As of October 31, 2019, 26,949,905 shares of the common stock, par value $0.001, of the registrant were outstanding.
The Company still
maintains the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any
other regulatory agencies may restrict the Company's ability to conduct certain types of financing activities, or may affect the timing of and amounts it can raise by undertaking such
activities.
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as
a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company's current plans, which are subject to change,
management believes that the Company's existing cash and cash equivalents as of September 30, 2019 are sufficient to satisfy its operating cash needs for at least one year after the filing of
this Quarterly Report on Form 10-Q.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates
the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
The Company's future liquidity and capital funding requirements will depend on numerous factors, including:
-
its ability to raise additional funds to finance its operations;
-
its ability to maintain compliance with the listing requirements of The Nasdaq Capital Market ("Nasdaq");
-
the outcome, costs and timing of clinical trial results for the Company's current or future product candidates;
-
the extent and amount of any indemnification claims, including any made by Ferring International Center S.A. ("Ferring") under the asset purchase agreement with Ferring,
entered into on March 8, 2017, pursuant to which the Company sold to Ferring its ex-U.S. assets and rights related to products in development, intended for the topical treatment of erectile
dysfunction, which are known as Vitaros in certain countries outside of the United States;
-
potential litigation expenses;
-
the emergence and effect of competing or complementary products or product candidates;
-
its ability to maintain, expand and defend the scope of its intellectual property portfolio, including the amount and timing of any payments the Company may be required to make, or that it
may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
-
its ability to retain its current employees and the need and ability to hire additional management and scientific and medical personnel;
-
the terms and timing of any collaborative, licensing or other arrangements that it has or may establish;
-
the trading price of its common stock;
-
its ability to secure a development partner for the CVR Product Candidate (as defined below) in order to overcome deficiencies raised in the 2018 complete response letter issued by the
U.S. Food and Drug Administration (the "FDA") related to the CVR Product Candidate; and
-
its ability to increase the number of authorized shares outstanding to facilitate future financing events.
The Company will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity and/or the completion of a licensing or other
commercial transaction for one or more of the Company's product candidates. If the Company is unable to maintain sufficient financial resources, its business, financial condition and results of
operations will be materially and adversely affected. This could affect future development and business activities and potential future clinical studies and/or other future ventures. Failure to
obtain additional equity or debt financing will have a material, adverse impact on the Company's business operations. There can be no assurance that the Company will be able to obtain the
needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings will likely have a dilutive effect on the holdings of the Company's existing stockholders.
7
2. Significant Accounting Policies
Basis of presentation
The accompanying unaudited interim condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes
thereto as of and for the year ended December 31, 2018 included in the Company's Annual Report on Form 10-K ("Annual Report") filed with the SEC on March 28, 2019. The
accompanying financial statements have been prepared by the Company in accordance with U.S. GAAP for interim financial information and in accordance with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of
only normal, recurring adjustments, necessary to fairly state the Company's financial position, results of operations and cash flows. The December 31, 2018 condensed consolidated balance
sheet was derived from audited financial statements, but does not include all U.S. GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are not
necessarily indicative of results for the full year. The preparation of these unaudited condensed consolidated financial statements requires the Company to make estimates and judgments that
affect the amounts reported in the financial statements and the accompanying notes. The Company's actual results may differ from these estimates under different assumptions or
conditions.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. The most significant estimates in the
Company's financial statements relate to the valuation of warrants, valuation of convertible notes payable, valuation of common stock and the valuation of stock options. These estimates and
assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities and the recording of expenses that are not readily apparent from other sources. Actual results may differ materially and adversely
from these estimates. To the extent there are material differences between the estimates and actual results, the Company's future results of operations will be affected.
Fair Value Measurements
The Company follows the accounting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair
Value Measurements and Disclosures ("ASC 820"), for its fair value measurements of financial assets and liabilities measured at fair value on a recurring basis. Under this
accounting guidance, fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an
asset or a liability.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow
methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.
The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities
measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
The Company's warrant liabilities and convertible notes were classified within Level 3 of the fair value hierarchy because their fair values were estimated by utilizing valuation models and
significant unobservable inputs. The warrants and convertible notes were valued using a scenario-based discounted cash flow analysis. Two primary scenarios were considered and probability
weighted to arrive at the valuation conclusion for each convertible note. The first scenario considers the value impact of conversion at the stated discount to the issue price in a qualified
financing event, while the second scenario assumes the convertible notes are held to maturity.
8
The following tables present information about the Company's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy
utilized to determine such fair values. There were no transfers between fair value measurement levels during the nine months ended September 30, 2019 (in thousands):
|
|
|
Fair Value Measurements
|
|
|
|
as of September 30, 2019
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
Assets
|
|
|
|
Cash
|
|
$
|
15,315
|
|
$
|
-
|
|
$
|
-
|
|
$
|
15,315
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities
|
|
$
|
-
|
|
$
|
-
|
|
$
|
690
|
|
$
|
690
|
Fair Value Option
As permitted under ASC Topic 825, Financial Instruments, ("ASC 825"), the Company had elected the fair value option to account for its convertible notes. In accordance with
ASC 825, the Company records these convertible notes at fair value with changes in fair value recorded in the Statement of Operations. As a result of applying the fair value option, direct costs
and fees related to the convertible notes were expensed as incurred and were not deferred.
Stock-based compensation
The Company expenses stock-based compensation to employees, non-employees and board members over the requisite service period based on the estimated grant-date fair value
of the awards and forfeitures rates. The Company accounts for forfeitures as they occur. Stock-based awards with graded-vesting schedules are recognized on a straight-line basis over the
requisite service period for each separately vesting portion of the award. The Company estimates the fair value of stock option grants using the Black-Scholes option pricing model, and the
assumptions used in calculating the fair value of stock-based awards represent management's best estimates and involve inherent uncertainties and the application of management's judgment.
All stock-based compensation costs are recorded in general and administrative or research and development costs in the statements of operations based upon the underlying individual's role
at the Company.
Net Loss Per Share
Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period.
Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as convertible debt, warrants and stock options that would result in the issuance of
incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for
both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive.
The following potentially dilutive securities outstanding for the three and nine months ended September 30, 2019 and 2018 have been excluded from the computation of diluted weighted
average shares outstanding, as they would be anti-dilutive (in thousands):
|
|
|
Three and Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
Outstanding stock options
|
|
|
508
|
|
|
31
|
Outstanding warrants
|
|
|
3,662
|
|
|
-
|
Convertible notes
|
|
|
-
|
|
|
169
|
|
|
|
4,170
|
|
|
200
|
Amounts in the table reflect the common stock equivalents of the noted instruments.
9
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-02, Leases ("ASU 2016-02"). The new standard establishes a right-of-
use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified
as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December
15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company adopted ASU 2016-02 on January 1, 2019 and
the adoption of the standard did not have a material effect on its unaudited condensed consolidated financial statements and related disclosures.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820), Disclosure Framework-Changes to the Disclosure Requirements for Fair
Value Measurement ("ASU 2018-13"). The amendments in this ASU require certain existing disclosure requirements in Topic 820 to be modified or removed, and
certain new disclosure requirements to be added to the Topic. In addition, this ASU allows entities to exercise more discretion when considering fair value measurement
disclosures. ASU 2018-13 will be effective for the Company beginning January 1, 2020 with early adoption permitted. The Company is in the process of evaluating the
impact of ASU 2018-13 on its consolidated financial statements and related disclosures.
3. Common Stock Offerings
Securities Purchase Agreement
On August 23, 2019, the Company entered into the Securities Purchase Agreement with certain institutional investors, pursuant to which the Company agreed to issue and sell an
aggregate of 4,475,000 shares of common stock in a registered direct offering, resulting in total gross proceeds of approximately $6.7 million, before deducting the placement agents' fees and
other estimated offering expenses. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as
amended. The Company also agreed to issue to the investors unregistered warrants to purchase up to 2,237,500 shares of common stock in a concurrent private placement (the "August
2019 Warrants"). The August 2019 Warrants have an exercise price of $1.78 per share of common stock, will be exercisable six months from the date of issuance and will expire four
years following the date of issuance. The combined purchase price for one share and one warrant to purchase half of a share of common stock in the offerings was $1.50. The closing of the
offerings occurred on August 27, 2019. The Company also agreed, pursuant to the Securities Purchase Agreement, to file a registration statement on Form S-1 by November 21, 2019 to
provide for the resale of the shares of common stock issuable upon the exercise of the August 2019 Warrants (the "Warrant Shares"), and will be obligated to use commercially
reasonable efforts to keep such registration statement effective from the date the warrants initially become exercisable until the earlier of (i) the date on which the Warrant Shares may be sold
without registration pursuant to Rule 144 under the Securities Act during any 90 day period, and (ii) the date on which no purchaser owns any warrants or Warrant Shares. On August 23,
2019, the Company also entered into a Placement Agency Agreement (the "Placement Agency Agreement") with Roth Capital Partners, LLC ("Roth"), pursuant to which
Roth agreed to serve as the placement agent for the issuance and sale of the shares and the warrants, and the Company agreed to pay Roth an aggregate fee equal to 7.0% of the gross
proceeds received by the Company in the offerings. The Placement Agency Agreement includes indemnity and other customary provisions for transactions of this nature.
Equity Distribution Agreement
On June 17, 2019, the Company entered into the Equity Distribution Agreement with Piper Jaffray, as sales agent, pursuant to which the Company may offer and sell, from time to time,
through Piper Jaffray up to $50,000,000 in shares. Any shares offered and sold in the offering will be issued pursuant to the Company's shelf registration statement on Form S-3, the prospectus
supplement relating to the offering filed with the SEC on June 17, 2019 and any applicable additional prospectus supplements related to the offering that form a part of the registration
statement. The number of shares eligible for sale under the Equity Distribution Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3. Subject to the terms and
conditions of the Equity Distribution Agreement, Piper Jaffray will use its commercially reasonable efforts to sell the shares from time to time, based upon the Company's instructions. Under the
Equity Distribution Agreement, Piper Jaffray may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on Nasdaq or on any other existing trading market for the shares. Subject to the
Company's prior written consent, Piper Jaffray may also sell shares by any other method permitted by law including, but not limited to, privately negotiated transactions. The Company has no
obligation to sell any of the shares, and may at any time suspend offers under the Equity Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of all of the shares, or
(ii) the termination of the Equity Distribution Agreement according to its terms by either the Company or Piper Jaffray. The Company and Piper Jaffray may each terminate the Equity
Distribution Agreement at any time by giving advance written notice to the other party as required by the Equity Distribution Agreement.
10
Under the terms of the Equity Distribution Agreement,
Piper Jaffray will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Equity Distribution Agreement. The Company will also reimburse
Piper Jaffray for certain expenses incurred in connection with the Equity Distribution Agreement, and agreed to provide indemnification and contribution to Piper Jaffray with respect to certain
liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the three and nine months ended
September 30, 2019, the Company sold 1,197,676 shares for net proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement. On August 23, 2019, the Company
suspended its continuous offering under the Equity Distribution Agreement.
Pre-Merger Financing
On January 24, 2019, Seelos Corporation and Apricus closed a private placement transaction with certain accredited investors (the "Investors"), whereby, among other things,
Seelos Corporation issued to investors shares of the Company's common stock immediately prior to the Merger in a private placement transaction (the "Financing"), pursuant to the
Securities Purchase Agreement, made and entered into as of October 16, 2018, by and among Seelos Corporation, Apricus and the investors, as amended (the "Purchase
Agreement").
Pursuant to the Purchase Agreement, Seelos Corporation issued and sold to the Investors an aggregate of 2,374,672 shares of Seelos Corporation's common
stock as converted pursuant to the exchange ratio in the Merger into the right to receive 1,829,407 shares of common stock and (ii) issued warrants representing the right to acquire 1,463,519
shares of common stock at a price per share of $4.15, subject to adjustment as provided therein (the "Series A Warrants"), and additional warrants initially representing the right to
acquire no shares of common stock at a price per share of $0.001, subject to adjustment as provided therein (the "Series B Warrants" together with the Series A Warrants, the
"Investor Warrants"), for aggregate gross proceeds of $18.0 million, or $16.5 million net of financing fees. The terms of the Investor Warrants included certain provisions that could
result in adjustments to both the number of warrants issued and the exercise price of each warrant, which resulted in the warrants being classified as a liability upon issuance (see Note 7). The
Investor Warrants were recorded at fair value of $21.5 million upon issuance and given the liability exceed the proceeds received, a loss of $5.0 million was recognized.
On March 7, 2019, the Company entered into Amendment Agreements (collectively, the "Amendment Agreements") with each Investor amending: (i)
the Purchase Agreement, (ii) the Series A Warrants, and (iii) the Series B Warrants. The Amendment Agreements, among other things, (i) fixed the aggregate number of shares of common
stock issued and issuable pursuant to the Series B Warrants at 11,614,483 (which number includes shares of common stock issued pursuant to exercises of the Series B Warrants on or prior
to March 7, 2019), (ii) fixed the aggregate number of shares of common stock issued and issuable pursuant to the Series A Warrants at 3,629,023 (none of which were exercised as of March 7,
2019), (iii) reduced the duration of the period during which the Investors were limited in the number of shares of common stock subject to the Series B Warrants that Investors can exercise on a
daily basis, such that such period terminated on March 21, 2019, (iv) reduced the duration of the period during which the number of shares of common stock underlying the Series B Warrants
would adjust based on the volume-weighted average price of the common stock, such that the adjustment period terminated on March 7, 2019, (v) fixed the "Reset Price" based on
which the Series B Warrants adjusted on March 7, 2019 at $1.3389, (vi) amended the Purchase Agreement such that the date until which the Company was restricted from effecting certain
variable rate transactions would be March 20, 2019, (vii) amended the Series A Warrants so that any references therein to the Series B Warrants refer to the Series B Warrants, as amended or
restated from time to time, and (viii) made certain other technical, conforming and clarifying changes. The terms of the Investor Warrants continue to include
certain provisions that could result in a future adjustment to the exercise price of the Investor Warrants and accordingly, they continue to be classified as a liability after the Amendment
Agreements.
Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per
share as a result of the announcement of the issuance of the August 2019 Warrants pursuant to the Securities Purchase Agreement.
At September 30, 2019, 1.0 million Series A Warrants remain unexercised. All Series B Warrants were exercised during the nine months ended September 30, 2019.
11
4. License Agreements
Acquisition of License from Ligand Pharmaceuticals Incorporated
On September 21, 2016, the Company entered into a License Agreement (the "License Agreement") with Ligand Pharmaceuticals Incorporated ("Ligand"),
Neurogen Corporation and CyDex Pharmaceuticals, Inc. (collectively, the "Licensors"), pursuant to which, among other things, the Licensors granted to the Company an exclusive,
perpetual, irrevocable, worldwide, royalty-bearing, nontransferable right and license under (i) patents related to a product known as Aplindore, which is now known as SLS-006, acetaminophen
(as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active
pharmaceutical ingredient of which is acetaminophen), which is now known as SLS-012, an H3 receptor antagonist, which is now known as SLS-010, and either or both of the Licensors' two
proprietary CRTh2 antagonists, which are now known collectively as SLS-008 (collectively, the "Licensed Products"), and (ii) copyrights, trade secrets, moral rights and all other
intellectual and proprietary rights related thereto. The Company is obligated to use commercially reasonable efforts to (a) develop the Licensed Products, (b) obtain regulatory approval for the
Licensed Products in the United States, the European Union (either in its entirety or including at least one of France, Germany or, if at the time the United Kingdom is a member of the
European Union, the United Kingdom), the United Kingdom, if at the time the United Kingdom is not a member of the European Union, Japan or the People's Republic of China (each a
"Major Market"), and (c) commercialize the Licensed Products in each country where regulatory approval is obtained. The Company has the exclusive right and sole responsibility
and decision-making authority to research and develop any Licensed Products and to conduct all clinical trials and non-clinical studies the Company believes appropriate to obtain regulatory
approvals for commercialization of the Licensed Products. The Company also has the exclusive right and sole responsibility and decision-making authority to commercialize any of the Licensed
Products.
As consideration for the grant of the rights and licenses under the License Agreement, the Company paid to Ligand a nominal option fee. As further consideration for the grant of the rights
and licenses to the Company under the License Agreement, the Company was obligated to pay to Ligand an aggregate of $1.3 million within 30 days after the closing of the issuance and sale
by the Company of debt and/or equity securities for gross proceeds to the Company of at least $7.5 million. In connection with the closing of the Merger, the
Company issued 392,307 shares of common stock to settle this obligation. As further consideration for the grant of the rights and licenses to the Company by Ligand under the License
Agreement, the Company agreed to pay to Ligand certain one-time, non-refundable milestone payments upon the achievement of certain financing milestones, consisting of (i) the lesser of
$3.5 million or 10% of the net proceeds to the Company in the event of the Company's initial public offering or a financing transaction consummated in connection with a transaction as a result
of which the Company's business becomes owned or controlled by an existing issuer with a class of securities registered under the Exchange Act and immediately after such transaction, the
security holders of the Company as of immediately before such transaction own, as a result of such transaction, at least 35% of the equity securities or voting power of such issuer, or (ii) the
lesser of $3.5 million or 10% of the net proceeds to the Company in the event the Company is acquired. In connection with the closing of the Merger, the Company
issued 408,946 shares of common stock to settle this obligation. The Company recognized research and development expense totaling approximately $2.2 million during the nine months
ended September 30, 2019 for the common stock issued in connection with the Merger.
As further consideration for the grant of the rights and licenses under the License Agreement, the Company agreed to pay to Ligand certain one-time, non-refundable regulatory milestone
payments in connection with the Licensed Products, other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome, consisting of (i) $750,000 upon submission of an
application with the FDA or equivalent foreign body for a particular Licensed Product, (ii) $3.0 million upon FDA approval of an application for a particular Licensed Product, (iii) $1.125 million
upon regulatory approval in a Major Market for a particular Licensed Product, and (iv) $1.125 million upon regulatory approval in a second Major Market for a particular Licensed Product.
12
As further consideration for the grant of the rights and licenses under the License Agreement, the Company agreed to pay to Ligand certain one-time, non-refundable regulatory milestone
payments in connection with the Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome, consisting of (i) $100,000 upon submission of an application
with the FDA or equivalent foreign body for such a particular Licensed Product, (ii) $350,000 upon FDA approval of an application for such a particular Licensed Product, (iii) $125,000 upon
regulatory approval in a Major Market for such a particular Licensed Product, and (iv) $125,000 upon regulatory approval in a second Major Market for such a particular Licensed Product.
As further consideration for the grant of the rights and licenses under the License Agreement, the Company agreed to pay to Ligand certain one-time, non-refundable commercial milestone
payments in connection with the Licensed Products, consisting of (i) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon
Aplindore, (ii) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon an H3 receptor antagonist, (iii) $10.0 million upon the
achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may be modified for use in a product to be administered
by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), (iv) $10.0 million upon the
achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists, (v) $20.0 million upon the achievement of $2.0 billion of cumulative
worldwide net sales of Licensed Products based upon Aplindore, (vi) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon an
H3 receptor antagonist, (vii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may
be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is
acetaminophen), and (viii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists.
The Company will also pay to Ligand middle single-digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the indication of PD or
Restless Leg Syndrome in a country where such Licensed Products are covered under a licensed patent and a tiered incremental royalty in the upper single digit to lower double digit range on
aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are covered under
a licensed patent. Additionally, the Company will pay to Ligand low single digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the
indication of PD or Restless Leg Syndrome in a country where such Licensed Products are not covered under a licensed patent and a tiered incremental royalty in the lower single digit to
middle single digit range on aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed
Products are not covered under a licensed patent.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.
Acquisition of Assets from Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG ("Vyera")
On May 25, 2017, the Company entered into a non-binding term sheet to acquire TUR-002 (intranasal ketamine) ("TUR-002") from Vyera. During the year ended December 31,
2017, the Company recorded $400,000 in research and development expenses related to the non-refundable but creditable payments to continue to negotiate exclusively with Vyera while the
Company continued to identify financing terms with other parties to provide the necessary funding to purchase TUR-002.
On January 18, 2018, the Company and Vyera entered into an Amendment to the May 25, 2017 term sheet for TUR-002. The Company paid $100,000 as a non-refundable but creditable
payment to continue to negotiate exclusively with Vyera to purchase TUR-002.
On March 6, 2018, the Company entered into an Asset Purchase Agreement with Vyera, as amended by an amendment thereto entered into on May 18, 2018 and an amendment thereto
entered into on December 31, 2018 (as amended, the "Vyera Agreement"), pursuant to which the Company agreed to acquire the assets (the "Vyera Assets") and
liabilities (the "Vyera Assumed Liabilities"), of Vyera related to a product candidate known as TUR-002 (intranasal ketamine), which is now known as SLS-002. The Company is
obligated to use commercially reasonable efforts to seek regulatory approval in the United States for and commercialize SLS-002. The Company agreed that if it receives regulatory approval to
commence a Phase 3 clinical trial for SLS-002 and no third party has alleged any claim of conflict, infringement, invalidity or other violation of any rights of others with regard to the Vyera
Assets, then the Company must commence a Phase 3 clinical trial for SLS-002 by June 30, 2020 (the "Phase III Obligation"), and if the Company failed to do so, the Vyera
Agreement would terminate immediately and become null and void and all of the Vyera Assets and the Vyera Assumed Liabilities would automatically be returned to Vyera. As partial
consideration for the Vyera Assets, the Company agreed to make a non-refundable milestone payment of $3.5 million upon dosing of the first patient in a Phase III clinical trial for SLS-002 (the
"Dosing Milestone").
In the event that the Company sells, directly or indirectly, all or substantially all of the Vyera Assets to a third party, then the Company must pay Vyera an amount equal to 4% of the net
proceeds actually received by the Company as an upfront payment in such sale.
13
As consideration for the Vyera Assets, the Company paid to Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera Assets, upon public announcement
of the entry by Apricus and Seelos Corporation into the Merger Agreement, the Company paid to Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera
Assets, the Company issued to Vyera 191,529 shares of common stock and paid Vyera a non-refundable cash payment of $1,000,000. The Company agreed to pay to Vyera certain one-time,
non-refundable milestone payments consisting of (i) $3.5 million upon dosing of the first patient in a Phase 3 clinical trial for SLS-002, (ii) $10.0 million upon approval by the FDA of a new drug
application (an "NDA"), with respect to SLS-002, (iii) $5.0 million upon approval by the European Medicines Agency (the "EMA") of the foreign equivalent to an NDA with
respect to SLS-002 in a Major Market, (iv) $2.5 million upon approval by the EMA of the foreign equivalent to an NDA with respect to SLS-002 in a second Major Market, (v) $5.0 million upon
the achievement of $250.0 million in net sales of SLS-002, (vi) $10.0 million upon the achievement of $500.0 million in net sales of SLS-002, (vii) $15.0 million upon the achievement of $1.0
billion in net sales of SLS-002, (viii) $20.0 million upon the achievement of $1.5 billion in net sales of SLS-002, and (ix) $25.0 million upon the achievement of $2.0 billion in net sales of
SLS-002. The Company will also pay to Vyera a royalty percentage in the mid-teens on aggregate annual net sales of SLS-002. Also see Note 11.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.
Acquisition of License from Stuart Weg, MD
On August 29, 2019, the Company entered into an amended and restated exclusive license agreement with Stuart Weg, M.D.(the "Weg License Agreement"), pursuant
to which the Company was granted an exclusive worldwide license to certain intellectual property and regulatory materials related to SLS-002. Under the terms of the Weg License Agreement,
the Company paid an upfront license fee of $75,000 upon execution of the agreement. The Company agreed to pay additional consideration to Dr. Weg as follows: (i) $0.1 million on January 2,
2020, (ii) $0.125 million on January 2, 2021, and (iii) in the event the FDA has not approved an NDA for a product containing ketamine in any dosage on or before December 31, 2021, $0.2
million on January 2, 2022. As further consideration, the Company agreed to pay Dr. Weg certain milestone payments consisting of (i) $0.1 million and shares of common stock equal to $0.15
million divided by the closing sales price of the Company's common stock upon the issuance of the first patent directed to an anxiety indication, (ii) $0.5 million after the locking of the database
and unblinding the data for the statistically significant readout of a Phase III trial of an intranasal racemic ketamine product that has been conducted for the submission of an NDA or the foreign
equivalent to an NDA in a Major Market (the "Milestone Product"), (iii) $3.0 million upon FDA approval of an NDA for the Milestone Product, (iv) $2.0 million upon regulatory approval
by the EMA for the Milestone Product, (v) $1.5 million upon regulatory approval in Japan for the Milestone Product; provided, however, that the maximum amount to be paid by the Company
under milestones (i)-(v) will be $6.6 million. The Company will also pay to Dr. Weg a royalty percentage equal to 2.25% on the sale of each product containing ketamine in any dosage.
Acquisition of Assets from Bioblast Pharma Ltd. ("Bioblast")
On February 15, 2019, the Company entered into an Asset Purchase Agreement (the "Bioblast Asset Purchase Agreement") with Bioblast. The Company acquired all of the
assets of Bioblast relating to a therapeutic platform known as Trehalose (the "Bioblast Asset Purchase"). The Company paid to Bioblast $1.5 million in cash, and the Company
agreed to pay to Bioblast an additional $2.0 million within one-year of the closing of the Bioblast Asset Purchase. Accordingly, the Company recognized a $3.5 million charge to research and
development expense during the nine months ended September 30, 2019. The Company agreed to pay additional consideration to Bioblast upon the achievement of certain milestones in the
future, as follows: (i) within 15 days following the completion of the Company's first Phase 2(b) clinical trial of Trehalose satisfying certain criteria, the Company will pay to Bioblast $8.5 million;
and (ii) within 15 days following the approval for commercialization by the FDA or the Health Products and Food Branch of Health Canada of the first NDA or New Drug Submission,
respectively, of Trehalose filed by the Company or its affiliates, the Company will pay to Bioblast $8.5 million. In addition, the Company agreed to pay Bioblast a cash royalty equal to 1% of the
net sales of Trehalose. Under the terms of the Bioblast Asset Purchase, the Company assumed a collaborative agreement with Team Sanfilippo Foundation ("TSF"), a nonprofit
medical research foundation founded by parents of children with Sanfilippo syndrome. TSF, upon approval by the FDA, planned to begin an open label, Phase 2(b) clinical trial in up to 20
patients with Sanfilippo syndrome, which is now known under the study name SLS-005. The Company will provide the clinical supply of Trehalose. The terms of the Bioblast Asset Purchase
Agreement entitle the Company access to all clinical data from this trial. On July 15, 2019, TSF and the Company amended the agreement whereby the Company agreed to assume
responsibility for the Phase 2(b)/3 clinical trial and TSF agreed to provide a grant of up to $1.5 million towards the funding of the trial.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.
14
Acquisition of License from The Regents of the University of California
On March 7, 2019, the Company entered into an exclusive license agreement with The Regents of the University of California ("The UC Regents") for intellectual property
owned by The UC Regents
pertaining to a technology that was created by researchers at the University of California, Los Angeles (UCLA). Such technology relates to a family of rationally-designed peptide
inhibitors that target the aggregation of alpha-synuclein (α-synuclein). The Company plans to study this initial approach in PD and will further evaluate the
potential clinical approach in other disorders affecting the central nervous system ("CNS"). This program is now known as SLS-007. Upon entry into the license agreement with the
UC Regents, the Company paid to The UC Regents $0.1 million and recognized a $0.1 million charge to research and development expense during the nine months ended September 30,
2019. The Company agreed to pay additional consideration upon the achievement of certain milestones in the future, as follows: (i) within 90 days following the completion of dosing of the first
patient in a Phase 1 clinical trial, the Company will pay $50,000; (ii) within 90 days following dosing of the first patient in a Phase 2 clinical trial, the Company will pay $0.1 million; (iii) within 90
days following dosing of the first patient in a Phase 3 clinical trial, the Company will pay $0.3 million; (iv) within 90 days following the first
commercial sales in the U.S., the Company will pay $1.0 million; (v) within 90 days following the first commercial sales in any European market, the Company will pay
$1.0.million; and (vi) within 90 days following $250 million in cumulative worldwide net sales of a licensed product, the Company will pay $2.5 million. The Company
is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the Company fails to achieve certain milestones within a specified timeframe, The UC Regents
may terminate the agreement or reduce the Company's license to a nonexclusive license.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.
Acquisition of License from Duke University
On June 27, 2019, the Company entered into an exclusive license agreement with Duke University pursuant to which the Company was granted an exclusive license to a gene therapy
program targeting the regulation of the SNCA gene, which encodes alpha-synuclein expression. The Company plans to study this initial approach in PD and will further evaluate the potential
clinical approach in other disorders affecting the CNS. This program is now known as SLS-004. The Company paid to Duke University $0.1 million and recognized $0.1 million charge to
research and development expense during the nine months ended September 30, 2019. The Company agreed to pay additional consideration to Duke University upon the achievement of
certain milestones in the future, as follows: (i) within 30 days following filing of an IND following the completion of preclinical studies including comprehensive validation of the platform, the
Company will pay $0.1 million; (ii) within 30 days following dosing of the first patient in a Phase 1 clinical trial, the Company will pay $0.2 million; (iii) within 30 days following dosing of the first
patient in a Phase 2 clinical trial, the Company will pay $0.5 million; (iv) within 30 days following dosing of the first patient in a Phase 3 clinical trial, the Company will pay $1.0 million; and (v)
within 30 days following an NDA approval, the Company will pay $2.0 million. The Company is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the
Company fails to achieve certain milestones within a specified timeframe, Duke University may terminate the agreement.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2019.
5. Acquisition of Apricus
On January 24, 2019, the Company completed the acquisition of Apricus in accordance with the terms of the Merger Agreement.
The Merger was accounted for as a reverse recapitalization under U.S. GAAP because the primary assets of Apricus were nominal at the close of the Merger. Seelos was determined to be
the accounting acquirer based upon the terms of the Merger and other factors, including: (i) Seelos stockholders and other persons holding securities convertible, exercisable or exchangeable
directly or indirectly for Seelos common stock owned the majority of the Company immediately following the effective time of the Merger, (ii) Seelos holds the majority (four of five) of board
seats of the combined company, and (iii) Seelos' management holds all key positions in the management of the combined company.
Upon the completion of the Merger, Seelos acquired no tangible assets and assumed no employees or operation from Apricus. Additionally, Apricus'
intellectual property was considered to have no value. The remaining Apricus liabilities had a fair value of approximately $300 thousand.
15
In connection with the Merger, Seelos entered into a Contingent Value Rights Agreement (the "CVR Agreement"). Pursuant to the CVR Agreement, Apricus stockholders
received one contingent value right ("CVR") for each share of Apricus common stock held of record immediately prior to the closing of the Merger. Each CVR represents the right to
receive payments based on Apricus' U.S. assets related to products in development, intended for the topical treatment of erectile dysfunction, which are known as Vitaros in certain countries
outside of the United States (the "CVR Product Candidate"). In particular, CVR holders will be entitled to receive 90% of any cash payments (or the fair market value of any non-
cash payments) exceeding $500,000 received, during a period of ten years from the closing of the Merger, based on the sale or out-licensing of Apricus' CVR Product Candidate intangible
asset, including any milestone payments (the "Contingent Payments"), less reasonable transaction expenses. Seelos is entitled to retain the first $500,000 and 10% of any
Contingent Payments. Seelos assigned no value to the CVR Product Candidate intangible asset as of September 30, 2019 or the CVR in the acquisition accounting.
6. Convertible Notes
From May 2017 to October 2018, the Company entered into convertible note agreements with investors. The aggregate principal amount of the Notes was $2.3 million which were due no
later than April 30, 2019 with simple interest at the rate of 8% per annum. The Notes automatically converted, upon the issuance of preferred stock of the Company for capital-raising purposes
occurring on or prior to the Notes' maturity date resulting in gross proceeds in excess of a specific amount, into shares of common stock of the Company by dividing the then-outstanding
balance of each convertible note by 80% or 90%, depending on the terms for each note, of the lowest purchase price per share paid, or $9.70 to $10.91 per share, respectively, by another
investor in the qualifying financing, which condition was satisfied by the Pre-Merger Financing.
The Notes are carried at fair value. The Company recognized an adjustment relating to changes in the Notes fair value of $0 and $57 thousand during the three
months ended September 30, 2019 and 2018, respectively, and $109 thousand and $2 thousand during the nine months ended September 30, 2019 and 2018, respectively,
In connection with the closing of the Merger, the Notes plus unpaid interest were converted into 172,295 shares of common stock at a price of $9.70 or $10.91 per share.
7. Stockholders' Equity
Preferred Stock
The Company is authorized to issue 10.0 million shares of preferred stock, par value $0.001. No shares of preferred stock were outstanding as of September 30, 2019 or December 31,
2018.
Common Stock
The Company has authorized 120,000,000 shares of common stock as of September 30, 2019 and had authorized 60,000,000 shares of common stock as of December 31, 2018. Each
share of common stock is entitled to one voting right. Common stock owners are entitled to dividends when funds are legally available and declared by the Board
of Directors.
Warrants
August 2019 Warrants
The August 2019 Warrants are exercisable for 2,237,500 shares of common stock at an exercise price per share equal to $1.78. The August 2019 Warrants are exercisable beginning six
months after the date of issuance and have a term of four years from the date of issuance.
As of September 30, 2019, 2.2 million August 2019 Warrants remain outstanding at an exercise price of $1.78 per share.
Series A Warrants
The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted to 2,640,128 shares of the
common stock at an exercise price per share equal to $2.3005 on February 27, 2019, which was further adjusted to 3,629,023 shares of common stock at an exercise price per share equal to
$1.6736 on March 7, 2019, in each case essentially due to trading at a lower price, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the
exercise price of the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of the August 2019 Warrants
pursuant to the Securities Purchase Agreement. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance.
16
During the three and nine months ended September 30, 2019, 0 and 2.6 million, respectively, Series A Warrants were exercised for approximately $0 and $4.4 million, respectively. As of
September 30, 2019, 1.0 million Series A Warrants remain outstanding at an exercise price of $0.9267 per share.
Series B Warrants
The Series B Warrants were initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of common stock on February 27, 2019 and which was further
adjusted to 11,614,483 shares of common stock on March 7, 2019, in each case essentially due to trading at a lower price, pursuant to the terms thereof. The Series B Warrants had an
exercise price of $0.001, were immediately exercisable upon issuance and provided for an expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein),
and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable
thereunder.
During the nine months ended September 30, 2019, 11.6 million Series B Warrants were exercised for approximately $11,614. As of September 30, 2019, no Series B Warrants remain
outstanding and the Series B Warrants are therefore no longer subject to any further changes in warrants or exercise price.
A summary of warrant activity during the nine months ended September 30, 2019 is as follows (in thousands):
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Contractual Life
|
Outstanding at December 31, 2018
|
|
|
-
|
|
$
|
-
|
|
|
-
|
Assumed in merger
|
|
|
436
|
|
$
|
20.59
|
|
|
3.7
|
Issued
|
|
|
17,481
|
|
$
|
0.42
|
|
|
4.7
|
Exercised
|
|
|
(14,255)
|
|
$
|
0.31
|
|
|
|
Cancelled
|
|
|
-
|
|
$
|
-
|
|
|
|
Outstanding as of September 30, 2019
|
|
|
3,662
|
|
$
|
3.79
|
|
|
4.0
|
Exercisable as of September 30, 2019
|
|
|
1,425
|
|
$
|
6.95
|
|
|
4.1
|
The August 2019 Warrants, the Series A Warrants and the Series B Warrants were each recognized as a liability at their fair value upon issuance. The warrant
liability is remeasured to the then fair value prior to their exercise or at period end for warrants that are un-exercised and the gain or loss recognized in earnings during the period.
8. Stock-based Compensation
The Company has a 2012 Stock Long Term Incentive Plan (the "2012 Plan"), which provides for the issuance of incentive and non-incentive stock options, restricted and
unrestricted stock awards, stock unit awards and stock appreciation rights. Options and restricted stock units granted generally vest over a period of one to four years and have a maximum
term of ten years from the date of grant. As of September 30, 2019, an aggregate of 373,798 shares of common stock were authorized under the Apricus 2012 Plan, of which no shares of
common stock were available for future grants. Upon completion of the Merger, the Company assumed the 2016 Equity Incentive Plan (the "2016 Plan") and awards outstanding
under the 2016 Plan became awards for common stock. Effective as of the Merger, no further awards may be issued under the 2016 Plan.
On July 28, 2019, the Compensation Committee of the Board of Directors (the "Compensation Committee") of the Company adopted the Seelos Therapeutics, Inc. 2019
Inducement Plan (the "2019 Inducement Plan"), which became effective on August 12, 2019. The 2019 Inducement Plan is substantially similar to the 2016 Plan. The 2019
Inducement Plan provides for the grant of equity-based awards in the form of stock options, stock appreciation rights, restricted stock, unrestricted stock, stock units, including restricted stock
units, performance units and cash awards, solely to prospective employees of the Company or an affiliate of the Company provided that certain criteria are met. Awards under the 2019
Inducement Plan may only be granted to an individual, as a material inducement to such individual to enter into employment with the Company, who (i) has not previously been an employee or
director of the Company or (ii) is rehired following a bona fide period of non-employment with the Company. The maximum number of shares available for grant under the 2019 Inducement
Plan is 1,000,000 shares of the Company's common stock. The 2019 Inducement Plan is administered by the Compensation Committee and expires on August 12, 2029.
17
Stock options
During the nine months ended September 30, 2019, the Company granted 341,035 incentive stock options to employees with a weighted average exercise price per share of $2.20 and a
10-year term, subject to the terms and conditions of the 2012 Plan above. The stock options are subject to time vesting requirements. The stock options granted to employees vest 25% on the
first anniversary of the grant and monthly thereafter over the next three years.
During the nine months ended September 30, 2019, the Company also granted 136,000 non-qualified stock options to non-employee directors with a weighted average exercise price per
share of $2.33 and a 10-year term, subject to the terms and conditions of the 2012 Plan above. 72,000 of the stock options granted to non-employee directors vest 1/3rd on the
first anniversary of the grant and monthly thereafter over the next two years. 64,000 of the stock options granted to non-employee directors vest monthly over the 12 months following the
grant.
The fair value of stock option grants are estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked
company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. The
expected term of stock options granted is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for
time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to
pay any cash dividends in the foreseeable future.
During the nine months ended September 30, 2019, no stock options were exercised or forfeited.
The following assumptions were used in determining the fair value of the stock options granted during the nine months ended September 30, 2019:
|
|
|
Nine Months Ended
|
|
|
|
|
September 30, 2019
|
|
Risk-free interest rate
|
|
|
1.9%-2.6%
|
|
Volatility
|
|
|
109%-113%
|
|
Dividend yield
|
|
|
-
|
%
|
Expected term
|
|
|
5.04-6.97
|
|
Weighted average fair value
|
|
$
|
1.77
|
|
A summary of stock option activity during the nine months ended September 30, 2019 is as follows (in thousands):
|
|
|
|
|
|
Weighted
|
|
Weighted-
|
|
|
Total
|
|
|
|
|
|
|
Average
|
|
Average Remaining
|
|
|
Aggregate
|
|
|
|
Stock
|
|
|
Exercise
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
Life (in years)
|
|
|
Value
|
Outstanding as of December 31, 2018
|
|
|
31
|
|
$
|
0.65
|
|
7.7
|
|
$
|
|
Granted
|
|
|
477
|
|
|
2.24
|
|
9.5
|
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
-
|
|
-
|
|
|
|
Outstanding as of September 30, 2019
|
|
|
508
|
|
$
|
2.14
|
|
9.4
|
|
$
|
8
|
Vested and expected to vest as of September 30, 2019
|
|
|
55
|
|
$
|
1.39
|
|
8.1
|
|
$
|
8
|
Exercisable as of September 30, 2019
|
|
|
55
|
|
$
|
1.39
|
|
8.1
|
|
$
|
8
|
The Company recorded $133,000 and $315,000 in stock-based compensation expense for the three and nine months ended September 30, 2019, respectively and $3,000 and $34,000 in stock-based
compensation expense for the three and nine months ended September 30, 2018, respectively.
18
9. Related Party Transactions
IRRAS AB ("IRRAS") is a commercial stage medical technology company of which a former director of the Company is also the President, Chief
Executive Officer and director. In January 2018, the Company and IRRAS entered into a Sublease, pursuant to which the Company subleased to IRRAS excess capacity in its corporate
headquarters. The sublease had a term of two years. On October 30, 2018, the Company and IRRAS entered into an amended and restated sublease, commencing January 1, 2019, pursuant
to which the Company agreed to sublease to IRRAS the remainder of its San Diego, California location (the "IRRAS Restated Sublease"), which satisfied a closing condition related
to the Merger. The IRRAS Restated Sublease has a term of one year and provides for aggregate payments due to the Company of approximately $0.4 million, which approximates fair
value.
10. Commitments and Contingencies
Leases
In March 2019, the Company entered into a nine-month office space rental agreement for its headquarters in New York, New York expiring November 2019. The rental agreement
contains a base rent of approximately $8,000 per month.
In December 2011, Apricus entered into a five-year lease agreement for its original headquarters in San Diego, California expiring December 31, 2016. In December 2015, Apricus
amended the lease agreement to extend the term through January 31, 2020. The Company has an option to extend the lease an additional three years. The original lease term contained a
base rent of approximately $24,000 per month with 3% annual escalations, plus a supplemental real estate tax and operating expense charge to be determined annually.
In 2018, Apricus subleased excess capacity in its San Diego location to a subtenant under a non-cancellable lease. The sublease had a term of two years and aggregate payments due to
Apricus of approximately $0.3 million. On October 30, 2018, Apricus amended and restated its sublease, commencing January 1, 2019, pursuant to which Apricus agreed to sublease the
remainder of its San Diego location, which satisfied a closing condition related to the Merger. The amended and restated sublease has a term of one year and provides for aggregate payments
due to the Company of approximately $0.4 million, which approximate fair value.
Litigation
As of September 30, 2019, there was no material litigation against the Company.
11. Subsequent Event
On October 15, 2019, the Company and Vyera entered into an amendment (the "Amendment") to the Vyera Agreement. Pursuant to the Amendment, the Company remains
obligated to use its commercially reasonable efforts to seek regulatory approval in the United States for and commercialize SLS-002. However, the Amendment eliminates the Phase III
Obligation. In addition, in replacement of the Company's obligation to pay the Dosing Milestone, the Company agreed pursuant to the Amendment to (i) issue Vyera in January 2020 that
number of registered shares of the Company's common stock equal to $2,250,000 divided by the 30-day volume weighted average price of the common stock calculated prior to such issuance
date, provided that the Company may elect, in its sole discretion, to pay Vyera cash (in whole or in part) in lieu of any shares of the Company's common stock and (ii) make cash
payments to Vyera in the amounts of $750,000, $750,000, $1.0 million and $1.0 million in October 2019, early January 2020, early April 2020 and early July 2020, respectively (each, a
"Payment Obligation"). In event the Company fails to timely meet a Payment Obligation (subject to a cure period), Vyera has the right to require that all of the Vyera Assets and the
Vyera Assumed Liabilities be returned to Vyera.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosures Regarding Forward-Looking Statements
The following should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report as well as in
conjunction with the Risk Factors section and in our Annual Report on Form 10- K for the year ended December 31, 2018 as filed with the United States Securities and Exchange Commission
("SEC") on March 28, 2019. This report and our Form 10-K include forward-looking statements made based on current management expectations pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, as amended.
This report includes "forward-looking statements" within the meaning of Section 21E of the Exchange Act. Those statements include statements regarding the intent,
belief or current expectations of Seelos Therapeutics, Inc. and its subsidiaries ("we," "us," "our," the "Company" or "Seelos") and our
management team. Any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those
projected in the forward-looking statements. These risks and uncertainties include but are not limited to those risks and uncertainties set forth in Item 1A of this Report. In light of
the significant risks and uncertainties inherent in the forward-looking statements included in this Report, the inclusion of such statements should not be regarded as a representation by us or
any other person that our objectives and plans will be achieved. Further, these forward-looking statements reflect our view only as of the date of this report. Except as required by law, we
undertake no obligations to update any forward-looking statements and we disclaim any intent to update forward-looking statements after the date of this report to reflect subsequent
developments. Accordingly, you should also carefully consider the factors set forth in other reports or documents that we file from time to time with the SEC.
We have common law trademark rights in the unregistered marks "Seelos Therapeutics, Inc.," "Seelos," and the Seelos logo in certain jurisdictions. Vitaros is a
registered trademark of Ferring International Center S.A. ("Ferring") in certain countries outside of the United States. Solely for convenience, trademarks and tradenames referred to
in this Quarterly Report on Form 10-Q appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will
not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.
Overview
We are a clinical-stage biopharmaceutical company focused on developing novel technologies and therapeutics for the treatment of central nervous system, respiratory and other disorders.
We plan on developing our clinical and regulatory strategy with our internal research and development team with a view toward prioritizing market introduction as quickly as possible.
Our lead programs following the completion of the merger are SLS-002 for the potential treatment of suicidality in post-traumatic stress disorder, and in major depressive disorder, SLS-005 for
Sanfilippo syndrome and SLS-006 for the potential treatment of Parkinson's Disease ("PD"). Additionally, we are developing several preclinical programs, most of which have well-defined
mechanisms of action, including: SLS-004, licensed from Duke University, and SLS-007, licensed from The Regents of the University of California, for the potential treatment of PD,
SLS-008 targeted at chronic inflammation in asthma and orphan indications such as pediatric esophagitis, SLS-010, in narcolepsy and related disorders, and SLS-012, an injectable therapy for
post-operative pain management.
Merger with Apricus Biosciences, Inc.
On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus") completed a business combination with Seelos Therapeutics, Inc., a Delaware
corporation ("Seelos"), in accordance with the terms of the Agreement and Plan of Merger Reorganization (the "Merger Agreement") entered into on July 30, 2018.
Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into Seelos, with Seelos (renamed as "Seelos Corporation") continuing as a wholly-owned subsidiary
of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").
All share information has been retroactively restated to reflect the issuance of stock to Seelos' pre-Merger stockholders by Apricus in the Merger.
20
We intend to become a leading biopharmaceutical company focused on neurological and psychiatric disorders, including orphan indications. Our business strategy includes:
-
Advancing SLS-002 in suicidality in PTSD and in major depressive disorder;
-
Advancing SLS-004 in PD;
-
Advancing SLS-005 in Sanfilippo syndrome;
-
Advancing SLS-007 in PD as a monotherapy
-
Filing an IND for SLS-008 in pediatric esophagitis and another undisclosed indication;
-
Forming strategic collaborations in the European Union and Asian markets; and
-
Acquiring synergistic assets in the central nervous system therapy space through licensing and partnerships.
Pre-Merger Financing
On October 16, 2018, we entered into a Securities Purchase Agreement by and among us, Apricus and the investors listed on the Schedule of Buyers attached thereto (the
"Buyers"), as amended (the "Pre-Merger SPA"). Pursuant to the Pre-Merger SPA, among other things, we issued to the Buyers (i) an aggregate of 1,829,406
shares of our common stock and (ii) two series warrants to purchase shares of common stock (the "Series A Warrants" and the "Series B Warrants" and together, the
"Pre-Merger Warrants") for an aggregate purchase price of approximately $18.0 million, or $16.5 million net of financing fees. The Pre-Merger Warrants were recorded at fair value
of $21.5 million upon issuance and given the liability exceed the proceeds received, a loss of $5.0 million was recognized.
We issued the Pre-Merger Warrants on January 31, 2019 and on February 14, 2019, we registered the resale of the shares of common stock underlying the Pre-Merger Warrants as
required by the Registration Rights Agreement that we entered into on October 16, 2018 in connection with the Pre-Merger SPA.
The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted to 2,640,128 shares of common
stock at an exercise price per share equal to $2.3005 on February 27, 2019, which was further adjusted to 3,629,023 shares of common stock at an exercise price per share equal to $1.6736
on March 7, 2019, in each case, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of the Series A Warrants
automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of warrants pursuant to a Securities Purchase Agreement, dated August
23, 2019. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series B Warrants were initially exercisable for no
shares of common stock, which was adjusted to 7,951,090 shares of our common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of common stock on March
7, 2019, in each case, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and provided for an expiration date
of the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any
limitation on exercise contained therein) and no shares remain issuable thereunder.
At September 30, 2019, 1.0 million Series A Warrants remain unexercised. As of September 30, 2019, no Series B Warrants remain outstanding.
Liquidity, Capital Resources and Financial Condition
Liquidity
We have no revenues, other than non-recurring grant revenue related to our agreement with Team Sanfilippo Foundation ("TSF"), incurred operating losses since inception, and
expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2019, we had $15.3 million in cash and an
accumulated deficit of $45.4 million.
On August 23, 2019, we entered into a Securities Purchase Agreement with certain institutional investors (the "Securities Purchase Agreement"), pursuant to which we agreed
to issue and sell an aggregate of 4,475,000 shares of common stock, resulting in total gross proceeds of approximately $6.7 million, before deducting the placement agents' fees and other
estimated offering expenses. The shares were offered by us pursuant to our shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (the
"SEC") on November 2, 2017, as amended (see Note 3). We also agreed to issue to the investors unregistered warrants to purchase up to 2,237,500 shares of common stock in a
concurrent private placement (the "August 2019 Warrants"). The August 2019 Warrants have an exercise price of $1.78 per share of common stock, will be exercisable six months
from the date of issuance and will expire four years following the date of issuance. The combined purchase price for one share and one warrant to purchase half of a share of common stock in
the offerings was $1.50.
21
On June 17, 2019, we entered into an Equity Distribution Agreement (the "Equity Distribution Agreement") with Piper Jaffray & Co., as sales agent ("Piper
Jaffray"), pursuant to which we may offer and sell, from time to time, through Piper Jaffray up to $50,000,000 in shares of our common stock. Any shares offered and sold in the offering
will be issued pursuant to our registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended. Under the Equity Distribution Agreement, Piper Jaffray may sell the
shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the
"Securities Act"), including sales made directly on the Nasdaq Capital Market ("Nasdaq") or on any other existing trading market for the shares. Subject to our prior
written consent, Piper Jaffray may also sell shares by any other method permitted by law, including but not limited to privately negotiated transactions. We have no obligation to sell any of the
shares, and may at any time suspend offers under the Equity Distribution Agreement. The offering will terminate upon the earlier of (i) the sale of all of the shares or (ii) the termination of the
Equity Distribution Agreement according to its terms by either us or Piper Jaffray. We and Piper Jaffray may each terminate the Equity Distribution Agreement at any time by giving advance
written notice to the other party as required by the Equity Distribution Agreement. Under the terms of the Equity Distribution Agreement, Piper Jaffray will be entitled to a commission at a fixed
rate of 3.0% of the gross proceeds from each sale of shares under the Equity Distribution Agreement. We will also reimburse Piper Jaffray for certain expenses incurred in connection with the
Equity Distribution Agreement, and agreed to provide indemnification and contribution to Piper Jaffray with respect to certain liabilities, including liabilities under the Securities Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the three and nine months ended September 30, 2019, we sold 1,197,676 shares for net proceeds of
approximately $2.6 million pursuant to the Equity Distribution Agreement. On August 23, 2019, we suspended our continuous offering under the Equity Distribution Agreement.
Through October 31, 2018, we obtained proceeds of $2.3 million from the issuance of convertible notes (the "Notes"). These Notes accrued 8% interest and would have
matured on April 30, 2019. The Notes were convertible into shares of common stock upon a preferred stock equity raise of greater than $1,000,000 at 80% or 90% of the lowest purchase price
per share paid by another investor in a qualified financing. The Notes were converted into 172,284 shares of common stock on January 24, 2019 pursuant to the closing of the
Merger.
On October 16, 2018, we entered into the Pre-Merger SPA. Pursuant to the Pre-Merger SPA, among other things, we issued to the Buyers (i) an aggregate of 1,829,406 shares of
common stock and (ii) the Pre-Merger Warrants for an aggregate purchase price of approximately $18.0 million. We issued the Pre-Merger Warrants on January 31, 2019 and on February 14,
2019, we registered the resale of common stock underlying the Pre-Merger Warrants as required by the registration rights agreement that we entered into on October 16, 2018 in connection
with the Pre-Merger SPA. The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted to
2,640,128 shares of common stock at an exercise price per share equal to $2.3005 on February 27, 2019 and which was further adjusted to 3,629,023 shares of common stock at an exercise
price per share equal to $1.6736 on March 7, 2019, in each case, pursuant to the terms thereof. Effective August 23, 2019, pursuant to the terms of the Series A Warrants, the exercise price of
the Series A Warrants automatically decreased from $1.6736 per share to $0.9267 per share as a result of the announcement of the issuance of the August 2019 Warrants pursuant to the
Securities Purchase Agreement. The Series A Warrants were immediately exercisable upon issuance and have a term of five years from the date of issuance. The Series B Warrants were
initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of
common stock on March 7, 2019, in each case, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and had an
expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein) and (ii) the date on which the Series B Warrants have been exercised in full (without giving
effect to any limitation on exercise contained therein) and no shares remain issuable thereunder.
During the nine months ended September 30, 2019, we received approximately $4.4 million in proceeds from the exercise of approximately 14.3 million Series A Warrants and Series B
Warrants.
In connection with the closing of the Merger, we raised $18.0 million in gross proceeds from the Pre-Merger SPA financing (net proceeds of $16.5 million, after payment of transaction
expenses).
We expect to use the net proceeds from the above transaction primarily for general corporate purposes, which may include financing our normal business operations, developing new or
existing product candidates, and funding capital expenditures, acquisitions and investments. In addition, pursuant to the asset purchase agreement, as amended, with Phoenixus AG f/k/a
Vyera Pharmaceuticals AG and Turing Pharmaceuticals AG ("Vyera"), we will be required to make cash payments to Vyera in the amounts of $750,000, $750,000, $1.0 million and
$1.0 million in October 2019, early January 2020, early April 2020 and early July 2020, respectively. Pursuant to the amended and restated
license agreement with Stuart Weg, M.D., we will be required to make cash payments to Dr. Weg in the amounts of $0.1 million and $0.125 million in January 2020 and January 2021,
respectively, and will be required to make an additional cash payment of $0.2 million in January 2022 if certain conditions are not met. We believe that in order for us to meet our obligations
arising from normal business operations for the next twelve months, we require additional capital either in the form of equity or debt. Without additional capital, our ability to continue to
operate will be limited. These financial statements do not include any adjustments to the recoverability and classification of recorded assets amounts and classification of liabilities that
might be necessary should we not be able to continue as a going concern.
22
We currently have an effective shelf registration statement on Form S-3 filed with the SEC under which we may offer from time to time any combination of debt securities, common and
preferred stock and warrants. As of September 30, 2019, we had approximately $87.0 million available under our Form S-3 shelf registration statement. However, under current SEC
regulations, in the event the aggregate market value of our common stock held by non-affiliates ("public float") is less than $75.0 million, the amount we can raise through primary
public offerings of securities, including sales under the Equity Distribution Agreement, in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of
our public float. SEC regulations permit us to use the highest closing sales price of our common stock (or the average of the last bid and last ask prices of our common stock) on any day within
60 days of sales under the shelf registration statement. As of September 30, 2019, our public float was approximately $39.1 million based on 26.9 million shares of our common stock
outstanding at a price of $1.78 per share, which was the closing sale price of our common stock on August 22, 2019. As our public float was less than $75.0 million as of September 30, 2019,
our usage of our S-3 shelf registration statement is limited. We still maintain the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or
in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of
and amounts we can raise by undertaking such activities.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue to operate
as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as
a going concern.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
-
our ability to raise additional funds to finance our operations;
-
our ability to maintain compliance with the listing requirements of Nasdaq;
-
the outcome, costs and timing of any clinical trial results for our current or future product candidates;
-
the extent and amount of any indemnification claims, including any made by Ferring under the asset purchase agreement with Ferring, entered into on March 8,
2017, pursuant to which we sold to Ferring our ex-U.S. assets and rights related to products in development, intended for the topical treatment of erectile dysfunction, which are known as
Vitaros in certain countries outside of the United States;
-
potential litigation expenses;
-
the emergence and effect of competing or complementary products or product candidates;
-
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to
make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
-
our ability to retain our current employees and the need and ability to hire additional management and scientific and medical personnel;
-
the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
-
the trading price of our common stock;
-
our ability to secure a development partner for the product candidate in the United States for the treatment of erectile dysfunction (the "CVR Product
Candidate") in order to overcome deficiencies raised in the 2018 complete response letter issued by the U.S. Food and Drug Administration (the "FDA") related to the CVR
Product Candidate; and
-
our ability to increase the number of authorized shares outstanding to facilitate future financing events.
We will need to raise substantial additional funds through one or more of the following: issuance of additional debt or equity, including pursuant to the Equity Distribution Agreement with
Piper Jaffray, and/or the completion of a licensing or other commercial transaction for one or more of our product candidates. If we are unable to maintain sufficient financial resources, our
business, financial condition and results of operations will be materially and adversely affected. This could adversely affect future development, business activities, operations and business
plan, such as future clinical studies and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity
or convertible debt financings may have a dilutive effect on the holdings of our existing stockholders. No assurances can be given that we will be able to obtain additional financings.
23
Critical Accounting Estimates and Policies
The preparation of financial statements in accordance with United States generally accepted accounting principles ("GAAP") requires management to make estimates and
assumptions that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Management bases its estimates on historical
experience, market and other conditions, and various other assumptions it believes to be reasonable. Although these estimates are based on management's best knowledge of current events
and actions that may impact us in the future, the estimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other
conditions change from those that we anticipate, our unaudited condensed consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to
revise our estimates, or take other corrective actions, either of which may also have a material effect in our unaudited condensed consolidated financial statements. We review our estimates,
judgments, and assumptions used in our accounting practices periodically and reflect the effects of revisions in the period in which they are deemed to be necessary. We believe that these
estimates are reasonable; however, our actual results may differ from these estimates.
Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and there have been no material changes to
such policies or estimates during the nine months ended September 30, 2019.
Recent Accounting Pronouncements
Please refer to the notes to unaudited condensed consolidated financial statements (unaudited) for a discussion of recent accounting pronouncements.
Comparison of the Three Months Ended September 30, 2019 and 2018
Revenues
We recorded $375,000 and $0 in grant revenue during the three months ended September 30, 2019 and 2018, respectively. The $375,000 increase in revenue in 2019
was related to our amended agreement with TSF.
Operating Expense
Operating expense was as follows (in thousands):
|
|
|
|
|
|
|
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
Operating expense
|
|
|
|
|
|
|
Research and development
|
|
$
|
2,641
|
|
$
|
172
|
General and administrative
|
|
|
1,415
|
|
|
915
|
Total operating expense
|
|
$
|
4,056
|
|
$
|
1,087
|
Research and Development Expenses
Research and development ("R&D") costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third
parties who conduct R&D on our behalf. The $2.5 million increase in R&D expense during the three months ended September 30, 2019, as compared to the same period in 2018,
resulted primarily from clinical trial costs and license fees of approximately $1.1 million and $500,000, respectively, and employee related costs of approximately $413,000.
General and Administrative Expenses
General and administrative ("G&A") costs include expenses for personnel, finance, legal, business development and investor relations. General and administrative
expenses increased by $500,000 during the three months ended September 30, 2019, as compared to the same period in 2018. This increase was primarily due to costs associated with
becoming a publicly traded company on January 24, 2019, including by not limited to, legal, insurance, investor relations, accounting and Nasdaq costs of approximately $400,000. The
increase was also related to increased employee related costs of approximately $93,000 as compared to the same period last year.
24
Other Income and Expense
Other income and expense were as follows (in thousands):
|
|
|
Three Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
Other income (expense)
|
|
|
|
|
|
|
Interest income
|
|
$
|
46
|
|
$
|
-
|
Interest expense
|
|
|
(1)
|
|
|
(67)
|
Change in fair value of warrant liabilities
|
|
|
415
|
|
|
-
|
Change in fair value of convertible notes payable
|
|
|
-
|
|
|
57
|
Total other income (expense)
|
|
$
|
460
|
|
$
|
(10)
|
Interest Income
Interest income was $46,000 and $0 for the three months ended September 30, 2019 and 2018, respectively. The increase is due to investing excess cash during the three
months ended September 30, 2019.
Interest Expense
Interest expense was $1 and $67,000 for the three months ended September 30, 2019 and 2018, respectively. The decrease is due to the conversion of all the outstanding convertible
notes on January 24, 2019.
Change in Fair Value of Warrant Liability
The fair value of warrant liability was $690,000 at September 30, 2019. The change in fair value of warrant liabilities of $415,000 is due to revaluation of the Series A Warrants
during the three months ended September 30, 2019.
Change in Fair Value of Convertible Notes Payable
The convertible notes were converted into common stock pursuant to the Merger on January 24, 2019. The change in fair value of convertible notes was $0 and $57,000 during
the three months ended September 30, 2019 and 2018, respectively.
Comparison of the Nine Months Ended September 30, 2019 and 2018
Revenues
We recorded $375,000 and $0 in grant revenue during the nine months ended September 30, 2019 and 2018, respectively. The $375,000 increase in revenue in 2019
was related to our amended agreement with TSF.
Operating Expense
Operating expense was as follows (in thousands):
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
Operating expense
|
|
|
|
|
|
|
Research and development
|
|
$
|
13,365
|
|
$
|
422
|
General and administrative
|
|
|
6,427
|
|
|
1,722
|
Total operating expense
|
|
$
|
19,792
|
|
$
|
2,144
|
25
Research and Development Expenses
Research and development ("R&D") costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third
parties who conduct R&D on our behalf. The $12.9 million increase in R&D expense during the nine months ended September 30, 2019, as compared to the same period in 2018,
resulted primarily from the $2.2 million in non-cash charge for common stock issued for in-licensed intellectual property, $1.5 million for cash consideration and $2.0 million accrued for cash
payment due in the first quarter of 2020 for the acquisition of Trehalose. The increase was also due to clinical trial costs of approximately $1.2 million, manufacturing costs approximately $1.7
million and approximately $1.1 million in employee related costs for personnel that were hired during the year.
General and Administrative Expenses
General and administrative ("G&A") costs include expenses for personnel, finance, legal, business development and investor relations. General and administrative
expenses increased by $4.7 million during the nine months ended September 30, 2019, as compared to the same period in 2018. This increase was primarily due to $2.0 million for costs
associated with the Merger for legal and administrative costs which we do not expect to continue going forward. This increase was also due to costs associated with becoming a publicly traded
company on January 24, 2019, including by not limited to, legal, insurance, investor relations, accounting and Nasdaq listing fee costs of approximately $1.2 million and approximately $500,000
in employee-related costs for personnel that were hired during the year.
Other Income and Expense
Other income and expense were as follows (in thousands):
|
|
|
Nine Months Ended September 30,
|
|
|
|
2019
|
|
|
2018
|
Other income (expense)
|
|
|
|
|
|
|
Interest income
|
|
$
|
110
|
|
$
|
-
|
Interest expense
|
|
|
(28)
|
|
|
(113)
|
Loss on warrant issuance
|
|
|
(5,020)
|
|
|
-
|
Change in fair value of warrant liabilities
|
|
|
(16,132)
|
|
|
-
|
Change in fair value of convertible notes payable
|
|
|
(109)
|
|
|
2
|
Total other expense
|
|
$
|
(21,179)
|
|
$
|
(111)
|
Interest Income
Interest income was $110,000 and $0 for the nine months ended September 30, 2019 and 2018, respectively. The increase is due to investing excess cash during the nine months
ended September 30, 2019.
Interest Expense
Interest expense was $28,000 and $113,000 for the nine months ended September 30, 2019 and 2018, respectively. The decrease is due to the conversion of all the outstanding
convertible notes on January 24, 2019, offset partially by interest expense for the financing of our director and officer liability insurance policies during 2019.
Loss on warrant issuance
Loss on warrant issuance was $5.0 million and $0 for the nine months ended September 30, 2019 and 2018, respectively. The loss was due to the fair value of the warrants exceeding the
net cash proceeds from the Merger.
Change in Fair Value of Warrant Liability
The fair value of warrant liability was $690,000 at September 30, 2019. The change in fair value of warrant liabilities of $16.1 million is due to revaluation of the Series A Warrants
and Series B Warrants during the nine months ended September 30, 2019.
26
Change in Fair Value of Convertible Notes Payable
The convertible notes were converted into common stock pursuant to the Merger on January 24, 2019. The change in fair value of convertible notes was an expense of $109,000
and income of $2,000 during the nine months ended September 30, 2019 and 2018, respectively.
Cash Flow Summary
The following table summarizes selected items in our unaudited condensed consolidated statements of cash flows (in thousands):
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2019
|
|
|
2018
|
Net cash provided by (used in) operations
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
$
|
(14,187)
|
|
$
|
(1,184)
|
Net cash provided by financing activities
|
|
|
29,460
|
|
|
1,265
|
Net increase in cash
|
|
$
|
15,273
|
|
$
|
81
|
Operating Activities
Cash used in operating activities of $14.2 million in the nine months ended September 30, 2019 was primarily due to the net loss of $40.6 million, which were partially offset by
changes in the fair value of the warrant liabilities of $16.1 million, the loss on warrant issuance of $5.0 million, $3.0 million for the acquisition of licenses for research and development and
changes in operating assets and liabilities of $1.8 million.
Cash used in operating activities of $1.2 million during the nine months ended September 30, 2018 was primarily due to a net loss of $2.3 million, net of adjustments to net loss for changes
in accounts payable and accrued expenses of $1.1 million.
Financing Activities
Cash provided by financing activities of $29.5 million in the nine months ended September 30, 2019 was primarily due to the proceeds from the exercise of warrants and the issuance and
sale of common stock pursuant to the Securities Purchase Agreement.
Cash provided by financing activities of $1.3 million during the nine months ended September 30, 2018 was due to proceeds of $1.3 million from the issuance of convertible notes
during the nine months ended September 30, 2018.
Off-Balance Sheet Arrangements
As of September 30, 2019, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC's rules and forms.
27
Under the supervision and with the participation of our management, including the Chief Executive Officer ("CEO"), who serves as the principal executive officer and the
principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the
Exchange Act, as of September 30, 2019. Based on this evaluation, our CEO concluded that our disclosure controls and procedures were effective as of September 30, 2019 at the reasonable
assurance level.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a15(f). Our internal control
over financial reporting is a process designed, under the supervision and, with the participation of our CEO who serves as our principal executive officer and principal financial officer, overseen
by our Board of Directors and implemented by our management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of
our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures
that:
-
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
-
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
-
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect
on our financial statements.
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management
performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, 2019 using criteria established in the Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management determined that, as of September 30, 2019, our
internal control over financial reporting was effective. Because we are a smaller reporting company, KPMG, an independent registered public accounting firm, is not required to attest to or issue
a report on the effectiveness of our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and procedures are
designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. Also, projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
Upon completion of the Merger, all remaining Apricus employees were terminated and all internal controls over financial reporting were assumed by the
new accounting staff of Seelos and therefore, there were significant changes in our internal control structure over financial reporting during the three and nine months ended September 30,
2019.
PART II.
ITEM 1. LEGAL PROCEEDINGS
We are not currently party to, and none of our property is currently the subject of, any material legal proceedings. We may be a party to certain litigation that is either judged to be not
material or that arises in the ordinary course of business from time to time. We intend to vigorously defend our interests in these matters. We expect that the resolution of these matters will not
have a material adverse effect on our business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome
of these proceedings.
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ITEM 1A. RISK FACTORS
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business,
prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion
of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently
anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of
our Annual Report on Form 10-K for the year ended December 31, 2018, as filed with the SEC on March 28, 2019:
Risks Related to the Company
*We are a clinical-stage company, the company under new management has a very limited operating history, are not currently profitable, do not expect to
become profitable in the near future and may never become profitable.
We are a clinical-stage biopharmaceutical company. Since our incorporation, we have focused primarily on the development and acquisition of clinical-stage therapeutic candidates, which
will not change as a result of the completion of the business combination between Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), and Seelos Therapeutics, Inc., a
Delaware corporation ("Seelos"), in accordance with the terms of the Agreement and Plan of Merger Reorganization entered into on July 30, 2018, pursuant to which (i) a subsidiary
of Apricus merged with and into Seelos, with Seelos (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the
merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger"). All of our therapeutic candidates are in the clinical development stage and none of
our new pipeline therapeutic candidates have been approved for marketing or are being marketed or commercialized.
As a result, we have no meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any
of our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry. We also have not generated any
revenues from collaboration and licensing agreements or product sales to date, and continue to incur significant research and development and other expenses. As a result, we have not been
profitable and have incurred significant operating losses in every reporting period since our inception. We have never been profitable and have incurred an accumulated deficit of $45.4 million
from our inception through September 30, 2019.
For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our drug development activities, seek regulatory
approvals for our product candidates and begin to commercialize them if they are approved by the U.S. Food and Drug Administration (the "FDA") the European Medicines Agency
(the "EMA") or comparable foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never become profitable.
We are dependent on the success of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory approval or
be commercialized.
Prior to the Merger, we spent significant time, money and effort on the licensing and development of our core assets, SLS-002 and SLS-006 and its other earlier-stage assets, SLS-008,
SLS-010 and SLS-012. To date, no pivotal clinical trials designed to provide clinically and statistically significant proof of efficacy, or to provide sufficient evidence of safety to justify approval,
have been completed with any of our new pipeline product candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical
studies to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, and regulatory clearances before they can be commercialized. Positive results
obtained during early development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. Our drug development efforts may not lead to
commercial drugs, either because our product candidates fail to be safe and effective or because we have inadequate financial or other resources to advance our product candidates through
the clinical development and approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any time or during any phase of development, we would experience
potentially significant delays in, or be required to abandon, development of the product candidate.
We do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin
commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential future partners, if any, may be unable
to commercialize them successfully for a variety of reasons. These include, for example, the availability of alternative treatments,
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lack of cost-effectiveness, the cost of manufacturing the
product on a commercial scale and competition with other drugs. The success of our product candidates may also be limited by the prevalence and severity of any adverse side effects. If we
fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition and stock
price may decline.
*If development of our product candidates does not produce favorable results, we and our collaborators, if any, may be unable to commercialize these
products.
To receive regulatory approval for the commercialization of our core assets, SLS-002, SLS-005 and SLS-006 and our earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS-
012, or any other product candidates that we may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the
FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase 3 clinical trials, which our
current product candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain outcome. Failure can occur at any
stage of the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent commercialization of our current or future
product candidates, including the following:
-
clinical trials may produce negative or inconclusive results;
-
preclinical studies conducted with product candidates during clinical development to, among other things, evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their
formulation may produce unfavorable results;
-
patient recruitment and enrollment in clinical trials may be slower than we anticipate;
-
costs of development may be greater than we anticipate;
-
our product candidates may cause undesirable side effects that delay or preclude regulatory approval or limit their commercial use or market acceptance, if approved;
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collaborators who may be responsible for the development of our product candidates may not devote sufficient resources to these clinical trials or other preclinical studies of these
candidates or conduct them in a timely manner; or
-
we may face delays in obtaining regulatory approvals to commence one or more clinical trials.
Success in early development does not mean that later development will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate
sufficient safety and efficacy despite having progressed through initial clinical trials.
We have licensed or acquired all of the intellectual property related to our product candidates from third parties. All clinical trials, preclinical studies and other analyses performed to date
with respect to our product candidates have been conducted by their original owners. Therefore, as a company, we have limited experience in conducting clinical trials for our product
candidates. Since our experience with our product candidates is limited, we will need to train our existing personnel and hire additional personnel in order to successfully administer and
manage our clinical trials and other studies as planned, which may result in delays in completing such planned clinical trials and preclinical studies. Moreover, to date our product candidates
have been tested in less than the number of patients that will likely need to be studied to obtain regulatory approval. The data collected from clinical trials with larger patient populations may not
demonstrate sufficient safety and efficacy to support regulatory approval of these product candidates.
We currently do not have strategic collaborations in place for clinical development of any of our current product candidates, except for our collaborative agreement with Team Sanfilippo
Foundation, which we assumed in connection with the asset purchase agreement with Bioblast Pharma Ltd., which is now known as SLS-005. Therefore, in the future, we or any potential
future collaborative partner will be responsible for establishing the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be
inadequate to demonstrate the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising,
such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further, data generated during development can be interpreted in
different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than us or our collaborators. Our failure to adequately demonstrate the safety
and efficacy of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.
Since we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other product candidates that we may develop, we
may seek to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these assets as a component of our strategic plan.
However, our discussions with potential collaborators may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new
collaborations, leading to development and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.
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We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.
We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product
candidates in the event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies and assets, as well as for
working capital requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near and long-
term.
However, our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Due to
our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. Our resource allocation decisions
may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Because the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize
them. In addition, we may not be able to generate sufficient revenue, even if we are able to commercialize any of our product candidates, to become profitable.
*Given our lack of current cash flow, we will need to raise additional capital; however, it may be unavailable to us or, even if capital is obtained, may cause dilution or place significant
restrictions on our ability to operate our business. If we fail to raise the necessary additional capital, we may be unable to complete the development and commercialization of our product
candidates, or continue or development programs.
Since we will be unable to generate sufficient, if any, cash flow to fund our operations for the foreseeable future, we will need to seek additional equity or debt financing to provide the
capital required to maintain or expand our operations.
As of September 30, 2019, we had a cash balance of approximately $15.3 million.
As a result of our recurring losses from operations, there is uncertainty regarding our ability to maintain liquidity sufficient to operate our business effectively, which raises substantial doubt
about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be required to significantly reduce or cease operations. The report of our
independent registered public accounting firm on our audited financial statements for the year ended December 31, 2018 included a "going concern" explanatory paragraph
indicating that our recurring losses from operations raise substantial doubt about our ability to continue as a going concern.
We currently have an effective shelf registration statement on Form S-3 filed with the SEC under which we may offer from time to time any combination of debt securities, common and
preferred stock and warrants. Under current SEC regulations, in the event the aggregate market value of our common stock held by non-affiliates ("public float") is less than $75.0
million, the amount we can raise through primary public offerings of securities, including sales under an Equity Distribution Agreement with Piper Jaffray & Co., in any twelve-month period
using shelf registration statements is limited to an aggregate of one-third of our public float. SEC regulations permit us to use the highest closing sales price of our common stock (or the
average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement. As of September 30, 2019, our public float was
approximately $39.1 million based on 26.9 million shares of our common stock outstanding at a price of $1.78 per share, which was the closing sale price of our common stock on August 22,
2019. As our public float was less than $75.0 million as of September 30, 2019, our usage of our S-3 shelf registration statement is limited. Although we still maintain the ability to raise funds
through other means, such as through the filing of a registration statement on Form S-1 or in private placements, the rules and regulations of the SEC or any other regulatory agencies may
restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities.
There can be no assurance that we will be able to raise sufficient additional capital on acceptable terms or at all. If such additional financing is not available on satisfactory terms, or is not
available in sufficient amounts, we may be required to delay, limit or eliminate the development of business opportunities and our ability to achieve our business objectives, our competitiveness,
and our business, financial condition and results of operations will be materially adversely affected. In addition, we may be required to grant rights to develop and market product candidates
that we would otherwise prefer to develop and market ourselves. Our inability to fund our business could lead to the loss of your investment.
Our future capital requirements will depend on many factors, including, but not limited to:
-
the scope, rate of progress, results and cost of our clinical trials, preclinical studies and other related activities;
-
our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements;
31
-
the timing of, and the costs involved in, obtaining regulatory approvals for any of our current or future product candidates;
-
the number and characteristics of the product candidates we seek to develop or commercialize;
-
the cost of manufacturing clinical supplies, and establishing commercial supplies, of our product candidates;
-
the cost of commercialization activities if any of our current or future product candidates are approved for sale, including marketing, sales and distribution costs;
-
the expenses needed to attract and retain skilled personnel;
-
the costs associated with being a public company;
-
the amount of revenue, if any, received from commercial sales of our product candidates, should any of our product candidates receive marketing approval; and
-
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation.
If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be reduced, and accordingly these stockholders may experience
substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to those of our common stock. Given our need for cash and that equity
issuances are the most common type of fundraising for similarly situated companies, the risk of dilution is particularly significant for our stockholders. Our inability to raise capital when needed
would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.
*As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on
Form S-3, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future
filings and reports made under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, Form S-3 enables eligible issuers to conduct primary offerings
"off the shelf" under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). The shelf registration process, combined with the ability to forward
incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than raising capital
in a standard registered offering pursuant to a Registration Statement on Form S-1. The ability to register securities for resale may also be limited as a result of the loss of Form S-3
eligibility.
The significant changes to the results of operations and presentation of financial statements required to account for the Merger in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2019, and the significant turnover in key personnel in connection with the Merger combined to cause a delay in the completion of our financial statements as of, and for the period
ended, March 31, 2019. In particular, because the warrants issued in the Merger were subsequently amended on multiple occasions in the first quarter, and a number of warrants were
exercised during the quarter, we were required to remeasure the value of the warrants at multiple points during the quarter. This, in turn, resulted in a non-cash modification of the fair value of
the warrants during the quarter. Accordingly, we were unable to complete the compilation, analysis and review of information required to be included in our Quarterly Report on Form 10-Q for
the quarter ended March 31, 2019 until May 21, 2019, one day after the deadline for such filing.
As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we are currently ineligible to file new short form registration statements on
Form S-3 and, absent a waiver of the Form S-3 eligibility requirements, we will no longer be permitted to use our existing registration statements on Form S-3 upon the earlier to occur of the
filing of our Annual Report on Form 10-K for the fiscal year ending December 31, 2019 or the occurrence of a fundamental change which would require a post-effective amendment to any such
registration statements pursuant to Item 512 of Regulation S-K and Section 10(a)(3) of the Securities Act. As a consequence, we might not be permitted to sell all of the amount of common
stock we could otherwise sell prior to such time, subject to the limits of General Instruction I.B.6 of Form S-3, under the Equity Distribution Agreement (if we determine to un-suspend the
continuous offering thereunder), which could adversely affect our ability to run our operations and progress our product development programs. We will not be permitted to conduct an "at
the market offering" pursuant to the Equity Distribution Agreement absent an effective primary registration statement on Form S-3.
Our inability to use Form S-3 may significantly impair our ability to raise necessary capital to run our operations and progress our product development programs. If we seek to access the
capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms
thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and
transaction costs and other considerations. Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure on our stock price. If we are unable to
raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other
limitations imposed under the rules of The Nasdaq Stock Market LLC, or seek other sources of capital.
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Absent a waiver of the Form S-3 eligibility requirements and assuming we continue to timely file our required Exchange Act reports, the earliest we would regain the ability to use Form S-3
is June 1, 2020.
Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization or have other significant adverse implications
on our business, financial condition and results of operations.
Undesirable side effects observed in clinical trials or in supportive preclinical studies with our product candidates could interrupt, delay or halt their development and could result in the
denial of regulatory approval by the FDA, the EMA or comparable foreign authorities for any or all targeted indications or adversely affect the marketability of any such product candidates that
receive regulatory approval. In turn, this could eliminate or limit our ability to commercialize our product candidates.
Our product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements
the FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.
Our product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post-
marketing observational study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or physicians trained in the use
of the drug, or could be limited to a more restricted patient population. Any risk management program required for approval of our product candidates could potentially have an adverse effect
on our business, financial condition and results of operations.
Undesirable side effects involving our product candidates may have other significant adverse implications on our business, financial condition and results of operations. For example:
-
we may be unable to obtain additional financing on acceptable terms, if at all;
-
our collaborators may terminate any development agreements covering these product candidates;
-
if any development agreements are terminated, we may determine not to further develop the affected product candidates due to resource constraints and may not be able to establish
additional collaborations for their further development on acceptable terms, if at all;
-
if we were to later continue the development of these product candidates and receive regulatory approval, earlier findings may significantly limit their marketability and thus significantly
lower our potential future revenues from their commercialization;
-
we may be subject to product liability or stockholder litigation; and
-
we may be unable to attract and retain key employees.
In addition, if any of our product candidates receive marketing approval and we or others later identify undesirable side effects caused by the product:
-
regulatory authorities may withdraw their approval of the product, or we or our partners may decide to cease marketing and sale of the product voluntarily;
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we may be required to change the way the product is administered, conduct additional clinical trials or preclinical studies regarding the product, change the labeling of the product, or
change the product's manufacturing facilities; and
-
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing
the product, which in turn could delay or prevent us from generating significant revenues from the sale of the product.
Our efforts to discover product candidates beyond our current product candidates may not succeed, and any product candidates we recommend for clinical development may not
actually begin clinical trials.
We intend to use our technology, including our licensed technology, knowledge and expertise to develop novel drugs to address some of the world's most widespread and costly central
nervous system, respiratory and other disorders, including orphan indications. We intend to expand our existing pipeline of core assets by advancing drug compounds from current ongoing
discovery programs into clinical development. However, the process of researching and discovering drug compounds is expensive, time-consuming and unpredictable. Data from our current
preclinical programs may not support the clinical
33
development of our lead compounds or other compounds from these programs, and we may not identify any additional drug compounds
suitable for recommendation for clinical development. Moreover, any drug compounds we recommend for clinical development may not demonstrate, through preclinical studies, indications of
safety and potential efficacy that would support advancement into clinical trials. Such findings would potentially impede our ability to maintain or expand our clinical development pipeline. Our
ability to identify new drug compounds and advance them into clinical development also depends upon our ability to fund our research and development operations, and we cannot be certain
that additional funding will be available on acceptable terms, or at all.
Delays in the commencement or completion of clinical trials could result in increased costs to us and delay our ability to establish strategic collaborations.
Delays in the commencement or completion of clinical trials could significantly impact our drug development costs. We do not know whether planned clinical trials will begin on time or be
completed on schedule, if at all. The commencement of clinical trials can be delayed for a variety of reasons, including, but not limited to, delays related to:
-
obtaining regulatory approval to commence one or more clinical trials;
-
reaching agreement on acceptable terms with prospective third-party contract research organizations ("CROs") and clinical trial sites;
-
manufacturing sufficient quantities of a product candidate or other materials necessary to conduct clinical trials;
-
obtaining institutional review board approval to conduct one or more clinical trials at a prospective site;
-
recruiting and enrolling patients to participate in one or more clinical trials; and
-
the failure of our collaborators to adequately resource our product candidates due to their focus on other programs or as a result of general market conditions.
In addition, once a clinical trial has begun, it may be suspended or terminated by us, our collaborators, the institutional review boards or data safety monitoring boards charged with
overseeing our clinical trials, the FDA, the EMA or comparable foreign authorities due to a number of factors, including:
-
failure to conduct the clinical trial in accordance with regulatory requirements or clinical protocols;
-
inspection of the clinical trial operations or clinical trial site by the FDA, the EMA or comparable foreign authorities resulting in the imposition of a clinical hold;
-
unforeseen safety issues; or
-
lack of adequate funding to continue the clinical trial.
If we experience delays in the completion or termination of any clinical trial of our product candidates, the commercial prospects of our product candidates will be harmed, and our ability to
commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and
slow down our product candidate development and approval process. Delays in completing our clinical trials could also allow our competitors to obtain marketing approval before we do or
shorten the patent protection period during which we may have the exclusive right to commercialize our product candidates. Any of these occurrences may harm our business, financial
condition and prospects significantly. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of
regulatory approval of our product candidates.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical
trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry
have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial
results may not be successful for these or other reasons.
This product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are developed through
preclinical to early to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of
administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late
stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.
Any of these changes could make the results of our planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform
differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and
generate revenues.
34
If we experience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as
required by the FDA or other regulatory authorities. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient
population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the
potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to
demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in increased development costs for
our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of
our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual
duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our
business, financial condition and results of operations could be substantially harmed.
We intend to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and clinical programs.
Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and
scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current
requirements on good manufacturing practices ("cGMP"), good clinical practices ("GCP") and good laboratory practice ("GLP"), which are a collection of laws
and regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations
through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we or any of our CROs or
vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign
authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given
regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced
consistent with cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval
processes.
We may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available
to us under our agreements with such CROs, we will not be able to control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do
not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due
to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory
approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of
operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be
delayed.
Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there
is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical
development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect
on our business, financial condition or results of operations.
Our product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated
delays or prevent the receipt of the required approvals to commercialize our product candidates.
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The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive
regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither we nor our collaborators are permitted to market our
product candidates until we or our collaborators receive approval of a new drug application ("NDA") from the FDA or receive similar approvals abroad. The process of obtaining
these approvals is expensive, often takes many years, and can vary substantially based upon the type, complexity and novelty of the product candidates involved. Approval policies or
regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any
guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In addition, as a company, we have
not previously filed NDAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign
regulatory agency approval in a timely manner, if at all, for our product candidates for which development and commercialization is our responsibility.
Despite the time and expense invested, regulatory approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product
candidate for many reasons, including:
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a product candidate may not be deemed safe or effective;
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agency officials of the FDA, the EMA or comparable foreign authorities may not find the data from non-clinical or preclinical studies and clinical trials generated during development to be
sufficient;
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the FDA, the EMA or comparable foreign authorities may not approve our third-party manufacturers' processes or facilities; or
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the FDA, the EMA or a comparable foreign authority may change its approval policies or adopt new regulations.
Our inability to obtain these approvals would prevent us from commercializing our product candidates.
Even if our product candidates receive regulatory approval in the U.S., we may never receive approval or commercialize our products outside of the U.S.
In order to market any products outside of the U.S., we must establish and comply with numerous and varying regulatory requirements of other countries regarding safety and
efficacy. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other
countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks detailed above regarding FDA approval in the
U.S. as well as other risks. Regulatory approval in one country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may have a
negative effect on the regulatory process in others. Failure to obtain regulatory approval in other countries or any delay seeking or obtaining such approval would impair our ability to develop
foreign markets for our product candidates.
Even if any of our product candidates receive regulatory approval, our product candidates may still face future development and regulatory difficulties.
If any of our product candidates receive regulatory approval, the FDA, the EMA or comparable foreign authorities may still impose significant restrictions on the indicated uses or marketing
of the product candidates or impose ongoing requirements for potentially costly post-approval studies and trials. In addition, regulatory agencies subject a product, our manufacturer and the
manufacturer's facilities to continual review and periodic inspections. If a regulatory agency discovers previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, our collaborators or us, including requiring
withdrawal of the product from the market. Our product candidates will also be subject to ongoing FDA, the EMA or comparable foreign authorities' requirements for the labeling, packaging,
storage, advertising, promotion, record-keeping and submission of safety and other post-market information on the drug. If our product candidates fail to comply with applicable regulatory
requirements, a regulatory agency may:
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issue warning letters or other notices of possible violations;
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impose civil or criminal penalties or fines or seek disgorgement of revenue or profits;
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suspend any ongoing clinical trials;
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refuse to approve pending applications or supplements to approved applications filed by us or our collaborators;
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withdraw any regulatory approvals;
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impose restrictions on operations, including costly new manufacturing requirements, or shut down our manufacturing operations; or
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seize or detain products or require a product recall.
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The FDA, the EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of off-label uses.
The FDA, the EMA and comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as our product candidates, if approved.
In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or comparable foreign authorities as reflected in the product's approved labeling. If we receive
marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved
label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted our products for
any off-label uses, the federal government could levy civil, criminal or administrative penalties, and seek fines against us. Such enforcement has become more common in the industry. The
FDA, the EMA or comparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under
which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates, if approved, we could become subject to
significant liability, which would materially adversely affect our business, financial condition and results of operations.
If our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable safety profile or are demonstrated to be
more effective than ours, our commercial opportunity may be reduced or eliminated.
The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our
technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including commercial
biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and
commercialize will compete with existing therapies and new therapies that may become available in the future.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals and
marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and
established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any which we are developing, or that
would render our product candidates obsolete and noncompetitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory
approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing
clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.
The key competitive factors affecting the success of each of our product candidates, if approved, are likely to be its efficacy, safety, tolerability, frequency and route of administration,
convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.
The pharmaceutical market for the treatment of major depressive disorder includes selective serotonin reuptake inhibitors ("SSRIs"), serotonin and norepinephrine reuptake
inhibitors ("SNRIs") and atypical antipsychotics. A number of these marketed antidepressants will be generic, and would be key competitors to SLS-002. These products include
Forest Laboratory's Lexapro/Cipralex (escitalopram) and Viibryd (vilazodone), Pfizer, Inc.'s Zoloft (sertraline), Effexor (venlafaxine) and Pristiq (desvenlafaxine), GlaxoSmithKline plc's
Paxil/Seroxat (paroxetine), Eli Lilly and Company's Prozac (fluoxetine) and Cymbalta (duloxetine), AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify
(aripiprazole), among others. Patients with treatment-resistant depression often require treatment with several antidepressants, such as an SSRI or SNRI, combined with an
"adjunct" therapy such as an antipsychotic compound, such as AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), or mood
stabilizers, such as Janssen Pharmaceutica's Topamax (topiramate). In addition, Janssen's intranasal esketamine has recently shown a successful Phase 3 clinical trial in treatment-resistant
depression and along with Allergan's rapastinel (formerly Naurex), both of which target the NMDA receptor and are expected to have a faster onset of therapeutic effect as compared to
currently available therapies. Current treatments for Parkinson's Disease ("PD") are intended to improve the symptoms of patients. The cornerstone of PD therapy is levodopa, as it
is the most effective therapy for reducing symptoms of PD. There are other drug therapies in development that will target the disease, such as gene and stem cell therapy and A2A receptor
agonists. Currently, the majority of products in development for PD are still in the pre-clinical stage.
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We, or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug
Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000
individuals annually in the United States. In the United States and Europe, obtaining orphan drug approval may allow us to obtain financial incentives, such as an extended period of exclusivity
during which only we are allowed to market the orphan drug. While we plan to seek orphan drug designation from the FDA for SLS-008 for the treatment of a pediatric indication, we, or any
future collaborators, may not be granted orphan drug designations for our product candidates in the U.S. or in other jurisdictions.
Even if we, or any future collaborators, obtain orphan drug designation for a product candidate, we, or they, may not be able to obtain orphan drug exclusivity for that product candidate.
Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation,
in which case the FDA or the EMA will be precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable
exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug
designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for
designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Even if we, or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because FDA has taken the
position that, under certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety, can be approved for the same condition. Specifically, the
FDA's regulations provide that it can approve another drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to
be safer, more effective or makes a major contribution to patient care.
We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product candidates.
The process of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is
extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal
manufacturing processes for any of our product candidates could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are
discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of
time to investigate and remedy the contamination. In addition, the manufacturing facilities in which our product candidates are made could be adversely affected by equipment failures, labor
shortages, natural disasters, power failures and numerous other factors.
In addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls
or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges and expenses for product candidates that fail to meet
specifications, undertake costly remediation efforts or seek costlier manufacturing alternatives.
We rely completely on third parties to manufacture our preclinical and clinical drug supplies, and our business, financial condition and results of operations could be harmed if those
third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in our clinical trials, and we
lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase from third-party suppliers the
materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our product candidates, and
there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and, if
approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not
begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete such clinical trial, any significant delay or discontinuity in the supply of a product candidate,
or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product
testing and potential regulatory approval of our product candidates, which could harm our business, financial condition and results of operations.
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We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not
continue to meet regulatory requirements.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our contract manufacturers for our product candidates, are subject to extensive
regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations
govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved
for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be
detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA or marketing authorization application ("MAA")
on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our
contract manufacturers may not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority approvals to do so. The
facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval
of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of
our product candidates or any of our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we plan
to oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the
regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any
violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit
identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the
relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent
suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could
materially harm our business, financial condition and results of operations.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including, among
other things, refusal to approve a pending application for a product candidate, withdrawal of an approval or suspension of production. As a result, our business, financial condition and results of
operations may be materially and adversely affected.
Additionally, if supply from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign
regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production.
Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product
candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially
equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Any collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and
potential future product candidates.
We may seek collaboration arrangements with biopharmaceutical companies for the development or commercialization of our current and potential future product candidates. To the extent
that we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time
consuming to negotiate, execute and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter
into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product
candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. The success of our collaboration arrangements will depend
heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these
collaborations.
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Disagreements between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a
mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed to expire by the other party. Any such termination
or expiration would adversely affect our business, financial condition and results of operations.
If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate
significant revenues.
We do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product
candidates are approved for commercialization, we may be required to develop our sales, marketing and distribution capabilities, or make arrangements with a third party to perform sales and
marketing services. Developing a sales force for any resulting product or any product resulting from any of our other product candidates is expensive and time consuming and could delay any
product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of
generating sufficient demand for our product candidates. To the extent that we enter into arrangements with collaborators or other third parties to perform sales and marketing services, our
product revenues are likely to be lower than if we marketed and sold our product candidates independently. If we are unable to establish adequate sales and marketing capabilities,
independently or with others, we may not be able to generate significant revenues and may not become profitable.
The commercial success of our product candidates depends upon their market acceptance among physicians, patients, healthcare payors and the medical community.
Even if our product candidates obtain regulatory approval, our products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community.
The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:
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the effectiveness of our approved product candidates as compared to currently available products;
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patient willingness to adopt our approved product candidates in place of current therapies;
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our ability to provide acceptable evidence of safety and efficacy;
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relative convenience and ease of administration;
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the prevalence and severity of any adverse side effects;
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restrictions on use in combination with other products;
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availability of alternative treatments;
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pricing and cost-effectiveness assuming either competitive or potential premium pricing requirements, based on the profile of our product candidates and target markets;
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effectiveness of us or our partners' sales and marketing strategy;
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our ability to obtain sufficient third-party coverage or reimbursement; and
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potential product liability claims.
In addition, the potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include
several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. Independent sources have not verified all of our assumptions. If
any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity. If the actual market
for our product candidates is smaller than we expect, our product revenue may be limited, it may be harder than expected to raise funds and it may be more difficult for us to achieve or
maintain profitability. If we fail to achieve market acceptance of our product candidates in the U.S. and abroad, our revenue will be limited and it will be more difficult to achieve profitability.
If we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for our product candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may be affected by future
healthcare reform measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate we may develop. Additionally, even if
there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and gross margins will be adversely affected.
Third-party payors, such as government or private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs.
Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be based on reimbursement
levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.
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Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of,
and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and
services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control
initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher
than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors
may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.
We expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such
products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially
adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be
imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require
participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D
prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.
Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many
countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries,
we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.
If the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue,
cash flows and prospects for profitability will suffer.
Current and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain if our product
candidates are approved for commercialization.
In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that
could prevent or delay regulatory approval of our product candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our product candidates for which
we obtain regulatory approval.
In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA") changed the way Medicare covers and pays for pharmaceutical products.
Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies
to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in
reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "PPACA"), was
enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add
new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA
increased manufacturers' rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of
"average manufacturer price," ("AMP"), which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also
expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs.
The Centers for Medicare & Medicaid Services, which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the
territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded
prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to
as the "donut hole." Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and
promotional activities for pharmaceutical products.
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There have been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the PPACA and
Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring
most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative
changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product
candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to
more stringent product labeling and post-marketing approval testing and other requirements.
In Europe, the United Kingdom has indicated its intent to withdraw from the European Union in the future. A significant portion of the regulatory framework in the United Kingdom is derived
from the regulations of the European Union, and the EMA is currently located in the United Kingdom. We cannot predict what consequences the withdrawal of the United Kingdom from the
European Union, if it occurs, might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.
Changes in government funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug
innovation, or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial condition and results of
operations.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory,
regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other agencies that fund research and
development activities is subject to the political process, which is inherently fluid and unpredictable.
In December 2016, the 21st Century Cures Act was signed into law. This new legislation is designed to advance medical innovation and empower the FDA with the
authority to directly hire positions related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits may include reduced allocations
to the FDA and other related government agencies. These budgetary pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact to
academic institutions and research laboratories whose funding is fully or partially dependent on both the level and timing of funding from government sources.
Disruptions at the FDA and other agencies may also slow the time necessary for our product candidates to be reviewed or approved by necessary government agencies, which could
adversely affect our business, financial condition and results of operations.
We are subject to "fraud and abuse" and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance
could harm our business, financial condition and results of operations.
In the U.S., we are subject to various federal and state healthcare "fraud and abuse" laws, including anti-kickback laws, false claims laws and other laws intended, among other
things, to reduce fraud and abuse in federal and state healthcare programs. The federal Anti-Kickback Statute makes it illegal for any person, including a prescription drug manufacturer, or a
party acting on its behalf, to knowingly and willfully solicit, receive, offer or pay any remuneration that is intended to induce the referral of business, including the purchase, order or prescription
of a particular drug, or other good or service for which payment in whole or in part may be made under a federal healthcare program, such as Medicare or Medicaid. Although we seek to
structure our business arrangements in compliance with all applicable requirements, these laws are broadly written, and it is often difficult to determine precisely how the law will be applied in
specific circumstances. Accordingly, it is possible that our practices may be challenged under the federal Anti-Kickback Statute.
The federal False Claims Act prohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal healthcare
programs, claims for reimbursed drugs or services that are false or fraudulent, claims for items or services that were not provided as claimed, or claims for medically unnecessary items or
services. Under the Health Insurance Portability and Accountability Act of 1996, we are prohibited from knowingly and willfully executing a scheme to defraud any healthcare benefit program,
including private payors, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services to obtain money or property of any healthcare benefit program. Violations of fraud and abuse laws may be punishable by
criminal or civil sanctions, including penalties, fines or exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with
the U.S. government. In addition, private individuals have the ability to bring actions on behalf of the government under the federal False Claims Act as well as under the false claims laws of
several states.
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Many states have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for healthcare services reimbursed by any source, not just
governmental payors. In addition, some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program
Guidance for Pharmaceutical Manufacturers or the Pharmaceutical Research and Manufacturers of America's Code on Interactions with Healthcare Professionals. Several states also impose
other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the state. There are ambiguities as to what is required to comply with these state
requirements and if we fail to comply with an applicable state law requirement, we could be subject to penalties.
Neither the government nor the courts have provided definitive guidance on the application of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused
on enforcing these laws, and it is possible that some of our practices may be challenged under these laws. Efforts to ensure that our business arrangements with third parties will comply with
applicable healthcare laws and regulations will involve substantial costs. If we are found in violation of one of these laws, we could be subject to significant civil, criminal and administrative
penalties, damages, fines, exclusion from governmental funded federal or state healthcare programs and the curtailment or restructuring of our operations. If this occurs, our business, financial
condition and results of operations may be materially adversely affected.
If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately
approved for commercialization could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response, and could generate negative publicity. Any failure to comply
with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that are ultimately approved for
commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business, financial condition and results of operations will be adversely affected. Additionally, if
we are unable to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.
*If we fail to retain current members of our senior management and scientific personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or
commercialize our product candidates.
Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. As of October 31, 2019, we have 6 employees. Our
organization will rely primarily on outsourcing research, development and clinical trial activities, and manufacturing operations, as well as other functions critical to our business. We believe this
approach enhances our ability to focus on our core product opportunities, allocate resources efficiently to different projects and allocate internal resources more effectively. We have filled
several key open positions and are currently recruiting for a few remaining positions. However, competition for qualified personnel is intense. We may not be successful in attracting qualified
personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will join us on a full-time employment basis, or at all. In the event we are unable to fill critical
open employment positions, we may need to delay our operational activities and goals, including the development of our product candidates, and may have difficulty in meeting our obligations
as a public company. We do not maintain "key person" insurance on any of our employees.
In addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly
qualified personnel in the future or delays in hiring such personnel, particularly senior management and other technical personnel, could materially and adversely affect our business, financial
condition and results of operations. In addition, the replacement of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement of our
business objectives.
From time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory development programs and other
customary matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their
availability to us. In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with
us.
We will need to increase the size of our organization and may not successfully manage our growth.
We are a clinical-stage biopharmaceutical company with a small number of planned employees, and our management system currently in place is not likely to be adequate to support our
future growth plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our
operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our
senior management personnel. Hiring a significant number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail
43
to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could have a material adverse effect on our business, financial
condition and results of operations.
Our management's lack of public company experience could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities laws and could
put us at a competitive disadvantage, and could require our management to devote additional time and resources to ensure compliance with applicable corporate governance
requirements.
Our executive officers do not have experience in managing and operating a public company, which could have an adverse effect on their ability to quickly respond to problems or
adequately address issues and matters applicable to public companies. Any failure to comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions,
which may materially adversely affect our business, financial condition and results of operations. Further, since our executive officers do not have experience managing and operating a public
company, we may need to dedicate additional time and resources to comply with legally mandated corporate governance policies relative to our competitors whose management teams have
more public company experience.
*We are exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations
and products. In addition, the use in our clinical trials of pharmaceutical products and the subsequent sale of these products by us or our potential collaborators may cause us to bear a portion
of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of
operations.
Because we do not currently have any clinical trials ongoing, we do not currently carry product liability insurance. We anticipate obtaining such insurance upon initiation of our clinical
development activities; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts. On occasion, large judgments have been
awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to
decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Our research and development activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.
Our research and development activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds, and we will need to develop additional safety
procedures for the handling and disposing of hazardous materials. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to
numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of
biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and
substantial fines or penalties if we violate any of these laws or regulations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our
ability to operate our business effectively.
Despite the implementation of security measures, our internal computer systems and those of third parties with which we contract are vulnerable to damage from cyber-attacks, computer
viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. System failures, accidents or security breaches could cause interruptions in our
operations, and could result in a material disruption of our drug development and clinical activities and business operations, in addition to possibly requiring substantial expenditures of
resources to remedy. The loss of drug development or clinical trial data could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the
data. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information,
we could incur liability and our development programs and the development of our product candidates could be delayed.
Our employees and consultants may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk of employee or consultant fraud or other misconduct. Misconduct by our employees or consultants could include intentional failures to comply with FDA
regulations, provide accurate information to the FDA, comply with manufacturing standards, comply with federal and state healthcare fraud and abuse laws and regulations, report financial
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information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and
regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing
and promotion, sales commissions, customer incentive programs and other business arrangements. Employee and consultant misconduct also could involve the improper use of information
obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the
precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other
actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or
asserting our rights, those actions could have a material adverse effect on our business, financial condition and results of operations, and result in the imposition of significant fines or other
sanctions against us.
Business disruptions such as natural disasters could seriously harm our future revenues and financial condition and increase our costs and expenses.
We, and our suppliers, may experience a disruption in our, and their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or fire,
could severely damage or destroy our headquarters or facilities or the facilities of our manufacturers or suppliers, which could have a material and adverse effect on our business, financial
condition and results of operations. In addition, terrorist acts or acts of war targeted at the U.S., and specifically the greater New York, New York region, could cause damage or disruption to us,
our employees, facilities, partners and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or
technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures,
restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term
expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our business, financial condition and results of operations.
For example, these transactions may entail numerous operational and financial risks, including:
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exposure to unknown liabilities;
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disruption of our business and diversion of our management's time and attention in order to develop acquired products, product candidates or technologies;
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incurrence of substantial debt or dilutive issuances of equity securities to pay for any of these transactions;
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higher-than-expected transaction and integration costs;
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write-downs of assets or goodwill or impairment charges;
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increased amortization expenses;
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difficulty and cost in combining the operations and personnel of any acquired businesses or product lines with our operations and personnel;
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impairment of relationships with key suppliers or customers of any acquired businesses or product lines due to changes in management and ownership; and
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inability to retain key employees of any acquired businesses.
Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may
be subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Because several of our programs require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to maintain and exploit these
proprietary rights. In addition, we may need to acquire or in-license additional intellectual property in the future. We may be unable to acquire or in-license any compositions, methods of use,
processes or other intellectual property rights from third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and in-licensing third-party
intellectual property rights, including from a number of more established companies. These established companies may have a competitive advantage over us due to their size, cash resources
45
and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual
property rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
We may enter into collaboration agreements with U.S. and foreign academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these
agreements include an option for the company to negotiate a license to the institution's intellectual property rights resulting from the collaboration. Even with such an option, we may be unable
to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to license rights from a collaborating institution, the institution may offer the
intellectual property rights to other parties, potentially blocking our ability to pursue our desired program.
If we are unable to successfully obtain required third-party intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the
related program and our business, financial condition and results of operations could be materially and adversely affected.
*If we fail to comply with our obligations in the agreements under which we in-license intellectual property and other rights from third parties or otherwise experience disruptions to our
business relationships with our licensors, we could lose intellectual property rights that are important to our business.
Our license agreement with Ligand Pharmaceuticals Incorporated, Neurogen Corporation and CyDex Pharmaceuticals, Inc. (the "Ligand License Agreement"), our license
agreement with the Regents of the University of California (the "UC Regents License Agreement") and our license agreement with Duke University (the "Duke License
Agreement", together with the Ligand License Agreement and the UC Regents License Agreement, the "License Agreements") are important to our business and we expect to
enter into additional license agreements in the future. The License Agreements impose, and we expect that future license agreements will impose, various milestone payments, royalties and
other obligations on us. If we fail to comply with our obligations under these agreements, or if we file for bankruptcy, we may be required to make certain payments to the licensor, we may lose
the exclusivity of our license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. Additionally,
the milestone and other payments associated with these licenses could materially and adversely affect our business, financial condition and results of operations.
Pursuant to the terms of the Ligand License Agreement, the licensors each have the right to terminate the Ligand License Agreement with respect to the
programs licensed by such licensor under certain circumstances, including, but not limited to: (i) if we do not pay an amount that is not disputed in good faith, (ii) if we willfully breaches the
Ligand License Agreement in a manner for which legal remedies would not be expected to make such licensor whole, or (iii) if we file or have filed against us a petition in bankruptcy or make an
assignment for the benefit of creditors. In the event the Ligand License Agreement is terminated by a licensor, all licenses granted to us by such licensor will terminate immediately. Further,
pursuant to the terms of the UC Regents License Agreement, the licensor has the right to terminate the UC Regents License Agreement or reduce our license to a nonexclusive license if we
fail to achieve certain milestones within a specified timeframe. Similarly, pursuant to the terms of the Duke License Agreement, the licensor has the right to terminate the Duke License
Agreement if we fail to achieve certain milestones within a specified timeframe.
In some cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensor fails to obtain and maintain patent or other protection for the
proprietary intellectual property we in-license, then we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing
products using the intellectual property. In certain cases, we may control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to
such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and
scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including, but not limited to:
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the scope of rights granted under the license agreement and other interpretation-related issues;
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the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
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the sublicensing of patent and other rights;
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our diligence obligations under the license agreement and what activities satisfy those diligence obligations;
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the ownership of inventions and know-how resulting from the joint creation or use of intellectual property by us, our licensors and our collaborators; and
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the priority of invention of patented technology.
If disputes over intellectual property and other rights that we have in-licensed prevents or impairs our ability to maintain our current licensing arrangements on acceptable terms, we may be
unable to successfully develop and commercialize the affected
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product candidates. If we fail to comply with any such obligations to our licensor, such licensor may terminate their licenses to us,
in which case we would not be able to market products covered by these licenses. The loss of our licenses would have a material adverse effect on our business.
*We are required to issue shares, make certain cash payments and may be required to pay milestones and royalties pursuant to certain commercial agreements, which could
adversely affect the overall profitability for us of any products that we may seek to commercialize.
Under the terms of the Ligand License Agreement, we may be obligated to pay the licensors under the License Agreement up to an aggregate of approximately $135 million in
development, regulatory and sales milestones. We will also be required to pay royalties on future worldwide net product sales. In addition pursuant to the asset purchase agreement, as
amended (the "Vyera APA"), with Phoenixus AG f/k/a Vyera Pharmaceuticals AG and Turing Pharmaceuticals AG ("Vyera"), we are required to issue to Vyera in January
2020 that number of registered shares of our common stock equal to $2,250,000 divided by the 30-day volume weighted average price of the common stock calculated prior to such issuance
date; however, we may elect, in our sole discretion, to pay Vyera cash (in whole or in part) in lieu of any shares of our common stock, we will be required to make cash payments to Vyera in the
amounts of $750,000, $750,000, $1.0 million and $1.0 million in October 2019, early January 2020, early April 2020 and early July 2020, respectively, and we will also be required to pay
royalties to Vyera on net sales of SLS-002. We will also be required to pay up to an aggregate of approximately $17 million in development and regulatory milestones and royalties on net sales
of SLS-005 pursuant to our
Pursuant to the amended and restated license agreement with Stuart Weg, M.D., we will be
required to make cash payments to Dr. Weg in the amounts of $0.1 million and $0.125 million in January 2020 and January 2021, respectively, and will be required to make an additional cash
payment of $0.2 million in January 2022 if certain conditions are not met.
We may not be able to protect our proprietary or licensed technology in the marketplace.
We depend on our ability to protect our proprietary or licensed technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other
agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any licensor's or licensee's ability to obtain and
maintain patent protection in the U.S. and other countries with respect to our proprietary or licensed technology and products. We currently in-license some of our intellectual property rights to
develop our product candidates and may in-license additional intellectual property rights in the future. We cannot be certain that patent enforcement activities by our current or future licensors
have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. We also cannot be certain
that our current or future licensors will allocate sufficient resources or prioritize their or our enforcement of such patents. Even if we are not a party to these legal actions, an adverse outcome
could prevent us from continuing to license intellectual property that we may need to operate our business, which would have a material adverse effect on our business, financial condition and
results of operations.
We believe we will be able to obtain, through prosecution of patent applications covering our owned technology and technology licensed from others, adequate patent protection for our
proprietary drug technology, including those related to our in-licensed intellectual property. If we are compelled to spend significant time and money protecting or enforcing our licensed patents
and future patents we may own, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business,
financial condition and results of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own or in-license, other companies
may be able to offer the same or similar products for sale, which could materially adversely affect our business, financial condition and results of operations. The patents of others from whom
we may license technology, and any future patents we may own, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing the
same or similar products or limit the length of term of patent protection that we may have for our products.
Obtaining and maintaining patent protection depends on compliance with various procedural, document submission, fee payment and other requirements imposed by governmental
patent agencies, and our patent protection for licensed patents, pending patent applications and potential future patent applications and patents could be reduced or eliminated for
non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to be paid to the U.S. Patent and
Trademark Office ("USPTO") and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or patent application. The
USPTO and various non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar
47
provisions during the patent
application process. In many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in
which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs with
respect to our in-licensed patents or patent applications we may file in the future, our competitors might be able to use our technologies, which would have a material adverse effect on our
business, financial condition and results of operations.
The patent positions of pharmaceutical products are often complex and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and many jurisdictions outside of the
U.S. is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment
claims in patents. Changes in either the patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of our licensed or owned intellectual property or
create uncertainty. In addition, publication of information related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these
product candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.
Patents that we currently license and patents that we may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number of
reasons, including, without limitation, the following:
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the patents may not be broad or strong enough to prevent competition from other products that are identical or similar to our product candidates;
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there can be no assurance that the term of a patent can be extended under the provisions of patent term extensions afforded by U.S. law or similar provisions in foreign countries, where
available;
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the issued patents and patents that we may obtain or license in the future may not prevent generic entry into the market for our product candidates;
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we, or third parties from whom we in-license or may license patents, may be required to disclaim part of the term of one or more patents;
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there may be prior art of which we are not aware that may affect the validity or enforceability of a patent claim;
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there may be prior art of which we are aware, which we do not believe affects the validity or enforceability of a patent claim, but which, nonetheless, ultimately may be found to affect the
validity or enforceability of a patent claim;
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there may be other patents issued to others that will affect our freedom to operate;
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if the patents are challenged, a court could determine that they are invalid or unenforceable;
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there might be a significant change in the law that governs patentability, validity and infringement of our licensed patents or any future patents we may own that adversely affects the scope
of our patent rights;
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a court could determine that a competitor's technology or product does not infringe our licensed patents or any future patents we may own; and
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the patents could irretrievably lapse due to failure to pay fees or otherwise comply with regulations or could be subject to compulsory licensing.
If we encounter delays in our development or clinical trials, the period of time during which we could market our potential products under patent protection would be reduced.
Our competitors may be able to circumvent our licensed patents or future patents we may own by developing similar or alternative technologies or products in a non-infringing manner. Our
competitors may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA in which our competitors claim that our licensed patents
or any future patents we may own are invalid, unenforceable or not infringed. Alternatively, our competitors may seek approval to market their own products similar to or otherwise competitive
with our products. In these circumstances, we may need to defend or assert our licensed patents or any future patents we may own, including by filing lawsuits alleging patent infringement. In
any of these types of proceedings, a court or other agency with jurisdiction may find our licensed patents or any future patents we may own invalid or unenforceable. We may also fail to identify
patentable aspects of our research and development before it is too late to obtain patent protection. Even if we own or in-license valid and enforceable patents, these patents still may not
provide protection against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In this regard, third parties may challenge our licensed patents or any
future patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed,
invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration
of the patent protection of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates,
patents protecting such product candidates might expire before or shortly after such product candidates are commercialized.
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We may infringe the intellectual property rights of others, which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of
commercializing our products.
Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be
issued patents of which we are not aware that our current or potential future product candidates infringe. There also could be patents that we believe we do not infringe, but that we may
ultimately be found to infringe.
Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs
substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently
pending applications of which we are unaware that may later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist that
claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued
patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are
costly and could adversely affect our business, financial condition and results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent
infringement, we would need to demonstrate that our product candidates, potential products or methods either do not infringe the claims of the relevant patent or that the patent claims are
invalid, and we may not be able to do this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the
presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific
personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a
successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or their use, the holders of any of these patents may be able to block our ability
to commercialize our products unless we acquire or obtain a license under the applicable patents or until the patents expire.
We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology
could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive,
thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In
addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys' fees, if we are found to have willfully infringed a patent. A
finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially and adversely affect our
business, financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material and
adverse effect on our business, financial condition and results of operations. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material
adverse effect on our ability to raise the funds necessary to continue our operations.
Any claims or lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming and may adversely affect our business,
financial condition and results of operations.
We may be required to initiate litigation to enforce or defend our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights can be very time consuming
and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biopharmaceutical industry generally. Such litigation or proceedings could
substantially increase our operating expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in
connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance
that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against
a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs of
such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other
proceedings could have a material adverse effect on our ability to compete in the marketplace.
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In addition, our licensed patents and patent applications, and patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as
interference proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these challenges, if successful, could result in the invalidation of, or
in a narrowing of the scope of, any of our licensed patents and patent applications and patents and patent applications that we may apply for, own or license in the future subject to challenge.
Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel's time and
attention.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the
biopharmaceutical industry involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. For example, the U.S. previously enacted and is currently
implementing wide-ranging patent reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America Invents Act (the "Leahy-Smith Act") was signed into law and
included a number of significant changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the courts years to interpret the provisions of the
Leahy-Smith Act, and the implementation of the statute could increase the uncertainties and costs surrounding the prosecution of our licensed and future patent applications and the
enforcement or defense of our licensed and future patents, all of which could have a material adverse effect on our business, financial condition and results of operations.
In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the
rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with
respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in
unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in
jurisdictions where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain or
license patent protection, but where patent enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued or
licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly
certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for
us to stop the infringement of our licensed patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some
foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and
defending our licensed and owned intellectual property both in the U.S. and abroad. For example, China currently affords less protection to a company's intellectual property than some other
jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our
intellectual property and undermine our competitive position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts
and attention from other aspects of our business.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers,
outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an
adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to
obtain or maintain trade secret protection could adversely affect our competitive business position.
50
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject
to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees' former employers or
other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result
in substantial cost and be a distraction to our management and other employees. To date, none of our employees have been subject to such claims.
We may be subject to claims challenging the inventorship of our licensed patents, any future patents we may own and other intellectual property.
Although we are not currently experiencing any claims challenging the inventorship of our licensed patents or our licensed or owned intellectual property, we may in the future be subject to
claims that former employees, collaborators or other third parties have an interest in our licensed patents or other licensed or owned intellectual property as an inventor or co-inventor. For
example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to
defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property
rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business, financial condition and results of
operations. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our licensed patents and any future patents we
may own, our business, financial condition and results of operations may be materially and adversely affected.
Depending upon the timing, duration and specifics of FDA regulatory approval for our product candidates, one or more of our licensed U.S. patents or future U.S. patents that we may
license or own may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Amendments.
The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during drug development and the FDA regulatory review process.
This period is generally one-half the time between the effective date of an investigational new drug application ("IND") (falling after issuance of the patent), and the submission date
of an NDA, plus the time between the submission date of an NDA and the approval of that application. Patent term restorations, however, cannot extend the remaining term of a patent beyond
a total of 14 years from the date of product approval by the FDA.
The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term
extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to
satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension
or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market our product will be shortened and our competitors
may obtain earlier approval of competing products, and our ability to generate revenues could be materially adversely affected.
Risks Related to Owning Our Common Stock
The market price of our common stock is expected to be volatile.
The trading price of our common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
-
results from, and any delays in, planned clinical trials for our product candidates, or any other future product candidates, and the results of trials of competitors or those of other companies
in our market sector;
-
any delay in filing an NDA for any of our product candidates and any adverse development or perceived adverse development with respect to the FDA's review of that NDA;
-
significant lawsuits, including patent or stockholder litigation;
-
inability to obtain additional funding;
-
failure to successfully develop and commercialize our product candidates;
-
changes in laws or regulations applicable to our product candidates;
-
inability to obtain adequate product supply for our product candidates, or the inability to do so at acceptable prices;
-
unanticipated serious safety concerns related to any of our product candidates;
51
-
adverse regulatory decisions;
-
introduction of new products or technologies by our competitors;
-
failure to meet or exceed drug development or financial projections we provide to the public;
-
failure to meet or exceed the estimates and projections of the investment community;
-
the perception of the biopharmaceutical industry by the public, legislatures, regulators and the investment community;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
-
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our licensed and owned technologies;
-
additions or departures of key scientific or management personnel;
-
changes in the market valuations of similar companies;
-
general economic and market conditions and overall fluctuations in the U.S. equity market;
-
sales of our common stock by us or our stockholders in the future; and
-
trading volume of our common stock.
In addition, the stock market, in general, and small biopharmaceutical companies, in particular, have experienced extreme price and volume fluctuations that have often been unrelated or
disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual
operating performance. Further, a decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.
An active trading market for our common stock may not be sustained, and you may not be able to resell your common stock at a desired market price.
If no active trading market for our common stock is sustained, you may be unable to sell your shares when you wish to sell them or at a price that you consider attractive or satisfactory. The
lack of an active market may also adversely affect our ability to raise capital by selling securities in the future, or impair our ability to acquire or in-license other product candidates, businesses
or technologies using our shares as consideration.
*Our management owns a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of October 31, 2019, Dr. Mehra, our sole executive officer and a director, owns approximately 11.4% of our outstanding common stock. Therefore, Dr. Mehra will have the ability to
influence us through this ownership position.
This significant concentration of stock ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies
with controlling stockholders. As a result, Dr. Mehra could significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of
mergers or other business combination transactions. Dr. Mehra may be able to determine all matters requiring stockholder approval. The interests of these stockholders may not always
coincide with our interests or the interests of other stockholders. This may also prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in
your best interests as one of our stockholders and he may act in a manner that advances his best interests and not necessarily those of other stockholders, including seeking a premium value
for his common stock, and might affect the prevailing market price for our common stock.
Our internal control over financial reporting may not meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal
control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on our business and share price.
Our management is required to report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to
assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
In connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies or material weaknesses
that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter
problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation in connection with the attestation provided by our independent
registered public accounting firm. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business, financial condition and results
of operations and could limit our ability to report our financial results accurately and in a timely manner.
52
We will incur significant costs as a result of operating as a public company, our management has limited experience managing a public company, and our management will be required to
devote substantial time to new compliance initiatives.
The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") as well as rules subsequently implemented by the
SEC and The Nasdaq Stock Market LLC ("Nasdaq") have imposed various requirements on public companies. There are significant corporate governance and executive
compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and
the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and
impact (in ways we cannot currently anticipate) the manner in which we operate our business. Our management and other personnel will need to devote a substantial amount of time to these
compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example,
we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to incur substantial costs to
maintain our current levels of such insurance coverage.
As a publicly traded company, we will incur legal, accounting and other expenses associated with the SEC reporting requirements applicable to a company whose securities are registered
under the Exchange Act, as well as corporate governance requirements, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act and other rules implemented by the SEC and
Nasdaq. The expenses incurred by public companies generally to meet SEC reporting, finance and accounting and corporate governance requirements have been increasing in recent years as
a result of changes in rules and regulations and the adoption of new rules and regulations applicable to public companies.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts
who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, if our operating results fail to meet the
forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could
decrease, which might cause our stock price and trading volume to decline.
*Sales of a substantial number of shares of our common stock in the public market by our existing stockholders, future issuances of our common stock or rights to purchase our
common stock, could cause our stock price to fall.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market, or the perception that these sales might occur, could depress the market
price of our common stock and could impair our ability to raise capital through the sale of additional equity securities. We are unable to predict the effect that such sales may have on the
prevailing market price of our common stock. Between February 27, 2019, the date of the closing of the Merger, and October 31, 2019, the holders of certain of our outstanding warrants to
purchase shares of our common stock elected to exercise such warrants resulting in the issuance of approximately 14.3 million shares of our common stock, which increased the number of
shares of our common stock outstanding substantially. As of October 31, 2019, these investors continued to hold warrants to purchase approximately 1.0 million shares of our common stock,
which, if exercised, would further increase the number of shares of our common stock outstanding and the number of shares eligible for resale in the public market.
*The Financing Warrants contain price-based adjustment provisions which, if triggered, may cause substantial additional dilution to our stockholders.
On October 16, 2018, we entered into a Securities Purchase Agreement with the investors listed on the Schedule of Buyers attached thereto, as amended (the "Financing
SPA"), pursuant to which, among other things, we agreed to issue warrants to purchase shares of our common stock (the "Financing Warrants"). As of October 31, 2019,
Financing Warrants to purchase an aggregate of 1.0 million shares of our common stock with an exercise price of $0.9267 per share of common stock remain unexercised.
The outstanding Financing Warrants contain price-based adjustment provisions, pursuant to which the number of shares of our common stock that are issuable upon exercise of the
Financing Warrants may be adjusted upward in the event of certain dilutive issuances by us.
If the Financing Warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to our then-existing stockholders and increase the number of
shares eligible for resale in the public market. Sales of substantial numbers of such shares in the public market could depress the market price of our common stock.
53
Anti-takeover provisions in our charter documents and under Nevada law could make an acquisition of us more difficult and may prevent attempts by our
stockholders to replace or remove our management.
Provisions in our articles of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors and the
ability of the board of directors to issue preferred stock without stockholder approval. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by
requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may
frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors,
which is responsible for appointing the members of management.
Certain provisions of Nevada corporate law deter hostile takeovers. Specifically, NRS 78.411 through 78.444 prohibit a publicly held Nevada corporation from engaging in a
"combination" with an "interested stockholder" for a period of two years following the date the person first became an interested shareholder, unless (with certain
exceptions) the "combination" or the transaction by which the person became an interested shareholder is approved in a prescribed manner. Generally, a "combination"
includes a merger, asset or stock sale, or certain other transactions resulting in a financial benefit to the interested shareholder. Generally, an "interested stockholder" is a person
who, together with affiliates and associates, beneficially owns or within two years prior to becoming an "interested shareholder" did own, 10% or more of a corporation's voting
power. While these statutes permit a corporation to opt out of these protective provisions in its articles of incorporation, our articles of incorporation do not include any such opt-out
provision.
Nevada's "acquisition of controlling interest" statutes, NRS 78.378 through 78.3793, contain provisions governing the acquisition of a controlling interest in certain Nevada
corporations. These "control share" laws provide generally that any person that acquires a "controlling interest" in certain Nevada corporations may be denied voting
rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. These statutes provide that a person acquires a "controlling interest"
whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than
one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these
thresholds, shares that it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire
a controlling interest become "control shares" to which the voting restrictions described above apply. While these statutes permit a corporation to opt out of these protective
provisions in its articles of incorporation or bylaws, our articles of incorporation and bylaws do not include any such opt-out provision.
Further, NRS 78.139 provides that directors of a Nevada corporation may resist a change or potential change in control if the board of directors determines that the change is opposed to,
or not in, the best interests of the corporation.
Our pre-Merger net operating loss carryforwards and certain other tax attributes may be subject to limitations. The pre-Merger net operating loss carryforwards and certain other tax
attributes of us may also be subject to limitations as a result of ownership changes resulting from the Merger.
In general, a corporation that undergoes an "ownership change" as defined in Section 382 of the United States Internal Revenue Code of 1986, as amended, is subject to
limitations on its ability to utilize its pre-change net operating loss carryforwards to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of
certain stockholders, generally stockholders beneficially owning five percent or more of a corporation's common stock, applying certain look-through and aggregation rules, increases by more
than 50 percentage points over such stockholders' lowest percentage ownership during the testing period, generally three years. We may have experienced ownership changes in the past and
may experience ownership changes in the future. It is possible that our net operating loss carryforwards and certain other tax attributes may also be subject to limitation as a result of ownership
changes in the past and/or the closing of the Merger. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our net operating loss carryforwards and
certain other tax attributes, which could have a material adverse effect on cash flow and results of operations.
We may never pay dividends on our common stock so any returns would be limited to the appreciation of our stock.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and does not anticipate it will declare or pay any cash dividends for
the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock.
54
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On August 27, 2019, we issued the August 2019 Warrants to purchase up to 2,237,500 shares of common stock in a concurrent private placement to certain
institutional investors. Pursuant to the Securities Purchase Agreement, the combined purchase price for one share and one warrant to purchase half of a share of common stock in the
registered offering and concurrent private placement was $1.50. We received total gross proceeds of approximately $6.7 million, before deducting the placement agents' fees of approximately
$0.5 million. The August 2019 Warrants have an exercise price of $1.78 per share of common stock, will be exercisable six months from the date of issuance and will expire four years following
the date of issuance. The issuance of the August 2019 Warrants was not registered under the Securities Act in reliance upon the exemption from registration provided by Section 4(a)(2) of the
Securities Act and Rule 506(b) of Regulation D promulgated by the SEC.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
55
ITEM 6. EXHIBITS
EXHIBITS
NO.
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DESCRIPTION
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2.1*
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Agreement and Plan of Merger, dated July 30, 2018, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc. (incorporated herein by reference
to Exhibit 2.1 to the Company's Registration Statement on Form 8-K filed with the Securities and Exchange Commission on July 30, 2018).
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2.2
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Form of Support Agreement, by and between the Company, Seelos Therapeutics, Inc. and certain stockholders of the Company (incorporated by reference to Exhibit 2.2 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2018).
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2.3
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Support Agreement, dated July 30, 2018, by and between the Company, Seelos Therapeutics, Inc. and Raj Mehra (incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K filed with the Securities and Exchange Commission on July 30, 2018).
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2.4
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Form of Voting Agreement (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 21, 2018).
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2.5
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Amendment No. 1 to Agreement and Plan of Merger, dated October 16, 2018, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2018).
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2.6
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Amendment No. 2 to Agreement and Plan of Merger, dated December 14, 2018, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2018).
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2.7
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Amendment No. 3 to Agreement and Plan of Merger, dated January 16, 2019, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc.
(incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019).
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2.8†
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Stock Purchase Agreement, dated December 15, 2011, by and among the Company's, TopoTarget A/S, and TopoTarget USA, Inc. (incorporated herein by reference to
Exhibit 2.1 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 13, 2012).
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2.9
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Stock Contribution Agreement, dated June 19, 2012, by and among the Company's, Finesco SAS, Scomedica SA and the shareholders of Finesco named therein
(incorporated herein by reference to Exhibit 2.1 to the Company's Current Report Form 8-K filed with the Securities and Exchange Commission on July 13, 2012).
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2.10†
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Asset Purchase Agreement by and between Apricus Pharmaceuticals USA, Inc. and Biocodex, Inc., dated March 26, 2013 (incorporated herein by reference to Exhibit 2.1
to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2013).
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2.11
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Amendment to Stock Purchase Agreement, dated June 13, 2014, by and between the Company and Samm Solutions, Inc. (doing business as BTS Research and formerly
doing business as BioTox Sciences) (incorporated herein by reference to Exhibit 2.1 to the Company's Form 10-Q filed with Securities and Exchange Commission on August 11,
2014).
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56
2.12*
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Asset Purchase Agreement, dated February 15, 2019, by and between the Company and Bioblast Pharma Ltd. (incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2019).
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3.1
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Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form 10-SB
filed with the Securities and Exchange Commission on March 14, 1997).
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3.2
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Certificate of Amendment to Articles of Incorporation of the Company, dated June 22, 2000 (incorporated herein by reference to Exhibit 3.2 to the Company's Form 10-K
filed with the Securities and Exchange Commission on March 31, 2003).
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3.3
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Certificate of Amendment to Articles of Incorporation of the Company, dated June 14, 2005 (incorporated herein by reference to Exhibit 3.4 to the Company's Form 10-K
filed with the Securities and Exchange Commission on March 16, 2006).
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3.4
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Certificate of Amendment to Amended and Restated Articles of Incorporation of the Company, dated March 3, 2010 (incorporated herein by reference to Exhibit 3.6 to the
Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010).
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3.5
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Certificate of Correction to Certificate of Amendment to Amended and Restated Articles of Incorporation of the Company, dated March 3, 2010 (incorporated herein by
reference to Exhibit 3.7 to the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2010).
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3.6
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Certificate of Designation for Series D Junior-Participating Cumulative Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-A12GK filed with the Securities and Exchange Commission on March 24, 2011).
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3.7
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Certificate of Change filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 17, 2010).
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3.8
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Certificate of Amendment to Amended and Restated Articles of Incorporation of the Company, dated September 10, 2010 (incorporated herein by reference to Exhibit 3.1
to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2010).
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3.9
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Certificate of Withdrawal of Series D Junior Participating Cumulative Preferred Stock, dated May 15, 2013 (incorporated herein by reference to Exhibit 3.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2013).
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3.10
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Certificate of Change filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.1 to the Company's Form 8-K filed with the Securities and
Exchange Commission on October 25, 2016).
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3.11
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Certificate of Amendment filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.10 to the Company's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 2, 2017).
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3.12
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Certificate of Amendment filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.12 to the Registrant's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on August 9, 2018).
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57
3.13
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Certificate of Amendment related to the Share Increase Amendment, filed January 23, 2019 (incorporated herein by reference to Exhibit 3.1 to the Registrant's Current
Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2019 at 8:05 Eastern Time).
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3.14
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Certificate of Amendment related to the Name Change, filed January 23, 2019 (incorporated herein by reference to Exhibit 3.2 to the Registrant's Current Report on Form
8-K filed with the Securities and Exchange Commission on January 24, 2019 at 8:05 Eastern Time).
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3.15
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Amended and Restated Bylaws, dated January 24, 2019 (incorporated herein by reference to Exhibit 3.3 to the Registrant's Current Report on Form 8-K filed with the
Securities and Exchange Commission on January 24, 2019 at 8:05 Eastern Time).
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4.1
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Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 24, 2011).
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4.2
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Form of Warrant (incorporated herein by reference to Exhibit 1.1 to the Company's Current Report on From 8-K filed with the Securities and Exchange Commission on
May 24, 2013).
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4.3
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Form of Warrant issued to the lenders under the Loan and Security Agreement, dated as of October 17, 2014, by and among the Company, NexMed (U.S.A.), Inc.,
NexMed Holdings, Inc. and Apricus Pharmaceuticals USA, Inc., as borrowers, Oxford Finance LLC, as collateral agent, and the lenders party thereto from time to time including Oxford Finance
LLC and Silicon Valley Bank (incorporated herein by reference to Exhibit 4.2 to the Company's Form 8-K filed with the Securities and Exchange Commission on October 20,
2014).
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4.4
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Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 12, 2015).
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4.5
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Form of Warrant issued to Sarissa Capital Domestic Fund LP and Sarissa Capital Offshore Master Fund LP (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 13, 2016).
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4.6
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Form of Warrant issued to other purchasers (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on January 13, 2016).
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4.7
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Form of Warrant Amendment (incorporated herein by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 13, 2016).
|
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4.8
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|
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 28, 2016).
|
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4.9
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|
Form of Warrant (incorporated herein by reference to Exhibit 4.9 of Amendment No. 1 to Company's Registration Statement on Form S-1 (File No. 333-217036) filed with
the Securities and Exchange Commission on April 17, 2017).
|
4.10
|
|
Form of Warrant Amendment (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 21, 2017).
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58
4.11
|
|
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 11, 2017).
|
|
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4.12
|
|
Form of Indenture (incorporated herein by reference to Exhibit 4.13 to the Company's Form S-3 (File No. 333-221285) filed with the Securities and Exchange Commission
on November 2, 2017).
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4.13
|
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Amendment to Warrant to Purchase Common Stock (incorporated by reference to Exhibit 4.12 of Amendment No. 1 to the Company's Registration Statement on Form S-3
(File No. 333-2223353) filed with the Securities and Exchange Commission on March 22, 2018).
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4.14
|
|
Amendment to Warrant to Purchase Common Stock, dated as of March 27, 2018 (incorporated by reference to Exhibit 4.1 to the Company's 8-K filed with the Securities
and Exchange Commission on March 29, 2018).
|
|
|
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4.15
|
|
Form of Warrant (incorporated by reference to Exhibit 4.2 to the Company's 8-K filed with the Securities and Exchange Commission on March 29, 2018).
|
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4.16
|
|
Form of Placement Agent Warrant (incorporated by reference to Exhibit 4.3 to the Company's 8-K filed with the Securities and Exchange Commission on March 29,
2018).
|
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|
4.17
|
|
Amendment to Warrant to Purchase Common Stock, dated as of June 22, 2018, by and between the Company and Sarissa Offshore (incorporated by reference to Exhibit
4.1 to the Company's 8-K filed with the Securities and Exchange Commission on June 22, 2018).
|
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4.18
|
|
Form of Warrant (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 21, 2018).
|
|
|
|
4.19
|
|
Form of Wainwright Warrant (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on September 21, 2018).
|
|
|
|
4.20
|
|
Form of Registration Rights Agreement (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on September 21, 2018).
|
|
|
|
4.21
|
|
Form of Investor Warrants (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 17, 2018).
|
|
|
|
4.22
|
|
Registration Rights Agreement, dated October 16, 2018, by and among the Company and certain investors named therein (incorporated herein by reference to Exhibit 4.2
to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2018).
|
|
|
|
4.23
|
|
Form of Series A Warrant, issued to investors on January 31, 2019 (incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 6, 2019).
|
|
|
|
4.24
|
|
Form of Series B Warrant, issued to investors on January 31, 2019 (incorporated by reference to Exhibit 4.2 of the Company's Current Report on Form 8-K filed with the
Securities and Exchange Commission on February 6, 2019).
|
|
|
|
4.25
|
|
Form of Warrant, issued to investors on August 27, 2019 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 27, 2019).
|
59
10.1
|
|
Amendment No. 2 to Asset Purchase Agreement, dated as of December 31, 2018, by and between Seelos Therapeutics, Inc. and Phoenixus AG f/k/a Vyera Pharmaceuticals AG and Turing Pharmaceuticals AG.
|
|
|
|
10.2#
|
|
Seelos Therapeutics, Inc. 2019 Inducement Plan (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2019).
|
|
|
|
10.3#
|
|
Form of Stock Option Agreement under the Seelos Therapeutics, Inc. 2019 Inducement Plan (incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-8 filed with the Securities and Exchange Commission on August 15, 2019).
|
|
|
|
10.4
|
|
Form of Securities Purchase Agreement, dated August 23, 2019 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on August 27, 2019).
|
|
|
|
10.5
|
|
Placement Agency Agreement, dated August 23, 2019 (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission
on August 27, 2019).
|
|
|
|
10.6
|
|
Form of Leak-Out Agreement (incorporated herein by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2019).
|
|
|
|
10.7+
|
|
Amended and Restated Exclusive License Agreement, dated August 29, 2019, by and between Seelos Therapeutics, Inc. and Stuart Weg, MD.
|
|
|
|
10.8
|
|
Amendment No. 3 to Asset Purchase Agreement, dated October 15, 2019, by and between Seelos Therapeutics, Inc. and Phoenixus AG (incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 21, 2019).
|
|
|
|
31.1
|
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
32.1
|
|
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
101.INS
|
|
XBRL Instance Document. (1)
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema. (1)
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase. (1)
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase. (1)
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase. (1)
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase. (1)
|
(1) Furnished, not filed.
* All schedules and exhibits to the agreement have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the
Securities Exchange Commission upon request.
† Confidential treatment has been requested for portions of this exhibit. Those portions have been omitted and filed separately with the Securities and Exchange Commission.
# Management compensatory plan or arrangement.
+ Non-material schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to furnish supplemental copies of any of the
omitted schedules and exhibits upon request by the Securities and Exchange Commission.
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
Seelos Therapeutics, Inc.
|
|
|
Date: November 7, 2019
|
/s/ Raj Mehra, Ph.D.
|
|
Raj Mehra, Ph.D.
|
|
President, Chief Executive Officer,
Chairman of the Board and Interim Chief
Financial Officer
(Principal Executive Officer, Principal
Financial and Accounting Officer)
|
61
Seelos Therapeutics (NASDAQ:SEEL)
過去 株価チャート
から 7 2024 まで 8 2024
Seelos Therapeutics (NASDAQ:SEEL)
過去 株価チャート
から 8 2023 まで 8 2024