by Roche). Fluoropyrimidines are among
the most commonly used cancer chemotherapeutics nearly 50 years after their
introduction. Fluoropyrimidines, alone or in combination therapy, are commonly
given for cancers of the head and neck, breast, cervix, and gastrointestinal
tract.
There
are
currently no treatments or preventative agents for HFS, which is characterized
by the progressive redness and cracking of the hands and feet. The severity
of
HFS is typically defined by three grade levels: Grade 1: numbness, tingling,
painless swelling; Grade 2: painful discomfort, swelling; Grade 3: ulceration,
blistering, severe pain and discomfort, unable to work or perform activities
of
daily living. Up to 60% of all capecitabine patients experience HFS and up
to
20% experience severe HFS (Grade 3). According to the prescribing information
for capecitabine, if grade 2 or 3 HFS occurs, administration of capecitabine
should be interrupted until the event resolves or decreases in intensity to
grade 1. Following grade 3 HFS, subsequent doses of capecitabine should be
decreased.
Uracil,
the active ingredient in Xyfid, is a naturally occurring substrate for enzymes,
such as thymidine phosphorylase (TP) and and dihydropyrimidine dehydrogenase
(DPD), that metabolize fluoropyrimidines into toxic metabolites. Addition of
uracil to systemic fluoropyrimidine treatment regimens, such as tegafur-uracil,
or UFT, is well-established to significantly diminish the incidence of HFS.
Whereas such combination products have been licensed in Japan and much of
Europe, they have not been approved for use in the United States due, in part,
to FDA questions regarding the demonstrable non-inferiority of the combination
drug compared with fluoropyrimidines alone.
In
contrast to systemic exposure, topical application of uracil would potentially
allow for the treatment and prevention of HFS without compromising the efficacy
of systemic fluoropyrimidine therapy. In a small pilot study, Xyfid has been
effective at preventing the both the incidence and recurrence of dose limiting
HFS when applied topically.
VioQuest
is considering parallel regulatory paths for two separate indications for
Xyfid:
510(k)
Premarket Notification
During
March 2008, we signed an agreement with Medical Device Consultants, Inc. (MDCI)
for MDCI to assist us in obtaining clearance to market Xyfid pursuant to Section
510(k) of the Food, Drug and Cosmetic Act, or FDCA, and in particular, the
“premarket notification” provisions of Section 510(k). To qualify for 510(k)
premarket notification, a product must be substantially equivalent to another
device that is legally marketed in the U.S. A device is substantially equivalent
if, in comparison to a predicate it:
|
·
|
has
the same intended use as the predicate; and
|
|
·
|
has
the same technological characteristics as the
predicate.
|
A
claim
of substantial equivalence does not mean the new and predicate devices must
be
identical. Substantial equivalence is established with respect to intended
use,
design, energy used or delivered, materials, chemical composition, manufacturing
process, performance, safety, effectiveness, labeling, biocompatibility,
standards, and other characteristics, as applicable.
We
believe that Xyfid may be substantially equivalent to several predicate devices
designed to improve dry skin conditions and to relieve and to manage the burning
and itching associated with various dermatoses including atopic dermatitis,
irritant contact dermatitis, radiation dermatitis and other dry skin conditions,
by maintaining a moist wound and skin environment.
New
Drug Application (NDA) Process
A
pilot
clinical study in patients has demonstrated that topical application of Xyfid
to
the hands and feet may be effective in preventing the recurrence of dose
limiting HFS. On this basis, an investigational new drug application (IND)
was
submitted and accepted by the FDA. Subsequently, Xyfid was granted fast track
designation for the prevention of HFS in patients receiving capecitabine for
the
treatment of advanced metastatic breast cancer.
Pursuant
to this IND, we expect to evaluate the safety, tolerability and activity of
Xyfid and its ability to reduce the incidence of HFS. We are considering a
30-patient Phase IIb study in breast cancer patients receiving capecitabine
that
could begin during 2008. The outcome of the Phase IIb study could support plans
for registration of Xyfid under the NDA process. Xyfid has been awarded
fast-track status by the FDA in this setting.
VQD-002
(triciribine phosphate monohydrate)
VQD-002,
a tricyclic nucleoside that inhibits the activation of AKT, has demonstrated
anti-tumor activity against a wide spectrum of cancers in preclinical and
clinical studies. Amplification, overexpression, or activation of AKT, also
named protein kinase B, have been detected in a number of human malignancies,
including prostate, breast, ovarian, colorectal, pancreatic, and hematologic
cancers. Activation of AKT is associated with cell survival, malignant
transformation, tumor invasiveness, and chemo-resistance, while inhibition
of
AKT activity has been shown to cause cell death. These attributes make AKT
an
attractive target for cancer therapy.
VQD-002
was first synthesized in 1971 and identified as an antineoplastic agent. Phase
I
clinical trials on VQD-002 proved that its safety and side effects were dose
dependent. However, as a single drug in Phase II trials, VQD-002 failed to
show
efficacy against advanced breast, colon, and lung cancer even at very high
doses.
A
few
years ago, researchers at Moffitt Cancer Center found that VQD-002 inhibits
AKT
activation and has antitumor activity as a single agent against tumors with
activated AKT. Inhibition of AKT activation plays a key role in VQD-002’s
antitumor activity. Thus, Phase I trials of VQD-002 have been initiated for
tumors with activated AKT using much lower doses of VQD-002 than those
previously used that caused toxicity.
During
October 2007, preclinical study results were published demonstrating that
combining VQD-002 with trastuzumab (Herceptin® by Genentech) may be a clinically
applicable strategy to overcome trastuzumab resistance, particularly that caused
by loss of PTEN, a tumor suppressor protein. Trastuzumab resistance is a
clinically devastating problem and this study suggests a rational improvement
to
trastuzumab-based therapy, which could directly affect the clinical management
of breast cancer patients in general and particularly those with PTEN-deficient
tumors.
During
January 2008, preclinical study results were published demonstrating that
VQD-002 disrupts a specific signaling pathway associated with chemoresistance
and cancer cell survival in ovarian cancer. The preclinical study results
indicate that VQD-002 could play a role in reversing drug resistance in ovarian
cancer for patients treated with chemotherapy in the years ahead.
In
our
current Phase I solid tumor study, VQD-002 was administered intravenously over
a
28-day cycle on days 1, 8, and 15. Cohorts of 3 patients received escalating
doses of VQD-002 at 15, 25, 35, and 45 mg/m2. Patients had progressive disease
despite receiving a median of 3 prior treatment regimens (range 1-4).
Preliminary Phase I data from this solid tumor study demonstrated that VQD-002
was well tolerated; one melanoma subject had stable disease for 8
months.
In our
Phase I hematological malignancies study, VQD-002 was administered intravenously
over a 28-day cycle on days 1, 8, and 15. Cohorts of 3 patients received
escalating doses of VQD-002 at 15, 25, 35, 45 and 55 mg/m2. Enrollment to higher
doses is ongoing, which we are currently at 65 mg/m2. Patients had progressive
disease despite receiving a median of 3 prior treatment regimens (range 1-4).
Interim results of a Phase I trial in hematologic malignancies demonstrate
that
VQD-002 is well-tolerated and shows signs of clinical activity in patients
with
advanced leukemias. The Phase I trial is designed to assess the safety,
tolerability and pharmacokinetics of VQD-002 and to establish a recommended
Phase II dose for further studies among patients. In results presented to date,
a total of 38 patients have been enrolled at two clinical sites. Twenty-nine
patients are evaluable for toxicity and response, six patients are evaluable
for
toxicity only, and three patients are not evaluable.
Preliminary
results from this trial show that patients with relapsed, refractory acute
myeloid leukemia, or AML, experienced a decrease in peripheral blood
myeloblasts, a measure of clinical activity. In particular, four patients
treated at the 25 mg/m2 or 35 mg/m2 dose level of VQD-002 experienced up to
50
percent reductions in peripheral blast cells. Additional hematological
improvements included six patients achieving major improvements in platelet
count lasting up to 36 days and seven patients achieving major improvements
in
neutrophil count lasting up to 40 days while on therapy. VQD-002 was
well-tolerated at the doses studied.
We
filed
with the FDA an IND relating to VQD-002, which was accepted in April 2006.
Pursuant to this IND, we are currently evaluating the safety, tolerability
and
activity of VQD-002 in two Phase I clinical trials, including one at the Moffitt
Cancer Center in up to 42 patients with hyper-activated, phosphorylated AKT
in
solid tumors and a second clinical trial, with up to 40 patients, at the M.D.
Anderson Cancer Center and the Moffitt Cancer Center in hematological tumors,
with particular attention in leukemias. We expect to complete our Phase I
studies in 2008. During 2008, the FDA granted orphan drug designation to VQD-002
for the treatment of multiple myeloma. We expect to advance VQD-002 into Phase
II clinical development during 2008.
Lenocta™
(sodium stibogluconate)
Lenocta
is a selective, small molecule inhibitor of certain protein tyrosine
phosphatases (PTPs), such as SHP-1, SHP-2 and PTP1B, with demonstrated
anti-tumor activity against a wide spectrum of cancers both alone and in
combination with other approved immune activation agents, including IL-2 and
interferons. PTPs are a family of proteins that regulate signal transduction
pathways in cells and have been implicated in a number of diseases including
cancer, diabetes, and neurodegeneration.
Lenocta
has been shown to have anti-proliferative activity against a broad number of
tumor cell lines, including melanoma and renal cell lines. Pre-clinical work
in
nude mice with cancer xenografts has shown that Lenocta can control malignancies
in vivo as well. These effects were seen whether used as part of a combination
therapy with existing treatments, including interferon and interleukin-2, or
alone. In addition, preclinical data also suggests that monotherapy with Lenocta
may be useful to treat certain other tumor types, including prostate
cancer.
The
preclinical data suggests that Lenocta utilizes multiple modes of action,
including having a direct effect on cancer cells, as well as generally enhancing
the body’s immune system. These multiple modes of action, along with Lenocta’s
known historical toxicity profile, demonstrate that Lenocta is a potentially
attractive drug candidate to evaluate as an anti-cancer agent.
Phase
I
data from our combination trial of Lenocta and alpha interferon (“IFN
a-2b”)
demonstrated pharmacodynamic activity in some solid tumors as demonstrated
by
increases in the activities of natural killer cells, CD8 and type II dendritic
cells, and two patients with ocular melanoma (1) and adenocystic carcinoma
(1)
have remained stable by Response Evaluation Criteria in Solid Tumors, or RECIST,
on first assessment. There have been seventeen subjects evaluable for
response.
A
complete treatment cycle is for six weeks, with week 1 the patient is
intravenously dosed with Lenocta for five days as a monotherapy, week 2 the
patient is dosed with Lenocta and IFN a-2b,
week
3 is a rest period, weeks 4 and 5 the patient is dosed with Lenocta and IFN
a-2b,
and
then there is a week rest before a subsequent cycle is initiated. Patients
have
been given five different dose cohorts: 400 mg/m2, 600 mg/m2, 900 mg/m2, 1350
mg/m2 and a dose reduced cohort of 1125 mg/m2. Lenocta with IFN a-2b
has
been well tolerated at doses up to 900 mg/m2. We plan to initiate an expansion
phase for 20 patients to have twelve subjects evaluable for response at a dose
of 900 mg/m2.
We
filed
with the FDA an IND for Lenocta, which the FDA accepted in August 2006, allowing
us to commence clinical trials of Lenocta. Lenocta is currently being studied
at
the M.D. Anderson Cancer Center and the University of New Mexico in a Phase
IIa
corporate-sponsored clinical trial in combination with IFN a-2b
in up
to 54-patients with melanoma, renal cell carcinoma, and other solid tumors
that
have been non-responsive in previous cytokine therapy. In November 2007, we
dosed our first patient in our Phase IIa solid tumor study. We expect to
complete enrollment in our Phase IIa solid tumor study in 2008. The Phase IIa
trial has been designed to evaluate the clinical efficacy and biological
effectiveness of Lenocta at the highest tolerable does in combination with IFN
a-2b
in
patients with advanced-stage solid tumors.
Additional
Potential Indication of Lenocta
As
we
continue to develop Lenocta for indications primarily used for an oncology
drug
candidate, we are also in the process of evaluating its potential development
as
a treatment for leishmaniasis. According to the World Health Organization,
leishmaniasis currently threatens 350 million men, women and children in 88
countries around the world. The leishmaniases are parasitic diseases with a
wide
range of clinical symptoms, including skin ulcers, partial or total destruction
of the mucus membrane and irregular bouts of fever, substantial weight loss,
swelling of the spleen and liver, and anaemia (occasionally serious). In
collaboration with the U.S. Army, through an executed Cooperative Research
and
Development Agreement, we are evaluating the potential development of Lenocta
in
the treatment of leishmaniasis. Lenocta was granted orphan drug designation
by
the FDA in the second half of 2006 for the treatment of leishmaniasis. The
Company has also convened an advisory board to evaluate the potential submission
of an NDA to the FDA for Lenocta for the treatment of leishmaniasis in
2008.
Overview
of Drug Development Status
To
date,
we have not received approval for the sale of any drug candidates in any market
and, therefore, have not generated any revenues from our drug candidates. The
successful development of our product candidates is highly uncertain. Product
development costs and timelines can vary significantly for each product
candidate and are difficult to accurately predict. Various laws and regulations
also govern or influence the manufacturing, safety, labeling, storage, record
keeping and marketing of each product. The lengthy process of seeking these
approvals, and the subsequent compliance with applicable statutes and
regulations, require the expenditure of substantial resources. Any failure
by us
to obtain, or any delay in obtaining, regulatory approvals could materially
adversely affect our business.
Developing
pharmaceutical products is a lengthy and very expensive process. Assuming we
do
not encounter any unforeseen safety issues during the course of developing
our
product candidates, we do not expect to complete the development of a product
candidate until approximately 2008 for the treatment of leishmaniasis, 2008
for
Xyfid through a 510(k) submission, 2010 for Xyfid through an NDA submission,
and
2013 for oncology indications of VQD-002 and then 2013 for oncology indications
of Lenocta, if ever. In addition, as we continue the development of our product
candidates, our research and development expenses will significantly increase.
To the extent we are successful in acquiring additional product candidates
for
our development pipeline, our need to finance further research and development
will continue to increase. Accordingly, our success depends not only on the
safety and efficacy of our product candidates, but also on our ability to
finance the development of these product candidates. Our major sources of
working capital have been proceeds from various private financings, primarily
private sales of our common stock and other equity securities.
Research
and development expenses consist primarily of salaries and related personnel
costs, fees paid to consultants and outside service providers for clinical
development, legal expenses resulting from intellectual property protection,
business development and organizational affairs and other expenses relating
to
the acquiring, design, development, testing, and enhancement of our product
candidates, including milestone payments for licensed technology. We expense
our
research and development costs as they are incurred.
Results
of Operations - For the Three Months Ended March 31, 2008 vs. March 31,
2007
Continuing
Operations
The
Company has had no revenues from its continuing operations through March 31,
2008.
Research
and development, or R&D, expenses for the three months ended March 31, 2008
were $979,094 as compared to $1,368,811 during the three months ended March
31,
2007. R&D expense consists of clinical development costs, milestone license
fees, maintenance fees paid to our licensing institutions, outside manufacturing
costs, outside clinical research organization costs, regulatory and patent
filing costs associated with our three oncology compounds, Lenocta, VQD-002
and
Xyfid.
The
following table sets forth the research and development expenses per compound,
for the periods presented.
|
|
Three Months Ended March 31,
|
|
|
|
2008
|
|
2007
|
|
Cumulative amounts during
development
|
|
Lenocta
|
|
$
|
285,330
|
|
$
|
456,525
|
|
$
|
3,165,324
|
|
VQD-002
|
|
|
530,613
|
|
|
477,624
|
|
|
3,663,633
|
|
Xyfid
|
|
|
163,151
|
|
|
434,662
|
|
|
958,018
|
|
Total
|
|
$
|
979,094
|
|
$
|
1,368,811
|
|
$
|
7,786,975
|
|
The
following table sets forth the research and development expenses for the three
months ended March 31, 2008 by expense category, for our three oncology
compounds.
|
|
Drug Candidate
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Three Months Ended March 31, 2008
|
|
Clinical
Research Costs
|
|
$
|
160,759
|
|
$
|
217,708
|
|
$
|
104,293
|
|
$
|
482,760
|
|
Labor
Costs
|
|
|
64,403
|
|
|
167,448
|
|
|
25,761
|
|
|
257,612
|
|
Regulatory
/ Legal Fees
|
|
|
51,118
|
|
|
132,907
|
|
|
20,447
|
|
|
204,472
|
|
Licensing
/ Milestone Fees
|
|
|
8,750
|
|
|
6,250
|
|
|
-
|
|
|
15,000
|
|
Other
|
|
|
300
|
|
|
6,300
|
|
|
12,650
|
|
|
19,250
|
|
Total
|
|
$
|
285,330
|
|
$
|
530,613
|
|
$
|
163,151
|
|
$
|
979,094
|
|
The
following table sets forth the research and development expenses for the three
months ended March 31, 2007 by expense category, for our three oncology
compounds.
|
|
Drug Candidate
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Three Months Ended March 31, 2007
|
|
Clinical
Research Costs
|
|
$
|
182,497
|
|
$
|
329,474
|
|
$
|
-
|
|
$
|
511,971
|
|
Labor
Costs
|
|
|
137,227
|
|
|
77,227
|
|
|
-
|
|
|
214,454
|
|
Regulatory
/ Legal Fees
|
|
|
76,864
|
|
|
60,048
|
|
|
37,490
|
|
|
174,402
|
|
Licensing
Fees
|
|
|
8,752
|
|
|
6,250
|
|
|
369,588
|
|
|
384,590
|
|
Other
|
|
|
51,185
|
|
|
4,625
|
|
|
27,584
|
|
|
83,394
|
|
Total
|
|
$
|
456,525
|
|
$
|
477,624
|
|
$
|
434,662
|
|
$
|
1,368,811
|
|
The
decrease in R&D expenses for the three months ended March 31, 2008 as
compared to the three months ended March 31, 2007 is primarily attributable
to
fees incurred during the three months ended March 31, 2007 in acquiring the
worldwide license to certain patents for Xyfid. In addition, there was a
reduction in clinical research costs, offset by increased labor costs and
regulatory and legal fees related to our oncology drug candidates: VQD-002,
Lenocta and Xyfid. Our R&D expense for the first quarter 2008 is primarily
composed of outside clinical research organization costs of $482,760, employee
costs of $257,612 and outside regulatory and legal fees of $204,472, which
have
been allocated to each of our three pharmaceutical product candidates. To
conserve funds, we will continue to complete our current ongoing Phase I and
Phase II studies for VQD-002 and Lenocta, respectively, however we will not
initiate any new clinical studies unless and until we receive additional
funding. We expect R&D spending to increase over the remainder of the year
as we continue our existing clinical development programs and incur costs
related to license fees, manufacturing of our products, regulatory costs, and
the hiring of additional people in the clinical development area.
General
and administrative, or G&A, expenses for the three months ended March 31,
2008 were $690,339 as compared to $913,651 during the three months ended March
31, 2007. This decrease in G&A expenses for the three months ended March 31,
2008 as compared to the three months ended March 31, 2007 was primarily due
to
having fewer employees which resulted in reduced employee and non-employee
director stock option expense in accordance with SFAS 123R as a result of
forfeitures, a reduction of bonus expenses over prior year, no recruitment
expenses and no employment agency fees.
Interest
expense, net of interest income for the three months ended March 31, 2008 was
$1,411,548 as compared to interest income, net of interest expense for the
three
months ended March 31, 2007 of $25,684. Interest expense for the three months
ended March 31, 2008 was primarily composed of interest expenses recorded upon
the extinguishment of the Bridge Notes of $1,399,524 and dividends payable
on
mandatorily redeemable convertible preferred stock of $14,947, which was offset
by interest income of $2,923.
Our
loss
from continuing operations for the three months ended March 31, 2008 was
$3,080,981 as compared to $2,256,778 for the three months ended March 31,
2007.
The increased loss from continuing operations for the three months ended
March
31, 2008 as compared to the three months ended March 31, 2007 was attributable
primarily to interest expenses recorded upon the extinguishment of the Bridge
Notes, offset by decreased R&D and G&A expenses. The decrease in R&D
expenses were related to fees incurred during the three months ended March
31,
2007 in acquiring the worldwide license to certain patents for Xyfid. In
addition, there was a reduction in clinical research costs, offset by increased
labor costs and regulatory and legal fees related to our oncology drug
candidates: Lenocta, VQD-002 and Xyfid. The decrease in G&A expenses were
primarily due to having fewer employees which resulted in reduced employee
and
non-employee director stock option expense in accordance with SFAS 123R as
a
result of forfeitures and workforce reductions, a reduction of bonus expenses
and lower recruitment and employment agency fees.
Discontinued
Operations
Our
loss
from discontinued operations for the three months ended March 31, 2008 and
2007
was $0 and $261,475, respectively. Their were no discontinued operations
for the
three months ended March 31, 2008 due to the sale of Chiral Quest to Chiral
Quest Acquisition Corp. during the third quarter of 2007.
Results
of Operations –
Years Ended December 31, 2007 vs. 2006
Continuing
Operations
We
had no
revenues from our continuing operations through December 31, 2007.
In-process
research and development, or (“IPR&D”) costs for the year ended December 31,
2007 was $963,225 as compared to $0 for the year ended December 31, 2006.
IPR&D costs are attributed to shares and warrants issued to shareholders of
Greenwich Therapeutics, Inc. that were placed in escrow to be released based
upon the achievement of certain milestones. See Note 4 for a complete discussion
of the agreement. On October 12, 2007, 2,997,540 shares and 700,001 warrants
were released from escrow following the conclusion of a Phase I clinical
trial
pursuant to an investigational new drug application (“IND”) accepted by the U.S.
Food and Drug Administration (“FDA”) for Lenocta. The costs are comprised of
$805,054 related to the calculated value of 2,997,540 shares of our common
stock
issued to Greenwich Therapeutics’ shareholders valued at $0.27 per share ($0.27
per share value was based upon the average stock price of our common stock
a few
days before and a few days subsequent to the October 12, 2007 event) and
$158,171 related to the calculated value of 700,001 warrants issued to Greenwich
Therapeutics’ shareholders using the Black-Scholes option pricing
model.
Research
and development, or (“R&D”), expenses for the year ended December 31, 2007
were $4,988,145 as compared to $1,819,736 for the year ended December 31,
2006.
R&D is attributed to clinical development costs, milestone license fees,
maintenance fees provided to the licensors, outside manufacturing costs,
outside
clinical research organization costs, in addition to regulatory and patent
filing costs associated with our drug candidates Lenocta, VQD-002 and
Xyfid.
The
following table sets forth the research and development expenses per compound,
for the periods presented.
|
|
Years ended December 31,
|
|
|
|
2007
|
|
2006
|
|
Cumulative
amounts during
development
|
|
Lenocta
|
|
$
|
2,056,598
|
|
$
|
823,396
|
|
$
|
2,879,994
|
|
VQD-002
|
|
|
2,136,680 |
|
|
996,340 |
|
|
3,133,020 |
|
Xyfid
|
|
|
794,867 |
|
|
- |
|
|
794,867 |
|
Total
|
|
$
|
4,988,145
|
|
$
|
1,819,736
|
|
$
|
6,807,881
|
|
The
following table sets forth the research and development expenses for the
year-ended December 31, 2007 by expense category, for our three oncology
compounds.
|
|
Drug Candidate
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Year-ended
December
31, 2007
|
|
Clinical
Research Costs
|
|
$
|
766,332
|
|
$
|
894,582
|
|
$
|
43,181
|
|
$
|
1,704,095
|
|
Labor
Costs
|
|
|
285,540 |
|
|
598,375 |
|
|
138,221 |
|
|
1,022,136 |
|
Regulatory
/ Legal Fees
|
|
|
431,947 |
|
|
345,522 |
|
|
47,817 |
|
|
825,286 |
|
Licensing
/ Milestone Fees
|
|
|
381,806 |
|
|
25,000 |
|
|
369,588 |
|
|
776,394 |
|
Other
|
|
|
190,973 |
|
|
273,202 |
|
|
196,060 |
|
|
660,235 |
|
Total
|
|
$
|
2,056,598
|
|
$
|
2,136,681
|
|
$
|
794,867
|
|
$
|
4,988,146
|
|
The
following table sets forth the research and development expenses for the
year-ended December 31, 2006 by expense category, for our three oncology
compounds.
|
|
Drug Candidate
|
|
|
|
|
|
Lenocta
|
|
VQD-002
|
|
Xyfid
|
|
Year-ended
December
31, 2006
|
|
Clinical
Research Costs
|
|
$
|
220,780
|
|
$
|
233,126
|
|
$
|
-
|
|
$
|
453,906
|
|
Labor
Costs
|
|
|
192,554 |
|
|
192,554 |
|
|
- |
|
|
385,108 |
|
Regulatory
/ Legal Fees
|
|
|
255,594 |
|
|
189,194 |
|
|
- |
|
|
444,788 |
|
Licensing
Fees
|
|
|
64,164 |
|
|
141,666 |
|
|
- |
|
|
205,830 |
|
Other
|
|
|
90,304 |
|
|
239,800 |
|
|
- |
|
|
330,104 |
|
Total
|
|
$
|
823,396
|
|
$
|
996,340
|
|
$
|
-
|
|
$
|
1,819,736
|
|
The
increase in R&D for the year ended December 31, 2007, is a result of
acquiring Xyfid in March 2007 and advancing our clinical studies in 2007.
Additionally, we incurred year-over-year increases in clinical research
organization costs of $1,250,000, employee related costs of $637,000, licensing
and milestone fees of $570,000 and outside regulatory and legal fees of
$380,000. The increase in licensing and milestone fees was due in part to
licensee fees for the acquisition of Xyfid for $300,000 in March 2007 and
licensee fees for the first dosing of a patient in the first Phase IIa clinical
trial for Lenocta in December 2007 for $300,000, offset by licensee fees
for
receiving acceptance of our Investigational New Drug Application filing for
VQD-002 for $100,000 in April 2006. We expect R&D spending related to our
existing product candidates to continue to significantly increase over the
next
several years as we expand our clinical trials.
General
and administrative, or (“G&A”), expenses for the year ended December 31,
2007 were $3,791,089 as compared to $3,461,529 during the year ended December
31, 2006. This increase in G&A expenses was due in part to severance
benefits due to the former Chief Executive Officer of approximately $200,000,
employment agency fees related to the appointment of the President and Chief
Executive Officer of approximately $120,000, additional spending to ensure
compliance with Section 404 of the Sarbanes-Oxley Act of 2002 of approximately
$64,000 and additional spending on professional fees and rent for the Basking
Ridge, New Jersey headquarters, offset by a decrease in SFAS No. 123R expense
of
approximately $476,000 related to the expiration of unvested options of the
former President and Chief Executive Officer.
Interest
expense, net of interest income for the year ended December 31, 2007 was
$1,126,273 as compared to interest income, net of interest expense of $105,695
for the year ended December 31, 2006. Interest expense for the year ended
December 31, 2007 was primarily composed of interest on the Bridge Notes
issued
in June and July 2007 of approximately $1,195,615, which was offset by interest
income of approximately $74,000. The decrease in interest income for the
year
ended December 31, 2007 is attributed to having a lower cash balance throughout
2007. Interest income received during the year ended December 31, 2006 was
approximately $122,000, which was offset by interest expense of approximately
$16,000 for debt owed to Paramount BioSciences, LLC., which was assumed as
part
of the October 2005 acquisition of Greenwich Therapeutics. The debt was repaid
in July 2007.
Our
loss
from continuing operations for the year ended December 31, 2007 was $10,628,048
as compared to $5,175,570 for the year ended December 31, 2006. The increased
loss from continuing operations for the year ended December 31, 2007 as compared
to the year ended December 31, 2006 was attributable to higher in-process
research and development costs related to shares and warrants released from
escrow and issued to Greenwich Therapeutics, R&D costs related to our drug
development efforts, including outside clinical research organization costs,
employee related costs, regulatory and legal fees, maintenance and licensing
fees provided to the institutions we licensed Lenocta and VQD-002 from and
acquisition fees of Xyfid, paid to the licensor in 2007. Additionally, G&A
expense increased as a result of accruing for severance benefits due to the
former President and Chief Executive Officer, employment agency fees related
to
the appointment of our recently appointed President and Chief Executive Officer
in November 2007, additional spending to ensure compliance with Section 404
of
the Sarbanes-Oxley Act of 2002, additional spending on professional fees,
increased rent for the Basking Ridge, New Jersey headquarters, offset by
a
decrease in SFAS No. 123R expense related to the expiration of unvested options
of the former President and Chief Executive Officer.
Discontinued
Operations
Our
loss
from discontinued operations for the year ended December 31, 2007 was $263,693
as compared to $3,095,594 for the year ended December 31, 2006. The decreased
loss from discontinued operations for the year ended December 31, 2007 as
compared to December 31, 2006 was primarily attributable to the sale of Chiral
Quest to CQAC for total cash consideration of approximately $1,700,000 in
July
2007. As a result of this transaction, we reported a gain on sale of $438,444.
Additionally, the decreased loss from 2007 compared to 2006, is attributed
to a
partial year of operations during 2007, versus an entire year of operations
for
2006.
Liquidity
and Capital Resources
Since
inception, the Company has incurred an accumulated deficit of $42,513,278
through March 31, 2008. For the three months ended March 31, 2008 and 2007,
the
Company had losses from continuing operations of $3,080,981 and $2,256,778,
respectively, and used $1,060,445 and $1,347,108 of cash in continuing operating
activities for the three months ended March 31, 2008 and 2007, respectively.
For
the three months ended March 31, 2008 and 2007, the Company had a net loss
of
$3,080,981 and a net loss of $2,518,253 (which included $2,256,778 from
continuing operations), respectively. As of March 31, 2008, the Company had
a
working capital deficit of $2,801,606 and cash and cash equivalents of $305,561.
The Company has incurred negative cash flow from operating activities since
its
inception. The Company has spent, and expects to continue to spend, substantial
amounts in connection with executing its business strategy, including planned
development efforts relating to the Company’s drug candidates, clinical trials
and other research and development efforts. As a result, we have insufficient
funds to cover our current obligations or future operating expenses. To conserve
funds, we will continue to complete our current ongoing Phase I and Phase
II
studies for VQD-002 and Lenocta, respectively, however we will not initiate
any
new clinical studies unless and until we receive additional funding. Our
current
resources are inadequate to continue to fund operations; therefore, we will
need
to raise capital by the end of the third quarter of 2008 if not sooner.
Furthermore, based upon the amount of capital we are required to raise by
the
end of the third quarter of 2008 to continue operations, we may need to raise
additional capital before then to continue to fund our operations at our
desired
pace throughout 2008, by selling shares of our equity securities or issuing
debt, or by potentially sublicensing our rights to our products. These matters
raise substantial doubt about the ability of the Company to continue as a
going
concern.
On
March
14, 2008, we received gross proceeds of $765,000 from the sale of Series
A
Convertible Preferred Stock. Our cash and cash equivalents at March 31, 2008
reflect the remaining cash proceeds to the Company from this transaction.
On
April 9, 2008, we received gross proceeds of $2,194,500 from a second sale
of
Series A Convertible Preferred Stock.
Management
anticipates that our capital resources will be adequate to fund its operations
into the third quarter of 2008. Additional financing or potential sublicensing
of our rights to our product(s) will be required during the third quarter
of
2008 in order to continue to fund operations. The most likely sources of
additional financing include the private sale of the Company’s equity or debt
securities, including bridge loans to us from third party lenders. Our working
capital requirements will depend upon numerous factors, which include the
progress of its drug development and clinical programs, including associated
costs relating to milestone payments, maintenance and license fees,
manufacturing costs, patent costs, regulatory approvals and the hiring of
additional employees.
Additional
capital that is urgently needed by us may not be available on reasonable
terms,
or at all. If adequate financing is not available, we may be required to
terminate or significantly curtail or cease its operations, or enter into
arrangements with collaborative partners or others that may require us to
relinquish rights to certain of its technologies, or potential markets that
we
would not otherwise relinquish.
Contractual
Obligations
License
with The Cleveland Clinic Foundation. We
have
an exclusive, worldwide license agreement with CCF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense Lenocta. We
are
obligated to make an annual license maintenance payment until the first
commercial sale of Lenocta, at which time we are no longer obligated to pay
the
maintenance fee. In addition, the license agreement requires us to make payments
in an aggregate amount of up to $4.5 million to CCF upon the achievement
of
certain clinical and regulatory milestones. In November 2007, we achieved
a
milestone obligation to CCF, from the dosing of our first patient in our
Phase
IIa clinical trial. Should Lenocta become commercialized, we will be obligated
to pay CCF an annual royalty based on net sales of the product. In the event
that we sublicense Lenocta to a third party, we will be obligated to pay
CCF a
portion of fees and royalties received from the sublicense. We hold the
exclusive right to negotiate for a license on any improvements to Lenocta
and
have the obligation to use all commercially reasonable efforts to bring Lenocta
to market. We have agreed to prosecute and maintain the patents associated
with
Lenocta or provide notice to CCF so that it may so elect. The license agreement
shall automatically terminate upon Greenwich’s bankruptcy and upon the date of
the last to expire claim contained in the patents subject to the license
agreement. The license agreement may be terminated by CCF, upon notice with
an
opportunity for cure, for our failure to make required payments or our material
breach, or by us, upon thirty day’s written notice.
License
with the University of South Florida Research Foundation,
Inc.
We have
an exclusive, worldwide license agreement with USF for the rights to develop,
manufacture, use, commercialize, lease, sell and/or sublicense VQD-002. Under
the terms of the license agreement, we have agreed to sponsor research involving
VQD-002 annually for the term of the license agreement. In addition, the
license
agreement requires us to make payments in an aggregate amount of up to $5.8
million to USF upon the achievement of certain clinical and regulatory
milestones. Should a product incorporating VQD-002 be commercialized, we
are
obligated to pay to USF an annual royalty based on net sales of the product.
In
the event that we sublicense VQD-002 to a third party, we are obligated to
pay
USF a portion of fees and royalties received from the sublicense. We hold
a
right of first refusal to obtain an exclusive license on any improvements
to
VQD-002 and have the obligation to use all commercially reasonable efforts
to
bring VQD-002 to market. We have agreed to prosecute and maintain the patents
associated with VQD-002 or provide notice to USF so that it may so elect.
The
license agreement shall automatically terminate upon our bankruptcy or upon
the
date of the last to expire claim contained in the patents subject to the
license
agreement. The license agreement may be terminated by USF, upon notice with
an
opportunity for cure, for our failure to make required payments or our material
breach, or by us, upon six month’s written notice.
License
with with Asymmetric Therapeutics, LLC and Onc Res, Inc., assigned by Fiordland
Pharmaceuticals, Inc.
We have
an exclusive license agreement with Asymmetric and Onc Res, as assigned by
Fiordland for the rights to develop, manufacture, use, commercialize, lease,
sell and/or sublicense Xyfid. In consideration for the rights under the license
agreement, we paid to the licensor an aggregate $300,000 for license related
fees, and incurred approximately $37,000 for patent prosecution costs. In
addition, we paid to a third party finder a cash fee of $20,000 and a 5-year
warrant to purchase 30,000 shares of our common stock at an exercise price
of
$5.00 per share, as adjusted for the 1-for-10 reverse stock split. The right
to
purchase the shares under the warrant vests in three equal installments of
100,000 each, with the first installment being immediately exercisable, and
the
remaining two installments vesting upon the achievement of certain clinical
development and regulatory milestones relating to Xyfid. We recognized
approximately $50,000 of expense in the first quarter of 2007 based upon
the
immediate vesting of the first 100,000 options. In consideration of the license,
we are required to make payments upon the achievement of various clinical
development and regulatory milestones, which total up to $6.2 million in
the
aggregate. The license agreement further requires us to make payments of
up to
an additional $12.5 million in the aggregate upon the achievement of various
commercialization and net sales milestones. We will also be obligated to
pay a
royalty on net sales of the licensed product. We have agreed to prosecute
and
maintain the patents associated with Xyfid or provide notice to Asymmetric
and/or Onc Res so that it may so elect. The license agreement shall
automatically terminate upon our bankruptcy or upon the date of the last
to
expire claim contained in the patents subject to the license agreement. The
license agreement may be terminated by Asymmetric, upon notice with an
opportunity for cure, for our failure to make required payments or our material
breach, or by us, upon thirty day’s written notice.
The
following table summarizes our long-term contractual obligations at December
31,
2007:
|
|
Payments due by period
|
|
|
|
Total
|
|
Less than
1 year
|
|
1-3
years
|
|
3-5
years
|
|
More than
5 years
|
|
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Promissory Notes Obligations (1) (3)
|
|
$
|
3,700,000
|
|
$
|
3,700,000
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
Continuing
Operating Lease Obligations (2)
|
|
|
416,500
|
|
|
101,500
|
|
|
315,000
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
4,116,500
|
|
$
|
3,801,500
|
|
$
|
315,000
|
|
$
|
-
|
|
$
|
-
|
|
|
(1)
|
Convertible
Promissory Notes Obligations are notes payable to accredited investors
that may convert into shares of our common stock. The total principal
obligation is for $3,700,000. In addition, we expect to become
obligated
to pay interest of $301,920. Interest is accrued at the annual
rate of 8%, compounded semi-annually, during the one-year term.
We may
elect to extend the term to an additional year, which election
would
trigger an increase in the annual interest rate to 12%, compounded
semi-annually, during the extended term and we would become obligated
to
pay additional interest in the amount of
$326,557.
|
|
(2)
|
Operating
Lease Obligations are payment obligations under an “operating lease” as
classified by FASB Statement of Financial Accounting Standards
No. 13.
According to SFAS No. 13, any lease that does not meet the criteria
for a
“capital lease” is considered an “operating
lease.”
|
|
(3)
|
As
of March 14, 2008, we are no longer obligated to repay the convertible
promissory notes as a result of the majority of the note holders
converting their notes to Convertible Preferred Stock as a condition
to
the March 14, 2008 financing.
|
Critical
Accounting Policies and Estimates
Accounting
for Stock-Based Compensation
Prior
to
January 1, 2006, as permitted by SFAS No. 123, we accounted for share-based
payments to employees using the intrinsic value method under the recognition
and
measurement principles of Accounting Principles Board Opinion No. 25,
Accounting
for Stock Issued to Employees“APB
No.
25”, and related interpretations. Under this method, compensation cost is
measured as the amount by which the market price of the underlying stock
exceeds
the exercise price of the stock option at the date at which both the number
of
options granted and the exercise price are known. As previously permitted
by the
Statement of Financial Accounting Standards No. 123 “SFAS No. 123”, we had
elected to apply the intrinsic-value-based method of accounting under APB
No. 25
described above, and adopted the disclosure only requirements of SFAS No.
123,
and provided pro forma information for the effects of using a fair value
basis
for all options.
We
adopted SFAS No. 123R, Share-Based
Payment,
and
related interpretations on January 1, 2006 for our employee and director
stock
options plan, using the modified prospective method which requires that
share-based expense recognized includes: (a) share-based expense for all
awards
granted prior to, but not yet vested, as of the adoption date and (b)
share-based expense for all awards granted subsequent to the adoption date.
Since the modified prospective application method is being used, there is
no
cumulative effect adjustment upon the adoption of SFAS No. 123R, and our
consolidated financial statements as of and for the year ended December 31,
2005
do not reflect any restated amounts. No modifications were made to outstanding
options prior to the adoption of SFAS No. 123R, and we did not change the
quantity, type or payment arrangements of any share-based payment
programs.
SFAS
No.
123R requires that compensation cost relating to share-based payment
transactions be recognized as an expense in the consolidated financial
statements, and that measurement of that cost be based on the estimated fair
value of the equity or liability instrument issued. Under SFAS No. 123R,
the pro
forma disclosures previously permitted under SFAS No. 123, Accounting
for Stock-Based Compensation“SFAS
No.
123” are no longer an alternative to financial statement recognition. SFAS No.
123R also required that forfeitures be estimated and recorded over the vesting
period of the instrument.
We
account for stock options granted to non-employees on a fair value basis
using
the Black-Scholes option pricing model in accordance with SFAS No. 123R and
Emerging Issues Task Force No. 96-18, Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services.
The
initial non-cash charge to operations for non-employee options with vesting
is
subsequently adjusted at the end of each reporting period based upon the
change
in the fair value of our common stock until such options vest. We use the
same
valuation methodologies and assumptions in estimating the fair value of options
under both SFAS No. 123R and the pro forma disclosures under SFAS No.
123.
Research
and Development Expense
Research
and development expenditures are expensed as incurred. We often contract
with
third parties to facilitate, coordinate and perform agreed upon research
and
development activities. To ensure that research and development costs are
expensed as incurred, we measure and record prepaid assets or accrue expenses
on
a monthly basis for such activities based on the work performed under the
contracts.
These
contracts typically call for the payment of fees for services at the initiation
of the contract and/or upon the achievement of certain clinical trial
milestones. In the event that we prepay fees for future milestones, we record
the prepayment as a prepaid asset and amortize the asset into research and
development expense over the period of time the contracted research and
development services are performed. Most professional fees are incurred
throughout the contract period. These professional fees are expensed based
on
their percentage of completion at a particular date.
These
contracts generally include pass through fees. Pass through fees include,
but
are not limited to, regulatory expenses, investigator fees, travel costs,
and
other miscellaneous costs including shipping and printing fees. Because these
fees are incurred at various times during the contract term and they are
used
throughout the contract term, we record a monthly expense allocation to
recognize the fees during the contract period. Fees incurred to set up the
clinical trial are expensed during the setup period.
Off-Balance
Sheet Arrangements
We
do not
have any off-balance sheet arrangements.
Recently
Issued Accounting Standards
In
December 2007, the FASB issued Statement No. 160, Noncontrolling
Interests in Consolidated Financial Statements — an amendment of ARB No.
51
(“SFAS
No. 160”). SFAS No. 160 requires that ownership interests in subsidiaries held
by parties other than the parent, and the amount of consolidated net income,
be
clearly identified, labeled, and presented in the consolidated financial
statements within equity, but separate from the parent's equity. SFAS No.
160
applies to all entities that prepare consolidated financial statements, but
will
affect only those entities that have an outstanding noncontrolling interest
in
one or more subsidiaries or that deconsolidate a subsidiary. SFAS No. 160
is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Earlier adoption is prohibited.
SFAS
No. 160 will be effective for us beginning January 1, 2009. Management does
not
expect that the application of this standard will have any significant effect
on
our consolidated financial statements.
In
December 2007, the FASB issued Statement No. 141R, Business
Combinations
(“SFAS
No. 141R”). SFAS No. 141R requires an acquirer to recognize the assets acquired,
the liabilities assumed, and any noncontrolling interest in the acquiree
at the
acquisition date. Additionally, it requires an acquirer to measure goodwill
as
of the acquisition date as a residual that includes the recognition of
contingent consideration at its fair value and financial effects of the business
combination. In most types of business combinations will result in measuring
goodwill as the excess of the consideration transferred plus the fair value
of
any noncontrolling interest in the acquiree at the acquisition date over
the
fair values of the identifiable net assets acquired. SFAS No. 141R applies
prospectively to business combinations for which the acquisition date is
on or
after the beginning of the first annual reporting period beginning on or
after
December 15, 2008. Earlier adoption is prohibited. Management does not expect
that the application of this standard will have any significant effect on
our
consolidated financial statements.
In
February 2007, the FASB issued Statement No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities - Including
an
amendment of FASB Statement No. 115
(“SFAS
No. 159”). This standard amends FASB Statement No. 115, Accounting
for Certain Investment in Debt and Equity Securities,
with
respect to accounting for a transfer to the trading category for all entities
with available-for-sale and trading securities electing the fair value option.
This standard allows companies to elect fair value accounting for many financial
instruments and other items that currently are not required to be accounted
as
such, allows different applications for electing the option for a single
item or
groups of items, and requires disclosures to facilitate comparisons of similar
assets and liabilities that are accounted for differently in relation to
the
fair value option. SFAS No. 159 is effective for fiscal years beginning after
November 15, 2007. Management does not expect that the application of this
standard will have any significant effect on our consolidated financial
statements.
DESCRIPTION
OF BUSINESS
Overview
We
are a
biopharmaceutical company focused on the acquisition, development and
commercialization of clinical stage drug therapies targeting both the molecular
basis of cancer and side effects of cancer treatment. Our lead compound under
development is Xyfid (1% topical uracil) for the treatment and prevention
of
Hand-Foot Syndrome (“HFS”), a common and serious side effect of chemotherapy
treatments. In parallel, Xyfid is also being developed to treat dry skin
conditions and manage the burning and itching associated with various diseases
of the skin, or dermatoses. We expect to initiate a Phase IIb program for
Xyfid
in 2008 for HFS, and are exploring a parallel 510(k) Premarket Notification
submission during 2008 for Xyfid to treat various dermatoses. Additionally,
we
are developing VQD-002 (triciribine phosphate monohydrate or TCN-P), a small
molecule anticancer compound that inhibits activation of protein kinase B
(PKB
or AKT), a key component of a signaling pathway known to promote cancer cell
growth and survival as well as resistance to chemotherapy and radiotherapy.
VQD-002 is currently in Phase I clinical development for multiple tumor types
and we expect to advance VQD-002 into Phase II clinical development during
2008.
We are also developing Lenocta (sodium stibogluconate), which we previously
referred to as VQD-001, a selective, small molecule inhibitor of certain
protein
tyrosine phosphatases (“PTPs”), such as SHP-1, SHP-2 and PTP1B, with
demonstrated anti-tumor activity against a wide spectrum of cancers both
alone
and in combination with other approved immune activation agents, including
IL-2
and interferons. Lenocta is currently in a Phase IIa clinical trial as a
potential treatment for melanoma, renal cell carcinoma, and other solid tumors.
In addition to its potential role as a cancer therapeutic, sodium stibogluconate
has been approved in most of the world for first-line treatment of
leishmaniasis, an infection typically found in tropic and sub-tropic developing
countries. Based on historical published data and a large observational study
by
the U.S. Army, data from approximately 400 patients could be utilized to
support
a New Drug Application (“NDA”) with the U.S. Food and Drug Administration
(“FDA”) in 2008. Lenocta has been granted Orphan Drug status for leishmaniasis.
To date, we have not received approval for the sale of any of our drug
candidates in any market and, therefore, have not generated any product sales
from our drug candidates.
Corporate
History; Mergers and Reincorporation Transactions
We
were
originally formed in October 2000, as a Pennsylvania limited liability company
under the name Chiral Quest, LLC. In February 2003, we completed a reverse
acquisition of Surg II, Inc., a publicly-held Minnesota shell corporation
and
were renamed to Chiral Quest, Inc. In August 2004, we then changed our name
to
VioQuest Pharmaceuticals, Inc. and formed Chiral Quest, Inc. as our wholly-owned
subsidiary. In October 2005, we reincorporated under Delaware law by merging
into a wholly-owned subsidiary VioQuest Delaware, Inc., incorporated under
Delaware law as the surviving corporation and our wholly-owned subsidiary.
Immediately following the reincorporation, we acquired Greenwich Therapeutics,
Inc., a privately-held, New York City based drug development company, in
a
merger transaction in which we merged our wholly-owned subsidiary VioQuest
Delaware, Inc. with and into Greenwich Therapeutics, with Greenwich Therapeutics
remaining as the surviving corporation and our wholly-owned subsidiary. As
a
result of the acquisition of Greenwich Therapeutics, we acquired the rights
to
develop and commercialize two oncology drug candidates – Lenocta, and
VQD-002.
In
July
2007, we sold all of our shares of capital stock of our Chiral Quest subsidiary.
Chiral Quest provided innovative chiral products, technology and custom
synthesis services to pharmaceutical and final chemical companies in all
stages
of a products’ life cycle.
On
April
25, 2008, we effected a 1-for-10 reverse stock split of our common stock.
Pursuant to the reverse stock split, all of our warrants, options, and
conversion ratios were adjusted accordingly.
Strategy
of Products Under Development
Through
our drug development business, we acquire, develop, and intend to commercialize
novel drug therapies targeting both the molecular basis of cancer and side
effects of treatment. Through our acquisition of Greenwich Therapeutics,
Inc. in
October 2005, we obtained the rights to develop and commercialize two oncology
drug candidates – Lenocta and VQD-002. We hold our rights to Lenocta and
VQD-002, pursuant to license agreements with The Cleveland Clinic Foundation
and
the University of South Florida Research Foundation, respectively. In March
2007, we acquired license rights to develop and commercialize Xyfid. Our
rights
to Xyfid are governed by a license agreement with Asymmetric Therapeutics,
LLC
and Onc Res, Inc., as assigned to us by Fiordland Pharmaceuticals, Inc. These
licenses give us the right to develop, manufacture, use, commercialize, lease,
sell and/or sublicense Lenocta, VQD-002 and Xyfid.
Xyfid™
(1% uracil topical)
Overview
We
have
been developing Xyfid for the treatment and prevention of palmar–plantar
erythrodysesthesia (PPE), also known as hand–foot syndrome (HFS), a relatively
common dose-limiting side effect of cytotoxic chemotherapy – most frequently
fluoropyrimidines, such as continuous infusion 5-fluorouracil (5-FU), and
the
oral 5-FU prodrug capecitabine (Xeloda® by Roche). Fluoropyrimidines are among
the most commonly used cancer chemotherapeutics nearly 50 years after their
introduction. Fluoropyrimidines, alone or in combination therapy, are commonly
given for cancers of the head and neck, breast, cervix, and gastrointestinal
tract.
There
are
currently no treatments or preventative agents for HFS, which is characterized
by the progressive redness and cracking of the hands and feet. The severity
of
HFS is typically defined by three grade levels: Grade 1: numbness, tingling,
painless swelling; Grade 2: painful discomfort, swelling; Grade 3: ulceration,
blistering, severe pain and discomfort, unable to work or perform activities
of
daily living. Up to 60% of all capecitabine patients experience HFS and up
to
20% experience severe HFS (Grade 3). According to the prescribing information
for capecitabine, if grade 2 or 3 HFS occurs, administration of capecitabine
should be interrupted until the event resolves or decreases in intensity
to
grade 1. Following grade 3 HFS, subsequent doses of capecitabine should be
decreased.
Uracil,
the active ingredient in Xyfid, is a naturally occurring substrate for enzymes,
such as thymidine phosphorylase (TP) and and dihydropyrimidine dehydrogenase
(DPD), that metabolize fluoropyrimidines into toxic metabolites. Addition
of
uracil to systemic fluoropyrimidine treatment regimens, such as tegafur-uracil,
or UFT, is well-established to significantly diminish the incidence of HFS.
Whereas
such combination products have been licensed in Japan and much of Europe,
they
have not been approved for use in the United States due, in part, to FDA
questions regarding the demonstrable non-inferiority of the combination drug
compared with fluoropyrimidines
alone.
In
contrast to systemic exposure, topical application of uracil would potentially
allow for the treatment and prevention of HFS without compromising the efficacy
of systemic fluoropyrimidine
therapy.
In a small pilot study, Xyfid has been effective at preventing the both the
incidence and recurrence of dose limiting HFS when applied topically.
Clinical
and Regulatory Development
VioQuest
is considering parallel regulatory paths for two separate indications for
Xyfid:
510(k)
Premarket Notification
During
March 2008, we signed an agreement with Medical Device Consultants, Inc.
(MDCI)
for MDCI to assist us in obtaining clearance to market Xyfid pursuant to
Section
510(k) of the Food, Drug and Cosmetic Act, or FDCA, and in particular, the
“premarket notification” provisions of Section 510(k). To qualify for 510(k)
premarket notification, a product must be substantially equivalent to another
device that is legally marketed in the U.S. A device is substantially equivalent
if, in comparison to a predicate it:
•
has
the
same intended use as the predicate; and
•
has
the
same technological characteristics as the predicate;
A
claim
of substantial equivalence does not mean the new and predicate devices must
be
identical. Substantial equivalence is established with respect to intended
use,
design, energy used or delivered, materials, chemical composition, manufacturing
process, performance, safety, effectiveness, labeling, biocompatibility,
standards, and other characteristics, as applicable.
We
believe that Xyfid may be substantially equivalent to several predicate devices
designed to improve dry skin conditions and to relieve and to manage the
burning
and itching associated with various dermatoses including atopic dermatitis,
irritant contact dermatitis, radiation dermatitis and other dry skin conditions,
by maintaining a moist wound and skin environment. Substantial equivalence
for
Xyfid may be supported by the fact that chemically, uracil looks like a fusion
of urea and malonic acid, which are both common ingredients found in many
topical creams. Urea creams, such as Aquacare® and Carmol® are used for
moisturizing and softening dry, cracked, calloused, rough, and hardened skin
of
feet, hands, or elbows.
Since
uracil is known to decompose to urea and malonic acid, we believe that Xyfid
could be considered a sustained-release version of urea, helping trap water
and
creating a healing “moisture barrier.” Xyfid applied at least twice daily to
affected areas of the skin could improve dry skin conditions and relieve
and
manage the burning and itching associated with various dermatoses, including
atopic dermatitis, irritant contact dermatitis, radiation dermatitis and
other
dry skin conditions by maintaining a moist wound and skin
environment.
New
Drug Application (NDA) Process
A
pilot
clinical study in patients has demonstrated that topical application of Xyfid
to
the hands and feet may be effective in preventing the recurrence of dose
limiting HFS. On this basis, an investigational new drug application (IND)
was
submitted and accepted by the FDA. Subsequently, Xyfid was granted fast track
designation for the prevention of HFS in patients receiving capecitabine
for the
treatment of advanced metastatic breast cancer.
Pursuant
to this IND, we expect to evaluate the safety, tolerability and activity
of
Xyfid and its ability to reduce the incidence of HFS. We are considering
a
30-patient Phase IIb study in breast cancer patients receiving capecitabine
that
could begin during 2008. The outcome of the Phase IIb study could support
plans
for registration of Xyfid under the NDA process. Xyfid has been awarded
fast-track status by the FDA in this setting.
Lenocta™
(sodium stibogluconate)
Overview
Lenocta
is a selective, small molecule inhibitor of certain protein tyrosine
phosphatases (PTPs), such as SHP-1, SHP-2 and PTP1B, with demonstrated
anti-tumor activity against a wide spectrum of cancers both alone and in
combination with other approved immune activation agents, including IL-2
and
interferons. PTPs are a family of proteins that regulate signal transduction
pathways in cells and have been implicated in a number of diseases including
cancer, diabetes, and neurodegeneration.
Pre-Clinical
and Clinical Data
Lenocta
has been shown to have anti-proliferative activity against a broad number
of
tumor cell lines, including melanoma and renal cell lines. Pre-clinical work
in
nude mice with cancer xenografts has shown that Lenocta can control malignancies
in vivo as well. These effects were seen whether used as part of a combination
therapy with existing treatments, including interferon and interleukin-2,
or
alone. In addition, preclinical data also suggests that monotherapy with
Lenocta
may be useful to treat certain other tumor types, including prostate
cancer.
The
preclinical data suggests that Lenocta utilizes multiple modes of action,
including having a direct effect on cancer cells, as well as generally enhancing
the body’s immune system. These multiple modes of action, along with Lenocta’s
known historical toxicity profile, demonstrate that Lenocta is a potentially
attractive drug candidate to evaluate as an anti-cancer agent.
Phase
I
data from our combination trial of Lenocta and alpha interferon (“IFN ྟ-2b”)
demonstrated pharmacodynamic activity in some solid tumors as demonstrated
by
increases in the activities of natural killer cells, CD8 and type II dendritic
cells, and two patients with ocular melanoma (1) and adenocystic carcinoma
(1)
have remained stable by Response Evaluation Criteria in Solid Tumors, or
RECIST,
on first assessment. There have been seventeen subjects evaluable for
response.
A
complete treatment cycle is for six weeks, with week 1 the patient is
intravenously dosed with Lenocta for five days as a monotherapy, week 2 the
patient is dosed with Lenocta and IFN ྟ-2b, week 3 is a rest period, weeks 4 and
5 the patient is dosed with Lenocta and IFN ྟ-2b, and then there is a week rest
before a subsequent cycle is initiated. Patients have been given four different
dose cohorts: 400 mg/m2, 600 mg/m2, 900 mg/m2 and 1350 mg/m2. Lenocta with
IFN
ྟ-2b has been well tolerated at doses up to 900 mg/m2.
Development
Status
We
filed
with the FDA an IND for Lenocta, which the FDA accepted in August 2006, allowing
us to commence clinical trials of Lenocta.
Lenocta
is currently being studied at the M.D. Anderson Cancer Center and the University
of New Mexico in a Phase IIa corporate-sponsored clinical trial in combination
with IFN ྟ-2b in up to 54-patients with melanoma, renal cell carcinoma, and
other solid tumors that have been non-responsive in previous cytokine therapy.
In November 2007, we dosed our first patient in our Phase IIa solid tumor
study.
We expect to complete enrollment in our Phase IIa solid tumor study in 2008.
The
Phase IIa trial has been designed to evaluate the clinical efficacy and
biological effectiveness of Lenocta at the highest tolerable does in combination
with IFN ྟ-2b in patients with advanced-stage solid tumors.
The
primary objectives of the Phase IIa clinical trial is to evaluate the tolerance,
safety, maximum tolerated dose, and clinical efficacy and biological
effectiveness of Lenocta in combination with IFN ྟ-2b. In addition, this trial
will also evaluate pharmacokinetic data and anti-neoplastic activity. We
also
hope to gain a better understanding of how Lenocta affects important biological
and genetic pathways.
Additional
Potential Indication of Lenocta
As
we
continue to develop Lenocta for indications primarily used for an oncology
drug
candidate, we are also in the process of evaluating its potential development
as
a treatment for leishmaniasis. According to the World Health Organization,
leishmaniasis currently threatens 350 million men, women and children in
88
countries around the world. The leishmaniases are parasitic diseases with
a wide
range of clinical symptoms:
|
·
|
Cutaneous
leishmaniasis –
Cutaneous forms of the disease normally produce skin ulcers on
the exposed
parts of the body such as the face, arms and legs). The disease
can
produce a large number of lesions - sometimes up to 200 - causing
serious
disability, and invariably leaving the patient permanently scarred,
a
stigma which can cause serious social
prejudice;
|
|
·
|
Mucocutaneous
– in mucocutaneous
forms of leishmaniasis, lesions can lead to partial or total destruction
of the mucous membranes of the nose, mouth and throat cavities
and
surrounding tissues. These disabling and degrading forms of leishmaniasis
can result in victims being humiliated and cast out from society;
and
|
|
·
|
Visceral
leishmaniasis
- also known as kala azar - is characterized by irregular bouts
of fever,
substantial weight loss, swelling of the spleen and liver, and
anaemia
(occasionally serious). If left untreated, the fatality rate in
developing
countries can be as high as 100% within 2
years.
|
In
collaboration with the U.S. Army through an executed CRADA, we are evaluating
the potential development of Lenocta in the treatment of leishmaniasis. Lenocta
was granted orphan drug designation by the FDA in the second half of 2006
for
the treatment of leishmaniasis. We have also convened an advisory board to
evaluate the potential submission of an NDA to the FDA for Lenocta for the
treatment of leishmaniasis in 2008.
VQD-002
(triciribine phosphate monohydrate)
Overview
VQD-002,
a tricyclic nucleoside that inhibits the activation of AKT, has demonstrated
anti-tumor activity against a wide spectrum of cancers in preclinical and
clinical studies. Amplification, overexpression, or activation of AKT, also
named protein kinase B, have been detected in a number of human malignancies,
including prostate, breast, ovarian, colorectal, pancreatic, and hematologic
cancers. Activation of AKT is associated with cell survival, malignant
transformation, tumor invasiveness, and chemo-resistance, while inhibition
of
AKT activity has been shown to cause cell death. These attributes make AKT
an
attractive target for cancer therapy.
Pre-Clinical
and Clinical Data
VQD-002
was first synthesized in 1971 and identified as an antineoplastic agent.
Phase I
clinical trials on VQD-002 proved that its safety and side effects were dose
dependent. However, as a single drug in phase II trials, VQD-002 failed to
show
efficacy against advanced breast, colon, and lung cancer even at very high
doses.
A
few
years ago, researchers at Moffitt Cancer Center found that VQD-002 inhibits
AKT
activation and has antitumor activity as a single agent against tumors with
activated AKT. Inhibition of AKT activation plays a key role in VQD-002’s
antitumor activity. Thus, phase I trials of VQD-002 have been initiated for
tumors with activated AKT using much lower doses of VQD-002 than those
previously used that caused toxicity.
During
October 2007, preclinical study results were published demonstrating that
combining VQD-002 with trastuzumab (Herceptin® by Genentech) may be a clinically
applicable strategy to overcome trastuzumab resistance, particularly that
caused
by loss of PTEN, a tumor suppressor protein. Trastuzumab resistance is a
clinically devastating problem and this study suggests a rational improvement
to
trastuzumab-based therapy, which could directly affect the clinical management
of breast cancer patients in general and particularly those with PTEN-deficient
tumors.
During
January 2008, preclinical study results were published demonstrating that
VQD-002 disrupts a specific signaling pathway associated with chemoresistance
and cancer cell survival in ovarian cancer. The study results indicate that
VQD-002 could play a role in reversing drug resistance in ovarian cancer
for
patients treated with chemotherapy in the years ahead.
Preliminary
Phase I data from our solid tumor study demonstrated that VQD-002 was well
tolerated; one melanoma subject had stable disease for 8 months. Interim
results
of our Phase I hematologic malignancies trials demonstrate that VQD-002 is
well-tolerated and shows signs of clinical activity in patients with advanced
leukemias. The Phase I trial is designed to assess the safety, tolerability
and
pharmacokinetics of VQD-002 and to establish a recommended Phase II dose
for
further studies among patients. In results presented to date, a total of
28
patients have been enrolled at two clinical sites. Eighteen patients are
evaluable for toxicity and response, eight patients are evaluable for toxicity
only, and two patients are not evaluable.
In
this
study, VQD-002 was administered intravenously over a 28-day cycle on days
1, 8,
and 15. Cohorts of 3 patients received escalating doses of VQD-002 at 15,
25,
35, and 45 mg/m2. Enrollment to higher doses is ongoing, which we are currently
at 55 mg/m2. Patients had progressive disease despite receiving a median
of 3
prior treatment regimens (range 1-4).
Preliminary
results from the trial show that patients with relapsed, refractory acute
myeloid leukemia, or AML, experienced a decrease in peripheral blood
myeloblasts, a measure of clinical activity. In particular, four patients
treated at the 25 mg/m2 or 35 mg/m2 dose level of VQD-002 experienced up
to 50
percent reductions in peripheral blast cells. Additional hematological
improvements included two patients achieving major improvements in platelet
count lasting 7 and 36 days, respectively, and four patients achieving major
improvements in neutrophil count lasting a median of 19 days while on therapy.
VQD-002 was well-tolerated at the doses studied.
Development
Status
We
filed
with the FDA an IND relating to VQD-002, which was accepted in April 2006.
Pursuant to this IND, we are currently evaluating the safety, tolerability
and
activity of VQD-002 in two Phase I clinical trials, including one at the
Moffitt
Cancer Center in up to 42 patients with hyper-activated, phosphorylated AKT
in
solid tumors and a second clinical trial, with up to 40 patients, at the
M.D.
Anderson Cancer Center and the Moffitt Cancer Center in hematological tumors,
with particular attention in leukemias. We expect to complete our Phase I
studies in 2008. During 2008, the FDA granted orphan drug designation to
VQD-002
for the treatment of multiple myeloma. We expect to advance VQD-002 into
Phase
II clinical development during 2008.
Competition
Competition
in the pharmaceutical and biotechnology industries is intense. Our competitors
include pharmaceutical companies and biotechnology companies, as well as
universities and public and private research institutions. In addition,
companies that are active in different but related fields represent substantial
competition for us. Many of our competitors have significantly greater capital
resources, larger research and development staffs and facilities and greater
experience in drug development, regulation, manufacturing and marketing than
we
do. These organizations also compete with us to recruit qualified personnel,
attract partners for joint ventures or other collaborations, and license
technologies that are competitive with ours. To compete successfully in this
industry we must identify novel and unique drugs or methods of treatment
and
then complete the development of those drugs as treatments in advance of
our
competitors.
The
drugs
that we are attempting to develop will have to compete with existing therapies.
In addition, a large number of companies are pursuing the development of
pharmaceuticals that target the same diseases and conditions that we are
targeting. Other companies have products or drug candidates in various stages
of
pre-clinical or clinical development to treat diseases for which we are also
seeking to discover and develop drug candidates. Some of these potential
competing drugs are further advanced in development than our drug candidates
and
may be commercialized earlier.
Supply
and Manufacturing
We
have
limited experience in manufacturing products for clinical or commercial
purposes. We have entered into an agreement with Patheon Inc., a leading
global
provider of drug development and manufacturing services to the international
pharmaceutical industry, to manufacture Xyfid which we believe will be adequate
to satisfy our current clinical trial and early commercial market needs.
As
we
move forward, we plan to secure additional manufacturing capacity to meet
the
future demands for Xyfid and create back-up manufacturing capabilities.
The
creation of a reproducible process is also critical in successfully sourcing
Xyfid from multiple suppliers to create back-up manufacturing capabilities
and/or to meet market demand. We believe that multi-sourcing is possible
provided we can demonstrate that the manufacturing process is the same at
all
suppliers and the product produced by them is equivalent.
The
key
raw material for Xyfid, our lead product candidate, is uracil. Supply of
uracil
from China is important to our business and, therefore, we are following
closely
the recent evaluations of applicable controls and regulations in China.
Accordingly, we will continue to monitor this situation closely to determine
its
impact, if any, on VioQuest and Xyfid. All of these factors could materially
affect the commercial success of Xyfid.
We
have
also entered into manufacturing agreements for the supply of VQD-002 and
Lenocta
to ensure that we will have sufficient material for clinical trials. In
addition, we are establishing the basis for commercial production capabilities.
As with any supply program, obtaining raw materials of the correct quality
cannot be guaranteed and we cannot ensure that we will be successful in this
endeavor.
At
the
time of commercial sale, to the extent possible and commercially practicable,
we
would seek to engage a back-up supplier for each of our product candidates.
Until such time, we expect that we will rely on a single contract manufacturer
to produce each of our product candidates under current Good Manufacturing
Practice, or cGMP, regulations. Our third-party manufacturers have a limited
number of facilities in which our product candidates can be produced and
will
have limited experience in manufacturing our product candidates in quantities
sufficient for conducting clinical trials or for commercialization. Our
third-party manufacturers will have other clients and may have other priorities
that could affect their ability to perform the work satisfactorily and/or
on a
timely basis. Both of these occurrences would be beyond our control.
We
expect
to similarly rely on contract manufacturing relationships for any products
that
we may in-license or acquire in the future. However, there can be no assurance
that we will be able to successfully contract with such manufacturers on
terms
acceptable to us, or at all.
Contract
manufacturers are subject to ongoing periodic and unannounced inspections
by the
FDA, the Drug Enforcement Agency and corresponding state agencies to ensure
strict compliance with cGMP and other state and federal regulations. Our
contractors in Europe face similar challenges from the numerous European
Union
and member state regulatory agencies. We do not have control over third-party
manufacturers’ compliance with these regulations and standards, other than
through contractual obligations.
If
we
need to change manufacturers, the FDA and corresponding foreign regulatory
agencies must approve these new manufacturers in advance, which will involve
testing and additional inspections to ensure compliance with FDA regulations
and
standards and may require significant lead times and delay. Furthermore,
switching manufacturers may be difficult because the number of potential
manufacturers is limited. It may be difficult or impossible for us to find
a
replacement manufacturer quickly or on terms acceptable to us, or at
all.
Government
and Industry Regulation
The
research, development, testing, manufacturing, labeling, promotion, advertising,
distribution, and marketing, among other things, of our products are extensively
regulated by governmental authorities in the U.S. and other countries. In
the
United States, the FDA regulates drugs under the Federal Food, Drug, and
Cosmetic Act, or the FDCA, and its implementing regulations. Failure to comply
with the applicable U.S. requirements may subject us to administrative or
judicial sanctions, such as FDA refusal to approve pending NDAs, warning
letters, product recalls, product seizures, total or partial suspension of
production or distribution, injunctions, and/or criminal
prosecution.
Drug
Approval Process
None
of
our drug candidates may be marketed in the U.S. until the drug has received
FDA
approval. The steps required before a drug may be marketed in the U.S. include:
|
· |
preclinical
laboratory tests, animal studies, and formulation
studies,
|
|
· |
submission
to the FDA of an IND for human clinical testing, which must become
effective before human clinical trials may
begin,
|
|
· |
adequate
and well-controlled human clinical trials to establish the safety
and
efficacy of the drug for each
indication,
|
|
· |
submission
to the FDA of an NDA,
|
|
· |
satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities at which the drug is produced to assess compliance with
current
good manufacturing practices, or cGMPs,
and
|
|
· |
FDA
review and approval of the NDA.
|
Preclinical
tests include laboratory evaluation of product chemistry, toxicity, and
formulation, as well as animal studies. The conduct of the preclinical tests
and
formulation of the compounds for testing must comply with federal regulations
and requirements. The results of the preclinical tests, together with
manufacturing information and analytical data, are submitted to the FDA as
part
of an IND, which must become effective before human clinical trials may begin.
An IND will automatically become effective 30 days after receipt by the FDA,
unless before that time the FDA raises concerns or questions about issues
such
as the conduct of the trials as outlined in the IND. In such a case, the
IND
sponsor and the FDA must resolve any outstanding FDA concerns or questions
before clinical trials can proceed. We cannot be sure that submission of
an IND
will result in the FDA allowing clinical trials to begin.
Clinical
trials involve the administration of the investigational drug to human subjects
under the supervision of qualified investigators. Clinical trials are conducted
under protocols detailing the objectives of the study, the parameters to
be used
in monitoring safety, and the effectiveness criteria to be evaluated. Each
protocol must be submitted to the FDA as part of the IND.
Clinical
trials typically are conducted in three sequential phases, but the phases
may
overlap. The study protocol and informed consent information for study subjects
in clinical trials must also be approved by an Institutional Review Board
for
each institution where the trials will be conducted. Study subjects must
sign an
informed consent form before participating in a clinical trial. Phase I usually
involves the initial introduction of the investigational drug into people
to
evaluate its short-term safety, dosage tolerance, metabolism, pharmacokinetics
and pharmacologic actions, and, if possible, to gain an early indication
of its
effectiveness. Phase II usually involves trials in a limited patient population
to (i) evaluate dosage tolerance and appropriate dosage; (ii) identify possible
adverse effects and safety risks; and (iii) evaluate preliminarily the efficacy
of the drug for specific indications. Phase III trials usually further evaluate
clinical efficacy and test further for safety by using the drug in its final
form in an expanded patient population. There can be no assurance that Phase
I,
Phase II, or Phase III testing will be completed successfully within any
specified period of time, if at all. Furthermore, we or the FDA may suspend
clinical trials at any time on various grounds, including a finding that
the
subjects or patients are being exposed to an unacceptable health risk.
The
FDCA
permits FDA and the IND sponsor to agree in writing on the design and size
of
clinical studies intended to form the primary basis of an effectiveness claim
in
an NDA application. This process is known as Special Protocol Assessment,
or
SPA. These agreements may not be changed after the clinical studies begin,
except in limited circumstances.
Assuming
successful completion of the required clinical testing, the results of the
preclinical studies and of the clinical studies, together with other detailed
information, including information on the manufacture and composition of
the
drug, are submitted to the FDA in the form of an NDA requesting approval
to
market the product for one or more indications. The testing and approval
process
requires substantial time, effort, and financial resources. The agencies
review
the application and may deem it to be inadequate to support the registration
and
we cannot be sure that any approval will be granted on a timely basis, if
at
all. The FDA may also refer the application to the appropriate advisory
committee, typically a panel of clinicians, for review, evaluation and a
recommendation as to whether the application should be approved. The FDA
is not
bound by the recommendations of the advisory committee.
The
FDA
has various programs, including fast track, priority review, and accelerated
approval, that are intended to expedite or simplify the process for reviewing
drugs, and/or provide for approval on the basis surrogate endpoints. Generally,
drugs that may be eligible for one or more of these programs are those for
serious or life-threatening conditions, those with the potential to address
unmet medical needs, and those that provide meaningful benefit over existing
treatments. We cannot be sure that any of our drug candidates will qualify
for
any of these programs, or that, if a drug candidate does qualify, that the
review time will be reduced.
Section
505b2 of the FDCA allows the FDA to approve a follow-on drug on the basis
of
data in the scientific literature or data used by FDA in the approval of
other
drugs. This procedure potentially makes it easier for generic drug manufacturers
to obtain rapid approval of new forms of drugs based on proprietary data
of the
original drug manufacturer.
Before
approving an NDA, the FDA usually will inspect the facility or the facilities
at
which the drug is manufactured, and will not approve the product unless cGMP
compliance is satisfactory. If the FDA evaluates the NDA and the manufacturing
facilities as acceptable, the FDA may issue an approval letter, or in some
cases, an approvable letter followed by an approval letter. Both letters
usually
contain a number of conditions that must be met in order to secure final
approval of the NDA. When and if those conditions have been met to the FDA’s
satisfaction, the FDA will issue an approval letter. The approval letter
authorizes commercial marketing of the drug for specific indications. As
a
condition of NDA approval, the FDA may require post marketing testing and
surveillance to monitor the drug’s safety or efficacy, or impose other
conditions.
After
approval, certain changes to the approved product, such as adding new
indications, making certain manufacturing changes, or making certain additional
labeling claims, are subject to further FDA review and approval. Before we
can
market our product candidates for additional indications, we must obtain
additional approvals from FDA. Obtaining approval for a new indication generally
requires that additional clinical studies be conducted. We cannot be sure
that
any additional approval for new indications for any product candidate will
be
approved on a timely basis, or at all.
Post-Approval
Requirements
Often
times, even after a drug has been approved by the FDA for sale, the FDA may
require that certain post-approval requirements be satisfied, including the
conduct of additional clinical studies. If such post-approval conditions
are not
satisfied, the FDA may withdraw its approval of the drug. In addition, holders
of an approved NDA are required to: (i) report certain adverse reactions
to the
FDA, (ii) comply with certain requirements concerning advertising and
promotional labeling for their products, and (iii) continue to have quality
control and manufacturing procedures conform to cGMP after approval. The
FDA
periodically inspects the sponsor’s records related to safety reporting and/or
manufacturing facilities; this latter effort includes assessment of compliance
with cGMP. Accordingly, manufacturers must continue to expend time, money,
and
effort in the area of production and quality control to maintain cGMP
compliance. We intend to use third party manufacturers to produce our products
in clinical and commercial quantities, and future FDA inspections may identify
compliance issues at the facilities of our contract manufacturers that may
disrupt production or distribution, or require substantial resources to correct.
In addition, 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.
Orphan
Drug
The
FDA
may grant orphan drug designation to drugs intended to treat a “rare disease or
condition,” which generally is a disease or condition that affects fewer than
200,000 individuals in the United States. Orphan drug designation must be
requested before submitting an NDA. If the FDA grants orphan drug designation,
which it may not, the identity of the therapeutic agent and its potential
orphan
use are publicly disclosed by the FDA. Orphan drug designation does not convey
an advantage in, or shorten the duration of, the review and approval process.
If
a product which has an orphan drug designation subsequently receives the
first
FDA approval for the indication for which it has such designation, the product
is entitled to orphan exclusivity, meaning that the FDA may not approve any
other applications to market the same drug for the same indication, except
in
certain very limited circumstances, for a period of seven years. Orphan drug
designation does not prevent competitors from developing or marketing different
drugs for that indication. Our product candidate Lenocta received orphan
drug
designation for the treatment of leishmaniasis in December 2006. Our product
candidate VQD-002 received orphan drug designation for the treatment of multiple
myeloma in February 2008.
Fast
Track Designation
The
FDA’s
fast track program is intended to facilitate the development and to expedite
the
review of drugs that are intended for the treatment of a serious or
life-threatening condition for which there is no effective treatment and
which
demonstrate the potential to address unmet medical needs for the condition.
Under the fast track program, the sponsor of a new drug candidate may request
the FDA to designate the drug candidate for a specific indication as a fast
track drug concurrent with or after the filing of the IND for the drug
candidate. The FDA must determine if the drug candidate qualifies for fast
track
designation within 60 days of receipt of the sponsor’s request. Our product
candidate Xyfid received fast track designation status in April 2005, for
the
prevention of HFS in patients receiving capecitabine for the treatment of
advanced metastatic breast cancer as a fast track product. The FDA granted
Xyfid
fast track designation for the treatment of HFS from the use of capecitabine
or
5-FU, as HFS is a serious condition for which there is currently no approved
therapy, and Xyfid shows potential for prevention and treatment of HFS as
indicated by the pilot study’s clinical observations.
If
fast
track designation is obtained, the FDA may initiate review of sections of
an NDA
before the application is complete. This rolling review is available if the
applicant provides and the FDA approves a schedule for the submission of
the
remaining information and the applicant pays applicable user fees. However,
the
time period specified in the Prescription Drug User Fees Act, which governs
the
time period goals the FDA has committed to reviewing an application, does
not
begin until the complete application is submitted. Additionally, the fast
track
designation may be withdrawn by the FDA if the FDA believes that the designation
is no longer supported by data emerging in the clinical trial process.
In
some
cases, a fast track designated drug candidate may also qualify for one or
more
of the following programs:
Priority
Review. Under
FDA policies, a drug candidate is eligible for priority review, or review
within
a six-month time frame from the time a complete NDA is accepted for filing,
if
the drug candidate provides a significant improvement compared to marketed
drugs
in the treatment, diagnosis or prevention of a disease. We cannot guarantee
any
of our drug candidates will receive a priority review designation, or if
a
priority designation is received, that review or approval will be faster
than
conventional FDA procedures, or that FDA will ultimately grant drug
approval.
Accelerated
Approval. Under
the FDA’s accelerated approval regulations, the FDA is authorized to approve
drug candidates that have been studied for their safety and effectiveness
in
treating serious or life-threatening illnesses, and that provide meaningful
therapeutic benefit to patients over existing treatments based upon either
a
surrogate endpoint that is reasonably likely to predict clinical benefit
or on
the basis of an effect on a clinical endpoint other than patient survival.
In
clinical trials, surrogate endpoints are alternative measurements of the
symptoms of a disease or condition that are substituted for measurements
of
observable clinical symptoms. A drug candidate approved on this basis is
subject
to rigorous post-marketing compliance requirements, including the completion
of
Phase 4 or post-approval clinical trials to validate the surrogate endpoint
or confirm the effect on the clinical endpoint. Failure to conduct required
post-approval studies, or to validate a surrogate endpoint or confirm a clinical
benefit during post-marketing studies, will allow the FDA to withdraw the
drug
from the market on an expedited basis. All promotional materials for drug
candidates approved under accelerated regulations are subject to prior review
by
the FDA. In rare instances FDA may grant accelerated approval of an NDA based
on
Phase 2 data and require confirmatory Phase 3 studies to be conducted after
approval and/or as a condition of maintaining approval. We can give no assurance
that any of our drugs will be reviewed under such procedures.
When
appropriate, we and our collaborators intend to seek fast track designation
or
accelerated approval for our drug candidates. We cannot predict whether any
of
our drug candidates will obtain a fast track or accelerated approval
designation, or the ultimate impact, if any, of the fast track or the
accelerated approval process on the timing or likelihood of FDA approval
of any
of our drug candidates.
Satisfaction
of FDA regulations and requirements or similar requirements of state, local
and
foreign regulatory agencies typically takes several years and the actual
time
required may vary substantially based upon the type, complexity and novelty
of
the product or disease. Typically, if a drug candidate is intended to treat
a
chronic disease, as is the case with some of our drug candidates, safety
and
efficacy data must be gathered over an extended period of time. Government
regulation may delay or prevent marketing of drug candidates for a considerable
period of time and impose costly procedures upon our activities. The FDA
or any
other regulatory agency may not grant approvals for new indications for our
drug
candidates on a timely basis, if at all. Even if a drug candidate receives
regulatory approval, the approval may be significantly limited to specific
disease states, patient populations and dosages. Further, even after regulatory
approval is obtained, later discovery of previously unknown problems with
a drug
may result in restrictions on the drug or even complete withdrawal of the
drug
from the market. Delays in obtaining, or failures to obtain, regulatory
approvals for any of our drug candidates would harm our business. In addition,
we cannot predict what adverse governmental regulations may arise from future
United States or foreign governmental action.
Section
510(k)
We
may
pursue FDA clearance for Xyfid as a medical device pursuant to Section 510(k)
of
the Food Drug and Cosmetic Act, or FDCA. The FDA classifies medical devices
into
one of three classes. Devices deemed to pose lower risks are placed in either
Class I or II, which requires the manufacturer to submit to the FDA a premarket
notification requesting permission to commercially distribute the device.
This
process is generally known as 510(k) clearance. Some low risk devices are
exempt
from this requirement. Devices deemed by the FDA to pose the greatest risk,
such
as life-sustaining, life-supporting or implantable devices, or devices deemed
not substantially equivalent to a previously cleared 510(k) device, are placed
in Class III, requiring premarket approval.
When
a
510(k) clearance is required, the device sponsor must submit a premarket
notification demonstrating that its proposed device is substantially equivalent
to a previously cleared 510(k) device or a device that was in commercial
distribution. The evidence required to prove substantial equivalence varies
with
the risk posed by the device and its complexity. By regulation, the FDA is
required to complete its review of a 510(k) within 90 days of submission
of the
notification. As a practical matter, however, clearance often takes longer.
The
FDA may require further information, including clinical data, to make a
determination regarding substantial equivalence. If the FDA determines that
the
device, or its intended use, is not “substantially equivalent,” the FDA will
place the device, or the particular use of the device, into Class III, and
the
device sponsor must then fulfill much more rigorous pre-marketing requirements,
known as pre-market approval.
After
a
device receives 510(k) clearance for a specific intended use, any modification
that could significantly affect its safety or effectiveness, or that would
constitute a major change in its intended use, design or manufacture, will
require a new 510(k) clearance or could require a Pre-Market Approval
application, or PMA approval. The FDA requires each manufacturer to make
this
determination initially, but the FDA can review any such decision and can
disagree with a manufacturer’s determination. If the FDA disagrees with a
manufacturer’s determination that a new clearance or approval is not required
for a particular modification, the FDA can require the manufacturer to cease
marketing and recall the modified device until 510(k) clearance or a PMA
approval is obtained. Also, in these circumstances, the manufacturer may
be
subject to significant regulatory fines or penalties.
Non-United
States Regulation
Before
our products can be marketed outside of the U.S., they are subject to regulatory
approval similar to that required in the U.S., although the requirements
governing the conduct of clinical trials, including additional clinical trials
that may be required, product licensing, pricing and reimbursement vary widely
from country to country. No action can be taken to market any product in
a
country until an appropriate application has been approved by the regulatory
authorities in that country. The current approval process varies from country
to
country, and the time spent in gaining approval varies from that required
for
FDA approval. In certain countries, the sales price of a product must also
be
approved. The pricing review period often begins after market approval is
granted. Even if a product is approved by a regulatory authority, satisfactory
prices may not be approved for such product.
In
Europe, marketing authorizations may be submitted at a centralized, a
decentralized or national level. The centralized procedure is mandatory for
the
approval of biotechnology products and provides for the grant of a single
marketing authorization that is valid in all EU members’ states. As of January
1995, a mutual recognition procedure is available at the request of the
applicant for all medicinal products that are not subject to the centralized
procedure. There can be no assurance that the chosen regulatory strategy
will
secure regulatory approvals on a timely basis or at all.
Intellectual
Property and Patents
General
Patents
and other proprietary rights are very important to the development of our
business. We will be able to protect our proprietary technologies from
unauthorized use by third parties only to the extent that our proprietary
rights
are covered by valid and enforceable patents, supported by regulatory data
exclusivity or are effectively maintained as trade secrets. It is our intention
to seek and maintain patent and trade secret protection for our drug candidates
and our proprietary technologies. As part of our business strategy, our policy
is to actively file patent applications in the United States and, when
appropriate, internationally to cover methods of use, new chemical compounds,
pharmaceutical compositions and dosing of the compounds and compositions
and
improvements in each of these. We also rely on trade secret information,
technical know-how, innovation and agreements with third parties to continuously
expand and protect our competitive position. We have a number of patents
and
patent applications related to our compounds and other technology, but we
cannot
guarantee the scope of protection of the issued patents, or that such patents
will survive a validity or enforceability challenge, or that any of the pending
patent applications will issue as patents.
Generally,
patent applications in the United States are maintained in secrecy for a
period
of 18 months or more. Since publication of discoveries in the scientific
or
patent literature often lag behind actual discoveries, we are not certain
that
we were the first to make the inventions covered by each of our pending patent
applications or that we were the first to file those patent applications.
The
patent positions of biotechnology and pharmaceutical companies are highly
uncertain and involve complex legal and factual questions. Therefore, we
cannot
predict the breadth of claims allowed in biotechnology and pharmaceutical
patents, or their enforceability. To date, there has been no consistent policy
regarding the breadth of claims allowed in biotechnology patents. Third parties
or competitors may challenge or circumvent our patents or patent applications,
if issued. If our competitors prepare and file patent applications in the
United
States that claim technology also claimed by us, we may have to participate
in
interference proceedings declared by the United States Patent and Trademark
Office to determine priority of invention, which could result in substantial
cost, even if the eventual outcome is favorable to us. Because of the extensive
time required for development, testing and regulatory review of a potential
product, it is possible that before we commercialize any of our products,
any
related patent may expire or remain in existence for only a short period
following commercialization, thus reducing any advantage of the patent.
If
a
patent is issued to a third party containing one or more preclusive or
conflicting claims, and those claims are ultimately determined to be valid
and
enforceable, we may be required to obtain a license under such patent or
to
develop or obtain alternative technology. In the event of a litigation involving
a third party claim, an adverse outcome in the litigation could subject us
to
significant liabilities to such third party, require us to seek a license
for
the disputed rights from such third party, and/or require us to cease use
of the
technology. Further, our breach of an existing license or failure to obtain
a
license to technology required to commercialize our products may seriously
harm
our business. We also may need to commence litigation to enforce any patents
issued to us or to determine the scope and validity of third-party proprietary
rights. Litigation would involve substantial costs.
Xyfid™
We
have
an exclusive, world-wide license to U.S. and foreign patents and patent
applications claiming the Xyfid formulation and methods of using this
formulation for treatment of adverse dermatological conditions associated
with
cancer treatment. Two U.S. patents with claims encompassing Xyfid have
issued.
U.S.
Patent No. 6,979,688 (“the ‘688 patent”) contains claims directed to methods of
reducing cutaneous side-effects of systemic therapy with 5-fluorouracil (5-FU)
or a precursor of 5-FU, the method comprising: applying uracil topically
to the
skin of a patient being treated concurrently and systemically with
5-fluorouracil (5-FIT) or a precursor of 5-FU in an amount effective to reduce,
at the site of topical uracil administration, the development of cutaneous
side-effects. The ‘688 patent also contains claims reciting methods of treating
breast or colorectal cancer with reduced cutaneous side-effects, the method
comprising: systemically administering 5-fluorouracil (5-FU) or a precursor
of
5-FU to a patient having breast or colorectal cancer; and concurrently applying
uracil topically to the patient's skin in an amount effective to reduce,
at the
site of topical uracil administration, the development of cutaneous
side-effects. The ‘688 patent will expire in 2023.
U.S.
Patent No. 6,995,165 (“the ‘165 patent”) contains claims encompassing kit for
the administration of at least one dose of an orally administrable
fluoropyrimidine prodrug or precursor with reduced cutaneous toxicity, the
kit
comprising: at least one dose of an orally administrable fluoropyrimidine
prodrug or precursor; and at least one dose of a topical composition comprising
uracil and a pharmaceutically acceptable carrier or excipient, wherein each
dose
of topical composition contains uracil in an amount that is both (i) sufficient,
at the site of topical application, to reduce the development of cutaneous
side-effects, and (ii) insufficient to produce a circulating uracil
concentration capable of causing clinically observable diminution in potency
or
efficacy of the kit’s fluoropyrimidine prodrug or precursor, or metabolite
thereof, at a neoplastic tissue desired to be treated. The ‘165 patent will
expire in 2023.
Lenocta™
We
have
an exclusive, world-wide license to U.S. and foreign patents and patent
applications claiming the Lenocta formulation and methods of using this
formulation for treatment various types of tumors and cancers. No U.S. or
foreign patents have issued or granted at this time. One U.S. patent application
and one European patent application have been allowed. Once issued, the patents
will expire in 2022.
VQD-002
We
have
an exclusive, world-wide license to U.S. and foreign patents and patent
applications claiming the VQD-002 formulation and methods of using this
formulation for treatment various types of tumors and cancers. No U.S. patents
have issued at this time. However, the earliest expiration date of any U.S.
patent that issued is 2025.
Other
Intellectual Property Rights
We
depend
upon trademarks, trade secrets, know-how and continuing technological advances
to develop and maintain our competitive position. To maintain the
confidentiality of trade secrets and proprietary information, we require
our
employees, scientific advisors, consultants and collaborators, upon commencement
of a relationship with us, to execute confidentiality agreements and, in
the
case of parties other than our research and development collaborators, to
agree
to assign their inventions to us. These agreements are designed to protect
our
proprietary information and to grant us ownership of technologies that are
developed in connection with their relationship with us. These agreements
may
not, however, provide protection for our trade secrets in the event of
unauthorized disclosure of such information.
In
addition to patent protection, we may utilize orphan drug regulations or
other
provisions of the Food, Drug and Cosmetic Act to provide market exclusivity
for
certain of our drug candidates. Orphan drug regulations provide incentives
to
pharmaceutical and biotechnology companies to develop and manufacture drugs
for
the treatment of rare diseases, currently defined as diseases that exist
in
fewer than 200,000 individuals in the United States, or, diseases that affect
more than 200,000 individuals in the United States but that the sponsor does
not
realistically anticipate will generate a net profit. Under these provisions,
a
manufacturer of a designated orphan drug can seek tax benefits, and the holder
of the first FDA approval of a designated orphan product will be granted
a
seven-year period of marketing exclusivity for such FDA-approved orphan product.
We believe that certain of the indications for our drug candidates will be
eligible for orphan drug designation; however, we cannot assure that our
drugs
will obtain such orphan drug designation or that we will be the first to
receive
FDA approval for such drugs so as to be eligible for market exclusivity
protection.
Licensing
Agreements and Collaborations
We
have
formed strategic alliances with a number of companies for the manufacture
and
commercialization of our products. Our breach of an existing license or failure
to obtain a license to technology required to develop, test and commercialize
our products may seriously harm our business. Our current key strategic
alliances are discussed above under “Management’s Discussion and Analysis of
Financial Condition and Result of Operations – Contractual
Obligations.”
Employees
and Consultants
As
of May
19, 2008, we currently have three full-time employees and two consultants.
We
anticipate hiring additional full-time employees in the medical and clinical
functions, based upon available financial resources. We intend to and will
continue to use senior advisors, consultants, clinical research organizations
and third parties to perform certain aspects of our products’ development,
manufacturing, clinical and preclinical development, and regulatory and quality
assurance functions. None of our employees are represented by a collective
bargaining unit. We consider our relations with our employees to be
satisfactory.
As
we
develop our technology and business, we anticipate the need to hire additional
employees, especially employees with expertise in the areas of clinical
operations and business development.
Environmental
Regulation
We
are
not subject to environmental regulations that have a material effect upon
our
capital expenditures or otherwise.
Description
of Property
We
lease
office space in Basking Ridge, New Jersey. We have amended our original lease
agreement effective June 15, 2005, for additional office space effective
November 20, 2006 for our principal executive offices located in Basking
Ridge,
New Jersey. This facility consists of approximately 4,000 square feet of
office
space. Pursuant to the lease agreement term of sixty-two months, we pay
approximately $8,000 per month for rent and utilities. Our total lease
commitment of approximately $416,000 for rent and utilities expires in January
2012.
In
connection with the sale of our Chiral Quest Subsidiary, on July 16, 2007,
we
entered into a sublease agreement with Chiral Quest Acquisition Corp. (“CQAC”),
which purchased Chiral Quest, to lease office and laboratory space in Monmouth
Junction, New Jersey used in Chiral Quest’s business. The sublease agreement
provides for a term that will expire on May 30, 2008. CQAC agreed to make
all
payments of base rent and additional rent that we are obligated to pay under
our
lease agreement for such space. If CQAC were to default on payment during
the
sublease agreement’s term, we would be obligated to provide payment to its
landlord on behalf of CQAC through the remainder of the original lease term,
and
we will have the right to cancel and terminate the sublease with CQAC upon
5
days notice to subtenant. To date, CQAC has fully complied with the sublease
agreement with us.
We
believe our existing facilities, as described above, are adequate to meet
our
needs at least through the year ending December 31, 2008.
Legal
Matters
We
are
not currently a party to any material legal proceeding.
MANAGEMENT
AND BOARD OF DIRECTORS
Directors,
Executive Officers and other Key Employees
The
following table sets forth the name and position of each of our directors and
executive officers:
Name
|
|
Age
|
|
Positions
|
Michael
D. Becker
|
|
39
|
|
Director,
Chief Executive Officer and President
|
Brian
Lenz
|
|
36
|
|
Chief
Financial Officer, and Treasurer
|
Stephen
C. Rocamboli
|
|
36
|
|
Director,
non-executive Chairman of Board of Directors and
Secretary
|
Johnson
Y.N. Lau, M.D.
|
|
47
|
|
Director
|
Michael
Weiser, M.D., Ph.D.
|
|
45
|
|
Director
|
Michael
D. Becker, President and Chief Executive Officer,
joined
VioQuest in November 2007. Previously, he served as President and Chief
Executive Officer at Cytogen Corporation since December 2002. Mr. Becker joined
Cytogen in April 2001 and held positions of increasing responsibility, including
Chief Executive Officer of AxCell Biosciences, a subsidiary of Cytogen focused
on signal transduction pathways, and Vice President of Business Development
and
Industry Relations. During his tenure at Cytogen, Mr. Becker raised in excess
of
$130 million in new capital through both public offerings and private
placements. Prior to joining Cytogen, Mr. Becker was with Wayne Hummer
Investments LLC, a Chicago-based regional brokerage firm from July 1996 to
April
2001, where he held senior positions as a biotechnology analyst, investment
executive and portfolio manager. Mr. Becker was also the founder and Executive
Editor of Beck on Biotech, a monthly biotechnology investment newsletter
published from July 1998 through March 2001. Mr. Becker attended DePaul
University in Chicago, Illinois. Mr. Becker is Chairman of BioNJ, which was
founded in 1994 by New Jersey biotechnology industry CEOs to serve as the voice
of and advocate for the biotechnology industry in New Jersey.
Brian
Lenz, CPA, Chief Financial Officer and Treasurer
since
April 2004, joined VioQuest as a controller in October 2003. Prior to VioQuest,
Mr. Lenz was a controller with Smiths Detection Group from July 2000 to
September 2003 where he was responsible for corporate and operational financial
reporting and consolidation of its international operations, in addition to
being responsible for the information technology and human resources functions.
Mr. Lenz began his career as an auditor with KPMG, LLP from October 1998 to
July
2000, where he was responsible for supervising audits of healthcare and
financial services companies both publicly traded and privately held. Mr. Lenz
holds a BS in Accounting from Rider University and received his MBA from Saint
Joseph’s University. Mr. Lenz has also been the chair of the finance committee
for Biotech 2006 and 2007.
Stephen
C. Rocamboli
has
served as our non-executive Chairman since February 2003 and Secretary since
November 2006. He was our Secretary from 2003 to December 2003. Mr. Rocamboli
is
currently President of Pear Tree Pharmaceuticals, Inc. Prior to joining Pear
Tree, Mr. Rocamboli was deputy general counsel of Paramount BioCapital, Inc.
and
Paramount BioCapital Investments, LLC and served as deputy general counsel
of
those companies from September 1999 to August 2007. From November 2002 to
December 2003, Mr. Rocamboli served as director of Ottawa, Ontario based Adherex
Technologies, Inc. Mr. Rocamboli also serves as a member of the board of
directors of several privately held development stage biotechnology companies.
Prior to joining Paramount, Mr. Rocamboli practiced law in the health care
field. He received his J.D. from Fordham University School of Law.
Johnson
Y.N. Lau, M.B.B.S., M.D., F.R.C.P.,
has
been a member of our board of directors since November 2005. He currently serves
as the Chairman of Kinex Pharmaceuticals, LLC, a position he has held since
December 2003. Dr. Lau currently is a member of the board of directors of
Chelsea Therapeutics International, Ltd. (NASDAQ: CHTP), a publicly-held
company. Prior to his position with Kinex Pharmaceuticals, Dr. Lau was an
independent contractor from January 2003 until December 2003 and served in
various capacities at Ribapharm Inc. from August 2000 until January 2003,
including Chairman, President and Chief Executive Officer. Previously he was
the
Senior Vice President and Head of Research and Development at ICN
Pharmaceuticals and Senior Director of Antiviral Therapy at Schering-Plough
Research Institute. He has published over 200 scientific papers and 40 reviews
and editorials in leading academic journals and was elected as a Fellow, Royal
College of Physicians in 2004. Dr. Lau holds an M.B.B.S. and M.D. from the
University of Hong Kong and the degrees of M.R.C.P. and F.R.C.P. from the Royal
College of Physicians.
Michael
Weiser, M.D., Ph.D,
is the
founder and co-chairman of Actin Biomed, a New York based healthcare investment
firm advancing the discovery and development of novel treatments for unmet
medical needs. Prior to joining Actin, Dr. Weiser was the Director of Research
at Paramount BioCapital where he was responsible for the scientific, medical
and
financial evaluation of biomedical technologies and pharmaceutical products
under consideration for development. Dr. Weiser completed his Ph.D. in Molecular
Neurobiology at Cornell University Medical College and received his M.D. from
New York University School of Medicine. He performed his post-graduate medical
training in the Department of Obstetrics and Gynecology at New York University
Medical Center. Dr. Weiser also completed a Postdoctoral Fellowship in the
Department of Physiology and Neuroscience at New York University School of
Medicine and received his B.A. in Psychology from University of Vermont. Dr.
Weiser is a member of The National Medical Honor Society, Alpha Omega Alpha.
In
addition, Dr. Weiser has received awards for both academic and professional
excellence and is published extensively in both medical and scientific journals.
Dr. Weiser currently serves on the board of directors of Manhattan
Pharmaceuticals, Inc, Chelsea Therapeutics International, Ltd., Emisphere
Technologies, Inc., Hana Biosciences, Inc., Ziopharm Oncology, Inc. and VioQuest
Pharmaceuticals, Inc. as well as several privately held companies.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth all of the compensation awarded to, earned by or
paid
to (i) each individual serving as our principal executive officer during
our last completed fiscal year; and (ii) each other individual that served
as our executive officer at the conclusion of the fiscal year ended
December 31, 2007 and who received in excess of $100,000 in the form of
salary and bonus during such fiscal year (collectively, the “named executives”).
Name and
Principal Position
|
|
Year
|
|
Salary
|
|
Bonus
|
|
Option
Awards (1)
|
|
Non-Equity
Incentive Plan
Compensation
|
|
All Other
Compensation
|
|
Total
|
|
Michael
D. Becker
|
|
|
2007
|
|
$
|
40,894
|
(2)
|
$
|
–
|
|
$
|
45,954
|
(3)
|
$
|
–
|
|
$
|
–
|
|
$
|
86,848
|
|
Chief
Executive Officer and President
|
|
|
2006
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Edward
C. Bradley, M.D.
|
|
|
2007
|
|
$
|
273,679
|
(4)
|
$
|
–
|
|
$
|
111,013
|
(5)
|
$
|
–
|
|
$
|
–
|
|
$
|
384,692
|
|
Former
Chief Scientific and Medical Officer
|
|
|
2006
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
–
|
|
Brian
Lenz
|
|
|
2007
|
|
$
|
185,000
|
|
$
|
–
|
|
$
|
92,542
|
(6)
|
$
|
36,483
|
(7)
|
$
|
–
|
|
$
|
314,025
|
|
Chief
Financial Officer and Treasurer
|
|
|
2006
|
|
|
134,583
|
|
|
–
|
|
|
86,546
|
|
|
24,412
|
|
|
3,600
|
(7)
|
|
249,141
|
|
Daniel
E. Greenleaf
|
|
|
2007
|
|
$
|
311,013
|
|
$
|
100,000
|
|
$
|
87,026
|
|
$
|
100,000
|
(9)
|
$
|
–
|
|
$
|
598,039
|
|
Former
Chief Executive Officer and President
(8)
|
|
|
2006
|
|
|
360,000
|
|
|
100,000
|
|
|
818,053
|
|
|
100,000
|
|
|
–
|
|
|
1,378,053
|
|
(1)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007 in accordance
with SFAS 123(R) of stock option awards, and may include amounts
from
awards granted in and prior to fiscal year 2007. Assumptions used
in the
calculation of this amount for employees are identified in Note 8
to our
annual financial statements for the year ended December 31, 2007
included
elsewhere in this prospectus. The number of shares granted by the
stock
option awards described in this table have been adjusted pursuant
to our
1-for-10 reverse stock split on April 25, 2008.
|
(2)
|
Pursuant
to Mr. Becker’s employment agreement dated November 11, 2007, Mr. Becker’s
employment commenced with the Company on November 21, 2007, and is
for a
four year term. Mr. Becker’s annual salary is $358,400.
|
(3)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007 in accordance
with SFAS 123(R), of the following stock option awards: (i) the
vesting of 501,334 share option granted on November 21, 2007 which
vests
in equal installments over four years; and (ii) the vesting of a
portion of shares subject to an option to purchase an aggregate of
85,640
shares granted November 21, 2007 which vests in equal amounts over
four
years, but is subject to vesting to the extent the Company’s shares held
in escrow in connection with our acquisition of Greenwich Therapeutics,
Inc. are released. On December 4, 2007, 29,974 shares of the such
escrowed
shares were released. Thus, 21,410 share options vest on November
21, 2008
and 8,564 vest on November 21, 2009.
|
(4)
|
Pursuant
to Dr. Bradley’s employment agreement dated February 1, 2007, Dr. Bradley
is entitled to receive a salary of $330,000 on an annualized basis.
On
March 20, 2008, Dr. Bradley entered into an agreement with the Company
which provided for a reduction in his base salary from $330,000 to
$165,000. In addition, the agreement provided for a reduction in
the
number of hours of service required to be provided by Dr. Bradley
to the
Company. On April 11, 2008, Dr. Bradley resigned from his part-time
position with the Company.
|
(5)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007 in accordance
with
SFAS 123(R) of the following stock option awards: (i) the vesting
of
one-third of a 70,000 share option granted on February 1, 2007 which
vests
in equal amounts over 3 years.
|
(6)
|
Amount
reflects the dollar amount recognized for financial statement reporting
purposes for the fiscal year ended December 31, 2007 in accordance
with
SFAS 123(R) of the following stock option awards: (i) the vesting
of
one-third of a 2,500 share option granted on April 19, 2004 which
vests in
equal amounts over 3 years; (ii) the vesting of one-third of a 6,000
share
option granted on January 24, 2005 which vests in equal amounts over
3
years; (iii) the vesting of one-third of a 10,000 share option granted
on
November 29, 2005, which vests in equal amounts over 3 years; (iv)
the
vesting of one-third of a 10,000 share option granted on March 31,
2006,
which vests in equal amounts over 3 years; and (v) the vesting of
one-third of a 10,000 share option granted on May 11, 2007, which
vests in
equal amounts over 3 years.
|
(7)
|
Amount
represents a cash bonus awarded based upon the satisfaction of performance
criteria established by our Board of Directors. See “– Employment
Agreements with Named Executives – Brian Lenz – Bonus
Compensation.”
|
(8)
|
Pursuant
to Mr. Greenleaf’s employment agreement, he is entitled to a bonus of
$100,000 upon each anniversary of his agreement. On November 14,
2007, the
Company and Mr. Greenleaf, the Company’s former President & Chief
Executive Officer, entered into a Separation and Release Agreement.
Pursuant to the Separation Agreement, we and Mr. Greenleaf agreed
that Mr.
Greenleaf’s employment with the Company terminated as of November 9, 2007,
and that Mr. Greenleaf resigned from all positions as officer and
director
of the Company.
|
(9)
|
Amount
represents a cash bonus awarded based upon the satisfaction of performance
criteria established by our Board of Directors. See “– Employment
Agreements with Named Executives – Daniel Greenleaf – Bonus
Compensation.”
|
Employment
Agreements with Named Executives
The
following descriptions of our employment agreements with our named executives
contain explanations of bonuses, stock options, and other rights held by our
named executives to receive or purchase our stock. All of the figures included
in the following descriptions have been adjusted pursuant to our 1-for-10
reverse stock split, unless otherwise noted.
Michael
D. Becker
Chief
Executive Officer and President
On
November 11, 2007 we entered into an employment agreement (the “Becker
Agreement”) with Michael D. Becker, our President and Chief Executive Officer.
Pursuant to the agreement, Mr. Becker’s employment with us is for a four year
term, commencing on November 21, 2007. Mr. Becker is entitled to receive an
annual base salary of $358,400. Additionally, the agreement provides that Mr.
Becker is eligible for one-time milestone-based cash bonus payments, as follows:
(i) $150,000 in the event that we receive gross proceeds equal to or in excess
of $10 million as a result of the sale of our securities in one or a series
of
related transactions; (ii) $125,000 upon such time that our market
capitalization exceeds $125 million for a period of fifteen consecutive trading
days, and the average trading volume of our common stock is at least 100,000
shares per trading day; (iii) $500,000 upon such time that our market
capitalization exceeds $250 million for a period of fifteen consecutive trading
days, and the average trading volume of our common stock is at least 200,000
shares per trading day; (iv) $1,000,000 upon such time that our market
capitalization exceeds $500 million for a period of fifteen consecutive trading
days, and the average trading volume of our common stock is at least 300,000
shares per trading day; and (v) $2,000,000 upon such time that our market
capitalization exceeds $1 billion for a period of fifteen consecutive trading
days, and the average trading volume of our common stock is at least 400,000
shares per trading day.
Pursuant
to the Becker Agreement, we also issued to Mr. Becker a ten-year option under
our 2003 Stock Option Plan, to purchase 501,334 shares of our common stock
at an
exercise price of $3.00 per share. The options vests in four equal annual
installments commencing on November 21, 2008. Additionally, pursuant to Mr.
Becker’s employment agreement, we issued 85,640 additional stock options
(referred to as the “Merger Option”) on November 21, 2007, at an exercise of
$3.00 per share. The merger options vest in four equal annual installments
commencing on November 21, 2008, however in addition to such vesting, the Merger
Option is only exercisable to the extent our shares which are held in escrow
in
connection with our acquisition of Greenwich Therapeutics, Inc. in October
2005,
are released. On December 4, 2007, 35% of the escrowed shares were released.
Therefore, 29,974 shares, representing 35% of the Merger Option, vest and are
exercisable as follows: 21,410 shares vest and are exercisable on November
21,
2008, and 8,564 shares vest and are exercisable on November 21,
2009.
Notwithstanding
the 4-year term of the Becker Agreement, either party has the right to terminate
the agreement and Mr. Becker’s employment sooner. In the event we terminate his
employment upon a “change of control” or for a reason other than for “cause”
or
Mr. Becker’s death or disability, or if Mr. Becker terminates his employment for
“good reason,” then we will continue pay to Mr. Becker his base salary and will
provide health insurance coverage for a period of 12 months. In addition, the
unvested portions of the Stock Options that are scheduled to vest on the next
anniversary date of Mr. Becker’s employment shall accelerate and be deemed
vested as of the termination date and shall remain exercisable for a period
of
90 days. However, to the extent any portion of the Merger Option has not become
exercisable because all or a portion of the Greenwich escrowed shares have
not
been released from escrow, then the Merger Option, or any such portion, will
be
forfeited. Notwithstanding the foregoing, if Mr. Becker’s employment is
terminated by us in connection with specified change of control transactions,
then all Stock Options shall accelerate and be deemed vested as of such
termination date. If we terminate Mr. Becker’s employment for “cause” or if Mr.
Becker terminates his employment for a reason other that “good reason,” then we
are only obligated to pay to Mr. Becker his accrued and unpaid base salary
through the date of termination. If Mr. Becker’s employment is terminated as a
result of his death or disability, then we will also pay to Mr. Becker or his
estate his annualized base salary for a period of 6 months and will provide
health insurance for a period of 12 months from such termination.
The
term “cause” under the Becker Agreement means the following conduct or actions
taken by Mr. Becker:
|
·
|
his
willful and repeated failure or refusal to perform his material duties
or
obligations;
|
|
·
|
any
willful, intentional or grossly negligent act having the effect of
injuring, in a material way (whether financial or otherwise), the
Company’s business or reputation;
|
|
·
|
willful
misconduct by in respect of his material duties or obligations;
|
|
·
|
his
indictment of any felony involving a crime of moral turpitude;
|
|
·
|
the
determination by the Company that Mr. Becker engaged in material
harassment or discrimination prohibited by law;
|
|
·
|
any
misappropriation or embezzlement of the Company’s property;
|
|
·
|
a
breach of the non-solicitation, non-competition, invention assignment
and
confidentiality provisions of the Becker Agreement; or
|
|
·
|
a
material breach of any other material provision of the Becker Agreement
that is not cured within 30 days after written notice thereof is
given by
the Company.
|
The
term
“change of control” under the Becker Agreement means any of the following: (A)
the direct or indirect acquisition by a person in one or a series of related
transactions of Company securities representing more than 50% of our combined
voting power; (B) a merger, consolidation, reorganization or share exchange
involving us, or the sale of all or substantially all of our assets, unless
the
beneficial owners of our securities immediately prior to such transaction
continue to hold more than 50% of the combined voting power of the
then-outstanding securities.
The
term
“good reason” means:
|
·
|
a
material reduction by the Company of Mr. Becker’s compensation or
benefits;
|
|
·
|
a
material reduction or change in Mr. Becker’s duties, responsibilities or
position;
|
|
·
|
a
material breach by the Company of any material term of the Becker
Agreement; or
|
|
·
|
a
relocation of the principal place of employment by more than 50 miles
without Mr. Becker’s consent.
|
The
Becker Agreement also provides for customary covenants that preclude Mr. Becker
from disclosing our confidential information, require him to assign certain
inventions to us, restrict his ability to compete with us during his employment
and for a 12-month period thereafter, and prohibit Mr. Becker from soliciting
Company employees to leave our employ during the 12-month period following
his
employment termination.
Edward
C. Bradley
Former
Chief Scientific and Medical Officer
On
February 1, 2007 we entered into an employment agreement with Edward C. Bradley,
M.D., as our Chief Scientific and Medical Officer. The agreement was for an
indefinite term beginning on February 1, 2007 and provided for an initial base
salary of $330,000, plus an annual target bonus of up to 20% of base salary
based upon his personal performance and an additional amount of up to 10% of
base salary based upon Company performance. Pursuant to the employment
agreement, Dr. Bradley received stock options to purchase 70,000 shares of
our
common stock. The options vest in three equal annual installments, commencing
in
February 2008 and will be exercisable at a price per share equal to $5.50.
The
employment agreement also entitled Dr. Bradley to certain severance benefits.
In
the event that we terminated Dr. Bradley’s employment without cause, then Dr.
Bradley was entitled to receive his then annualized base salary for a period
of
six months. If Dr. Bradley’s employment was terminated without cause, and within
a year of a change of control, then Dr. Bradley was entitled to receive his
then
annualized base salary for a period of one year, and he was entitled to receive
any bonuses he has earned at the time of his termination. For the fiscal year
ended December 31, 2007, Mr. Bradley was not entitled to receive any bonus
payout.
On
March
20, 2008, Dr. Bradley entered into an agreement with us to reduce his base
salary from $330,000 to $165,000. In addition, the agreement reduced Dr.
Bradley’s required number of hours of service to us. On April 11, 2008, Dr.
Bradley resigned from his part-time position with us. Pursuant to the terms
of
his employment agreement, stock options representing 23,333 shares of our common
stock vested on February 1, 2008, and the balance of the stock options were
forfeited. However, on April 15, 2008, we agreed to immediately vest an
additional 23,333 shares subject to Dr. Bradley's stock options, so that as
of
April 15, 2008, Dr. Bradley's right to purchase an aggregate of 46,666 shares
subject to his stock option is vested and exercisable. We also extended the
exercise period with respect to Dr. Bradley's options until December 31, 2008.
We have no other obligations to pay Dr. Bradley any further
compensation.
Brian
Lenz
Chief
Financial Officer and Treasurer
Base
Compensation.
We do
not have a formal employment agreement with Mr. Lenz, other than the severance
benefits agreement described below. However, Mr. Lenz’s current compensation
arrangement currently provides that he receives an annual base salary of
$185,000, plus
an annual target bonus of up to 20% of base salary based upon his personal
performance and an additional amount of up to 10% of base salary based upon
Company performance, and
he is
eligible to receive health care benefits. For the fiscal year 2006, Mr. Lenz
received an automobile allowance of $3,600, which was discontinued in
2007.
Bonus
Compensation. Mr.
Lenz
is also eligible to receive an annual cash bonus upon achievement of certain
performance criteria established by our Board each year. The following table
describes the criteria, the maximum amount for which Mr. Lenz was eligible
to
receive for 2007 for fully satisfying each criterion, and the amount he was
paid
for each such criterion for 2007:
2007
Criteria
|
|
Eligible Amount
|
|
Amount Awarded
|
|
Completion of
financings resulting in gross proceeds of a targeted
amount
|
|
$
|
11,100
|
|
$
|
0
|
|
Listing
of common stock on a national securities exchange
|
|
$
|
16,650
|
|
$
|
0
|
|
Company’s
initiation of 5 Phase II corporate sponsored clinical
trials
|
|
$
|
5,550
|
|
$
|
0
|
|
Chiral
Quest sale process completion
|
|
$
|
16,650
|
|
$
|
16,650
|
|
Qualitative
factors relating to leadership, teamwork, peer interaction, initiative
and
communication
|
|
$
|
5,550
|
|
$
|
0
|
|
Total
|
|
$
|
55,500
|
|
$
|
16,650
|
|
In
addition, in March 2007, we entered into a letter agreement with Mr. Lenz that
provided for additional compensation upon the event we sell our Chiral Quest
subsidiary. Specifically, we paid Mr. Lenz a cash payment equal to 1.1667%
or
$19,833 of the gross proceeds received by us in connection with a sale of Chiral
Quest.
In
addition to cash bonus compensation, Mr. Lenz also received a stock option
grant
in May 2007 relating to 10,000 shares of our common stock at an exercise price
of $5.50 per share. This option, which was issued under our 2003 Stock Option
Plan, vests in 3 annual installments commencing May 2008.
Severance,
Change of Control and Termination Provisions.
We
entered into a severance benefits agreement with Mr. Lenz in August 2006. The
agreement provides that, in the event we terminate Mr. Lenz’s employment within
one year following a “change of control” and such termination is either without
“cause,” or is a “constructive termination,” then (i) Mr. Lenz shall be entitled
to receive 12 months of his then annual base compensation, payable in
semi-monthly installments, (ii) any and all outstanding options to purchase
shares of our common stock granted to Mr. Lenz shall immediately vest and become
immediately exercisable (whether granted before or after the date of the
severance benefits agreement), and (iii) Mr. Lenz shall be entitled to
participate in our health care and insurance benefits program for a period
of 12
months thereafter. If Mr. Lenz’s employment is terminated at a time other than a
one-year period following a change of control and is without cause, then Mr.
Lenz shall be entitled to receive (A) one-half of his then annual compensation,
payable in semi-monthly installments over a period of six months and (B) our
health care and insurance benefits program over a period of six months
thereafter.
Under
the
severance benefits agreement, “change of control” has the meaning given that
term in our 2003 Stock Option Plan, where it is defined as the occurrence of
one
of the following events:
|
·
|
the
sale, lease, exchange or other transfer, directly or indirectly,
of
substantially all of the assets of the Company (in one transaction
or in a
series of related transactions) to a person or entity that is not
controlled by the Company;
|
|
·
|
the
approval by our shareholders of any plan or proposal for the liquidation
or dissolution of the Company;
|
|
·
|
any
person becomes after the effective date of the Plan the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of (i) 20% or more, but not 50% or more, of the combined voting power
of
our outstanding securities ordinarily having the right to vote at
elections of directors, unless the transaction resulting in such
ownership
has been approved in advance by the board members who continue as
directors, or (ii) 50% or more of the combined voting power of our
outstanding securities ordinarily having the right to vote at elections
of
directors (regardless of any approval by the continuing directors);
provided that a traditional institution or venture capital financing
transaction shall be excluded from this
definition;
|
|
·
|
a
merger or consolidation to which we are a party if our shareholders
immediately prior to effective date of such merger or consolidation
have
beneficially own, immediately following the effective date of such
merger
or consolidation, securities of the surviving corporation representing
(i)
50% or more, but less than 80%, of the combined voting power of the
surviving corporation’s then outstanding securities ordinarily having the
right to vote at elections of directors, unless such merger or
consolidation has been approved in advance by our continuing directors,
or
(ii) less than 50% of the combined voting power of the surviving
corporation’s then outstanding securities (regardless of any approval by
our continuing directors; or
|
|
·
|
after
the date our securities are first sold in a registered public offering,
our continuing directors cease for any reason to constitute at least
a
majority of the Board.
|
Under
Mr.
Lenz’s severance benefits agreement, “cause” means (i) the conviction of a
felony; (ii) the conviction of theft or embezzlement of our property, or the
commission of an act involving moral turpitude that materially and adversely
affects our reputation and business prospects; and (iii) Mr. Lenz’s failure to
substantially perform his material duties and responsibilities, provide we
first
send Mr. Lenz written notice of such failure and allow between 30 and 90 days
to
cure such non-performance.
Under
Mr.
Lenz’s severance benefits agreement, a “constructive termination” is deemed to
occur when he has been demoted or his duties have been materially reduced,
there
has been an adverse change in his annual base salary or benefits, or he has
been
subject to discrimination prohibited by federal or state law.
Daniel
Greenleaf
Former
Chief Executive Officer and President
On
November 14, 2007, we and Daniel Greenleaf, our former President and Chief
Executive Officer, entered into a Separation and Release Agreement (the
“Separation Agreement”). Pursuant to the Separation Agreement, the parties
mutually agreed that Mr. Greenleaf’s employment with us terminated as of
November 9, 2007, and that Mr. Greenleaf resigned from all positions as officer
and director. The Separation Agreement provides for the following compensation
to be paid to Mr. Greenleaf following his separation from us: (i) Mr. Greenleaf
will receive his annualized base salary of $360,000 through November 15, 2007;
(ii) Mr. Greenleaf will receive his annualized base salary of $360,000 for
a
period of 6 months commencing on or about May 10, 2008; (iii) Mr. Greenleaf
will
receive a lump sum payment of $70,000 payable on or before March 31, 2008;
and
(iv) we will reimburse Mr. Greenleaf for health insurance for a period of up
to
12 months. Under the Separation Agreement, the parties agreed to release each
other from certain legal claims, known or unknown, as of the date of the
agreement, and we also released Mr. Greenleaf from the covenant not to compete
contained in his employment agreement with us dated February 1,
2005.
Option
Grants.
Pursuant
to Mr. Greenleaf’s separation agreement, Mr. Greenleaf waived his right to any
stock options that have not vested as of the separation date. Therefore, of
the
total 273,106 options grants issued to Mr. Greenleaf during his employment,
Mr.
Greenleaf forfeited a total of 97,612, and the remaining 175,494 option grants
are exercisable within 12 months of the separation date.
Bonus
Compensation. Mr.
Greenleaf is also eligible to receive an annual cash bonus upon achievement
of
certain performance criteria established by our Board each year. The following
table describes the criteria, the maximum amount for which Mr. Greenleaf was
eligible to receive for 2007 for fully satisfying each criterion, and the amount
he was paid for each such criterion for 2007:
2007
Criteria
|
|
Eligible Amount
|
|
Amount Awarded
|
|
Completion of financings
resulting in gross proceeds of a targeted amount
|
|
$
|
40,000
|
|
$
|
0
|
|
Listing
of common stock on national securities exchange
|
|
$
|
50,000
|
|
$
|
0
|
|
Company’s
initiation of 5 Phase II corporate sponsored clinical
trials
|
|
$
|
30,000
|
|
$
|
0
|
|
Company’s
completion of enrollment of 3 Phase II clinical trials
|
|
$
|
20,000
|
|
$
|
0
|
|
Acquisition
of a compound as approved by the Board of Directors
|
|
$
|
30,000
|
|
$
|
30,000
|
|
Sale
of Chiral Quest
|
|
$
|
40,000
|
|
$
|
40,000
|
|
Acceptance
of NDA filing for review for Leishmaniasis
|
|
$
|
15,000
|
|
$
|
0
|
|
Qualitative
factors relating to leadership, teamwork, peer interaction, initiative
and
communication
|
|
$
|
25,000
|
|
$
|
0
|
|
Total
|
|
$
|
250,000
|
|
$
|
70,000
|
|
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information regarding each unexercised option held
by
each of our named executive officers as of December 31, 2007. All of the option
awards described in the following table were issued pursuant to our 2003 Stock
Option Plan.
Name
|
|
Number of
Securities
Underlying
Unexercised Options
Exercisable
|
|
Number of
Securities
Underlying
Unexercised Options
Unexercisable
|
|
Option
Exercise Price
|
|
Option
Expiration Date
|
|
Michael
D. Becker
|
|
|
–
|
|
|
501,334
|
(2)
|
$
|
3.00
|
|
|
11/21/2017
|
|
|
|
|
|
|
|
29,974
|
(2)
|
$
|
3.00
|
|
|
11/21/2017
|
|
Brian
Lenz
|
|
|
1,500
|
(3)
|
|
|
|
$
|
16.70
|
|
|
10/06/2013
|
|
|
|
|
2,500
|
(4) |
|
|
(4)
|
$
|
14.00
|
|
|
04/19/2014
|
|
|
|
|
4,000
|
(5) |
|
2,000
|
(5)
|
$
|
10.80
|
|
|
01/24/2015
|
|
|
|
|
6,667
|
(6) |
|
3,333
|
(6)
|
$
|
10.30
|
|
|
11/29/2015
|
|
|
|
|
3,333
|
(7) |
|
6,667
|
(7)
|
$
|
8.50
|
|
|
03/31/2016
|
|
|
|
|
|
(8)
|
|
10,000
|
(8)
|
$
|
5.50
|
|
|
05/11/2017
|
|
Edward
C. Bradley
|
|
|
|
|
|
70,000
|
(9)
|
$
|
5.50
|
|
|
02/01/2017
|
|
Daniel
Greenleaf
|
|
|
594,264
|
(10)
|
|
|
|
$
|
8.80
|
|
|
11/08/2008
|
|
|
|
|
963,386
|
(10) |
|
|
|
$
|
8.90
|
|
|
11/08/2008
|
|
|
|
|
197,290
|
(10) |
|
|
|
$
|
5.60
|
|
|