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As filed with the U.S. Securities and Exchange
Commission on April 25, 2022
(Address, including zip code, and telephone
number, including area code, of registrant’s principal executive offices)
Ms. Sophie Ye Tao
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
The Registrant hereby
amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
RISK FACTORS
You should consider
carefully the following risk factors, as well as the other information set forth in this proxy statement, before making a decision
on the Business Combination. These risk factors are not exhaustive, and we may face additional risks and uncertainties that are
not presently known to us, or that we currently deem immaterial, which may also impair our business, prospects, financial condition
or operating results. You should carefully consider the following risk factors in addition to the other information included in
this proxy statement/prospectus, including matters addressed in the section titled “Cautionary Note Regarding Forward-Looking
Statements,” before deciding how to vote. The following discussion should be read in conjunction with our financial statements
and the financial statements of Varian Bio and the notes to the financial statements included herein. Risks related to Varian Bio,
including risks related to Varian Bio’s business, financial position and capital requirements, development, regulatory approval
and commercialization, dependence on third parties, intellectual property and taxation, will continue to be applicable to the Combined
Company after the closing of the Business Combination.
Risks Related to Varian Bio’s Business
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
We have incurred
significant losses since our inception and expect to incur losses over the next several years and may not be able to achieve or
sustain revenues or profitability in the future.
Investment
in biopharmaceutical product development is a highly speculative undertaking and entails substantial upfront capital expenditures
and significant risk that any potential product candidate will fail to demonstrate adequate efficacy or an acceptable safety profile,
gain regulatory approval and become commercially viable. We have no products approved for commercial sale and have not generated
any revenue from product sales to date, and we will continue to incur significant research and development and other expenses related
to our ongoing operations.
To
date, Varian Bio has devoted almost all of our financial resources to research and development, including preclinical and clinical
development activities, and Varian Bio expects to continue to incur significant research and development and other expenses.
Preclinical activities include replication of the chemical synthesis of the lead compound or active pharmaceutical ingredient
(“API”), method and process development and validation, initiation of production of API material under good
laboratory practices (“GLP”) for future toxicology studies, formulation of API into topical gels for further
testing, and skin permeation studies. Clinical development activities include initial drafting of protocol synopses for both the
topical formulation and the oral formulation, for first-in-human testing in initial indications, and interfacing with clinical
research organizations, hospitals and potential clinical investigators.
Varian Bio is not profitable and has incurred significant losses since our inception in July 2019. For the years ended
December 31, 2020 and December 31, 2021, Varian Bio reported a net loss of $593,709 and $1,476,991, respectively. As of December
31, 2021, Varian Bio had an accumulated deficit of $2,092,184. We expect to continue to incur significant losses for the foreseeable
future, and we expect these losses to increase substantially if and as we:
| ● | conduct
preclinical
studies
and
clinical
trials
for
our
current
and
future
product
candidates; |
| ● | continue
our research and development efforts, submit Investigational
New Drug (“IND”) applications and
clinically develop our product candidates; |
| ● | seek
marketing
approvals
for
any
product
candidates
that
successfully
complete
clinical
trials; |
| ● | experience
any
delays
or
encounter
any
issues
with
any
of
the
above,
including
but
not
limited
to
manufacturing
issues,
formulation
issues,
failed
pre-clinical
studies,
negative
or
mixed
clinical
trial
results,
safety
issues
or
other
regulatory
challenges,
the
risk
of
which
in
each
case
may
be
exacerbated
by
the
ongoing
COVID-19
pandemic; |
| ● | establish
a
sales,
marketing
and
distribution
infrastructure
and
establish
manufacturing
capabilities,
whether
alone
or
with
third
parties,
to
commercialize
product
candidates
for
which
we
may
obtain
regulatory
approval,
if
any; |
| ● | obtain,
expand,
maintain,
enforce
and
protect
our
intellectual
property
portfolio; |
| ● | hire
additional
clinical,
regulatory
and
scientific
personnel;
and |
| ● | operate
as
a
public
company. |
Because
of the numerous risks and uncertainties associated with biopharmaceutical product development, we are unable to accurately predict
the timing or amount of increased expenses we will incur or when, if ever, we will be able to achieve profitability. Even if we
succeed in commercializing one or more of our product candidates, we will continue to incur substantial research and development
and other expenditures to develop, seek regulatory approval for and potentially market our product candidates. We may encounter
unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The
size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability, if ever, to generate
revenue from our product candidates. Our prior losses and expected future losses have had and will continue to have an adverse
effect on our stockholders’ equity and working capital.
We have not generated
any revenue from our product candidates and may never be profitable. Varian Bio is heavily dependent on the success of
VAR-101/102, our only product candidate.
Our
ability to become profitable depends upon our ability to generate revenue. To date, we have not generated any revenue from any
of our product candidates. We do not expect to generate significant revenue unless or until we successfully complete clinical development
and obtain regulatory approval of, and then successfully commercialize, our product candidates. VAR-101/102, our only product candidate,
is still in the research stage of development. In addition, our product candidates will require additional clinical development,
regulatory review and approval, substantial investment, access to sufficient commercial manufacturing capacity and significant
marketing efforts before we can generate any revenue from product sales. Our ability to generate revenue from our product candidates
depends on a number of factors, including, but not limited to:
| ● | timely
completion
of
our
preclinical
studies
and
planned
clinical
trials,
which
may
be
significantly
slower
or
cost
more
than
we
currently
anticipate
and
will
depend
substantially
upon
the
performance
of
third-party
contractors; |
| ● | our
ability
to
complete
IND-enabling
studies
and
successfully
submit
and
receive
authorizations
to
proceed
under
INDs
or
comparable
applications; |
| ● | whether
we are required by the FDA or similar foreign regulatory authorities to conduct additional
clinical trials or other studies beyond those planned to support the potential approval and
commercialization of our product candidates or of any future product candidates; |
| ● | our
ability
to
demonstrate
to
the
satisfaction
of
the
FDA
and
similar
foreign
regulatory
authorities
the
safety,
potency,
purity,
efficacy
and
acceptable
risk-benefit
profile
of
our
product
candidates
or
any
future
product
candidates; |
| ● | the
prevalence,
duration
and
severity
of
potential
side
effects
or
other
safety
issues
experienced
with
our
product
candidates
or
future
product
candidates,
if
any; |
| ● | the
timely
receipt
of
necessary
marketing
approvals
from
the
FDA
and
similar
foreign
regulatory
authorities; |
| ● | the
willingness
of
physicians,
operators
of
clinics
and
patients
to
utilize
or
adopt
any
of
our
product
candidates
or
future
product
candidates
over
or
to
use
in
combination
with
alternative
or
more
established
therapies; |
| ● | the
actual
and
perceived
availability,
cost,
risk
profile
and
side
effects
and
efficacy
of
our
product
candidates,
if
approved,
relative
to
existing
and
future
alternative
cancer
therapies
and
competitive
product
candidates
and
technologies; |
| ● | our
ability and the ability of third parties with whom we contract to manufacture adequate clinical
and commercial supplies of our product candidates or any future product candidates, remain
in good standing with regulatory authorities and develop, validate and maintain commercially
viable manufacturing processes that are compliant with current good manufacturing practices
(“cGMP”); our ability to successfully develop a commercial strategy and
thereafter commercialize our product candidates or any future product candidates in the United
States and internationally, if approved for marketing, reimbursement, sale and distribution
in such countries and territories, whether alone or in collaboration with others; |
| ● | patient
demand
for
our
product
candidates
and
any
future
product
candidates,
if
approved;
and |
| ● | our
ability
to
establish
and
enforce
intellectual
property
rights
in
and
to
our
product
candidates
or
any
future
product
candidates. |
Many
of the factors listed above are beyond our control and could cause us to experience significant delays or prevent us from obtaining
regulatory approvals or commercializing any of our product candidates. Even if we are able to commercialize our product candidates,
we may not achieve profitability soon after generating product sales, if ever. If we are unable to generate sufficient revenue
through the sale of our product candidates or any future product candidates, we may be unable to continue operations without continued
funding.
We have entered
into a lending arrangement under the terms of certain agreements governing the Bridge Notes, which is secured by substantially all of
our assets. If we are unable to comply with the terms, restrictions and covenants in the agreements governing the Bridge Notes, there
could be a default under the terms of these agreements, which could result in an acceleration of payment of funds that we have borrowed
and could result in the sale of all or substantially all of our assets, including a loss of our license with CRT.
If
we are unable to comply with the restrictions and covenants in the agreements governing the Bridge Notes, there could be a default under
the terms of these agreements. Our ability to comply with these terms, restrictions and covenants, may be affected by events beyond our
control. As a result, we cannot assure you that we will be able to comply with these terms, restrictions and covenants. Any default under
the agreements governing the Bridge Notes that is not waived by the requisite number of lenders, and the remedies sought by the holders
of such indebtedness, could result in the acceleration of payment of funds that we have borrowed and the lenders could pursue certain
remedies that could result in the disposition of all or substantially all of our assets, so that the lenders may secure repayment under
the terms of the Bridge Notes. If we are unable to generate sufficient cash flow, secure the PIPE Investment, or we are otherwise unable
to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness under the Bridge
Notes, or if we otherwise fail to comply with the various terms and covenants, we could be in default under the terms of these agreements.
In the event of such default:
| ● | the
holders of such indebtedness could elect to declare all the funds borrowed thereunder to
be due and payable, together with any premium and accrued and unpaid interest; |
| | |
| ● | the
holders of such indebtedness could pursue certain remedies, which could, among other things,
result in foreclosure proceedings against, or the disposition of all or substantially all
of our assets, including our license with CRT; and |
| | |
| ● | we
could be forced into bankruptcy or liquidation. |
If
we breach our covenants under the agreements governing the Bridge Notes and seek a waiver, we may not be able to obtain a waiver from
the required lenders on terms that are acceptable to us, if at all. If this occurs, we would be in default under the Bridge Notes, the
lenders could exercise their rights, as described above, and we could be forced into bankruptcy or liquidation.
If we are unable
to raise capital when needed, we would be compelled to delay, reduce or eliminate our product development programs or commercialization
efforts.
We
expect our expenses to increase substantially in connection with our ongoing activities, particularly as we commence our planned
clinical trials and any other future clinical trials, and continue our in-licensing and preclinical development activities to identify
new product candidates, and seek marketing approval for, our product candidates. In addition, if we obtain marketing approval for
any of our product candidates, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing
and distribution. Furthermore, upon the closing of the Business Combination, we expect to incur significant additional costs associated
with operating as a public company. Accordingly, we may need to obtain substantial additional funding in connection with our continuing
operations, and we may need to raise additional funding sooner than expected if we choose to expand more rapidly than we presently
anticipate. We cannot be certain that additional funding will be available on acceptable terms, or at all. Further, the duration
and severity of the COVID-19 pandemic and its impact on the economy and financial markets in general could adversely affect our
ability to raise additional capital. Until such time, if ever, as we can generate substantial product revenue, we expect to finance
our operations through a combination of public or private equity offerings, debt financings, collaborations, strategic partnerships
and alliances or marketing, distribution or licensing arrangements with third parties. If we are unable to raise capital when needed
or on acceptable terms, we would be forced to delay, reduce or eliminate our discovery and preclinical development programs or
any future commercialization efforts.
Additionally,
changing circumstances may cause us to consume capital significantly faster than we currently anticipate, and we may need to spend
more money than currently expected because of circumstances beyond our control, including as a result of the COVID-19 pandemic.
In any event, our future capital requirements will depend on many factors, including:
| ● | the scope, progress, results and costs of discovery, preclinical development and clinical trials
for our product candidates; |
| ● | the costs, timing and outcome of regulatory review of our product candidates and any required companion
diagnostic; |
| ● | the extent to which we develop, in-license or acquire other pipeline product candidates or technologies; |
| ● | the costs of future commercialization activities, including product sales, marketing, manufacturing
and distribution, for any of our product candidates for which we receive marketing approval; |
| ● | the costs associated with completing any post-marketing studies or trials required by the FDA or
other regulatory authorities; |
| ● | revenue, if any, received from commercial sales of our product candidates, should any of our product
candidates receive marketing approval; |
| ● | the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining, enforcing
and protecting our intellectual property rights and defending intellectual property-related claims; and |
| ● | to the extent we pursue strategic collaborations, including collaborations to commercialize any
of our product candidates or any companion diagnostic collaborations, our ability to establish and maintain collaborations on favorable
terms, if at all. |
Even
if the Business Combination is successful, we may require additional capital to complete our planned clinical development programs
for our current product candidates to obtain regulatory approval. Any additional capital-raising efforts may divert our management
from their day-to-day activities, which may adversely affect our ability to develop and commercialize our current and future product
candidates, if approved.
Risks Related to
the Development of our Product Candidates
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
We have a limited
operating history and face significant challenges and will incur substantial expenses as we build our capabilities. We have no
history of successfully developing or commercializing any approved therapeutic products, which may make it difficult to evaluate
the success of our business to date and to assess the prospects for our future viability.
We
have a limited operating history and are subject to the risks inherent in a growing company, including, among other things, risks
that we may not be able to hire sufficient qualified personnel and establish operating controls and procedures. We currently do
not have in-house resources to enable our operations. As we build our own capabilities, we expect to encounter risks and uncertainties
frequently experienced by growing companies in new and rapidly evolving fields, including the risks and uncertainties related to
the evolving effects of the COVID-19 pandemic and those described herein. If we are unable to build our own capabilities, our operating
and financial results could differ materially from our expectations, and our business could suffer.
Varian
Bio has not yet demonstrated our ability to complete any early-stage, late-stage or pivotal clinical trials, obtain regulatory approval,
formulate and manufacture a commercial-scale product, or conduct sales and marketing activities necessary for successful product
commercialization or arrange for third parties to do these activities on our behalf. Investment in pharmaceutical product development
is highly speculative because it entails substantial upfront expenditures in contract research organizations (“CROs”),
and contract manufacturing organizations (“CMOs”), and significant risk that any potential product candidate will fail
to demonstrate adequate effect or an acceptable safety profile, gain regulatory approval and become commercially viable. Consequently,
any predictions you may make about our future success or viability may not be as accurate as they could be if Varian Bio had a longer
operating history.
Our development
activities are focused on novel cancer therapeutics for patients with genetically defined cancers and it is difficult to predict
the time and cost of product candidate development and obtaining regulatory approval.
The
discovery and development of novel cancer therapeutics by targeting dysregulated transcription using a biomarker-driven precision
medicine strategy is an emerging field, and the scientific discoveries that form the basis for our efforts to discover and develop
product candidates are relatively new. The scientific evidence to support the feasibility of developing product candidates based
on these discoveries is both preliminary and limited. The patient populations for our product candidates are limited to those with
cancers that exhibit specific target mutations that we believe serve as a genomic biomarker of transcription factor dysregulation,
and may not be completely defined but are substantially smaller than the general treated cancer population, and we will need to
screen and identify those patients who have the targeted mutations. Successful identification of patients is dependent on several
factors, including achieving certainty as to how specific genetic alterations respond to our product candidates and developing
or otherwise obtaining access to satisfactory companion diagnostics to identify such genetic alterations. Furthermore, even if
we are successful in identifying patients, we cannot be certain that the resulting patient populations for each mutation will be
large enough to allow us to successfully obtain approval for each mutation type and commercialize our products and achieve profitability.
In any event, we do not know if our approach of treating patients with genetically defined cancers will be successful, and if our
approach is unsuccessful, our business will suffer and you may lose all or part of your investment.
Drug development
involves a lengthy and expensive process with uncertain outcomes, and the results of preclinical studies and early clinical trials
are not necessarily predictive of future results. We may incur additional costs or experience delays in completing, or ultimately
be unable to complete, the development and commercialization of our other product candidates.
We
are unable to predict when or if our products candidates will prove effective or safe in humans or will obtain marketing approval.
Before obtaining marketing approval from regulatory authorities for the sale of any product candidate, we must complete preclinical
development and then conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans.
Clinical testing is expensive, difficult to design and implement, can take many years to complete and is uncertain as to the outcome.
A failure of one or more clinical trials can occur at any stage of testing. The outcome of preclinical testing and early clinical
trials may not be predictive of the success of later clinical trials, and interim or preliminary results of a clinical trial do
not necessarily predict final results. It is not uncommon to observe results in clinical trials that are unexpected based on preclinical
studies and early clinical trials, and many product candidates fail in clinical trials despite very promising early results. Moreover,
preclinical and clinical data may be susceptible to varying interpretations and analyses. A number of companies in the biopharmaceutical
and biotechnology industries have suffered significant setbacks in clinical development even after achieving promising results
in earlier studies.
We
may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to
obtain marketing approval or commercialize our product candidates, including:
| ● | regulators
or institutional review boards (“IRBs”)/ethics committees (“ECs”)
may not authorize us or our investigators to commence a clinical trial or conduct a clinical
trial at a prospective trial site; |
| ● | we
may
experience
delays
in
reaching,
or
fail
to
reach,
agreement
on
acceptable
clinical
trial
contracts
with
prospective
trial
sites; |
| ● | clinical
trials
for
our
product
candidates
may
produce
negative
or
inconclusive
results,
and
we
may
decide,
or
regulators
may
require
us,
to
conduct
additional
clinical
trials,
delay
clinical
trials
or
abandon
product
development
programs; |
| ● | the
number
of
patients
required
for
clinical
trials
for
our
product
candidates
may
be
larger
than
we
anticipate,
enrollment
in
these
clinical
trials
may
be
slower
than
we
anticipate,
participants
may
drop
out
of
these
clinical
trials
at
a
higher
rate
than
we
anticipate
or
the
duration
of
these
clinical
trials
may
be
longer
than
we
anticipate; |
| ● | competition
for
clinical
trial
participants
from
investigational
and
approved
therapies
may
make
it
more
difficult
to
enroll
patients
in
our
clinical
trials; |
| ● | we
or
potential
future
third-party
collaborators
may
fail
to
obtain
the
clearance
or
approval
of
any
required
companion
diagnostic
on
a
timely
basis,
or
at
all; |
| ● | our
third-party
contractors
may
fail
to
meet
their
contractual
obligations
to
us
in
a
timely
manner,
or
at
all,
or
may
fail
to
comply
with
regulatory
requirements; |
| ● | we
may
have
to
suspend
or
terminate
clinical
trials
for
our
product
candidates
for
various
reasons,
including
a
finding
that
the
participants
are
being
exposed
to
unacceptable
health
risks; |
| ● | our
product
candidates
may
have
undesirable
or
unexpected
side
effects
or
other
unexpected
characteristics,
causing
us
or
our
investigators,
regulators
or
IRBs/ECs
to
suspend
or
terminate
the
trials; |
| ● | the
cost
of
clinical
trials
for
our
product
candidates
may
be
greater
than
we
anticipate;
and |
| ● | the
supply
or
quality
of
our
product
candidates
or
other
materials
necessary
to
conduct
clinical
trials
for
our
product
candidates
may
be
insufficient
or
inadequate
and
result
in
delays
or
suspension
of
our
clinical
trials. |
Our
product development costs will increase if we experience delays in preclinical studies or clinical trials or in obtaining marketing
approvals. We do not know whether any of our planned preclinical studies or clinical trials will begin on a timely basis or at
all, will need to be restructured or will be completed on schedule, or at all.
Significant
preclinical or clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize
our product candidates or allow our competitors to bring products to market before we do and impair our ability to successfully
commercialize our product candidates and may harm our business and results of operations.
Interim, “topline”
and preliminary data from our clinical trials that we announce or publish from time to time may change as more patient data become
available and are subject to audit and verification procedures that could result in material changes in the final data. As a result,
interim and preliminary data should be viewed with caution until the final data are available. Adverse differences between preliminary
or interim data and final data could significantly harm our business and financial prospects.
From
time to time, we may publicly disclose preliminary or top-line data from our preclinical studies and clinical trials, which
is based on a preliminary analysis of then-available data, and the results and related findings and conclusions are subject
to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions,
estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity
to fully and carefully evaluate all data. As a result, the top-line or preliminary results that we report may differ from
future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have
been received and fully evaluated. Top-line data also remain subject to audit and verification procedures that may result
in the final data being materially different from the preliminary data we previously published. As a result, top-line data
should be viewed with caution until the final data are available.
From
time to time, we may also disclose interim data from our preclinical studies and clinical trials. Interim data from clinical trials
that we may complete are subject to the risk that one or more of the clinical outcomes may materially change as patient enrollment
continues and more patient data become available or as patients from our clinical trials continue other treatments for their disease.
Adverse differences between preliminary or interim data and final data could significantly harm our business prospects. Further,
disclosure of interim data by us or by our competitors could result in volatility in the price of our common stock.
Further,
others, including regulatory agencies, may not accept or agree with our assumptions, estimates, calculations, conclusions or analyses
or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability
or commercialization of the particular product candidate or product and our company in general. In addition, the information we
choose to publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information,
and you or others may not agree with what we determine is material or otherwise appropriate information to include in our disclosure.
If the interim, top-line, or preliminary data that we report differ from actual results, or if others, including regulatory authorities,
disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed,
which could harm our business, operating results, prospects or financial condition.
Any delays in
the commencement or completion, or termination or suspension, of our planned or future clinical trials could result in increased
costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
Before
we can initiate clinical trials of a product candidate in any indication, we must submit the results of preclinical studies to
the FDA along with other information, including information about the product candidate’s chemistry, manufacturing and controls
and our proposed clinical trial protocol, as part of an IND or similar regulatory submission under which we must receive authorization
to proceed with clinical development. Clinical testing is expensive, time consuming and uncertain as to outcome. In addition, we
expect to rely in part on preclinical, clinical and quality data generated by our CROs and other third parties for regulatory submissions
for our product candidates. While we have or will have agreements governing these third parties’ services, we have limited
influence over their actual performance. If these third parties do not make data available to us, or, if applicable, make regulatory
submissions in a timely manner, in each case pursuant to our agreements with them, our development programs may be significantly
delayed and we may need to conduct additional studies or collect additional data independently. The FDA may require us to conduct
additional preclinical studies for any product candidate before it allows us to initiate clinical trials under any IND, which may
lead to additional delays and increase the costs of our preclinical development programs.
Any
delays in the commencement or completion of our planned or future pre-clinical and clinical trials could significantly affect our
product development costs. We do not know whether our planned trials will begin on time or be completed on schedule, if at all.
The commencement and completion of pre-clinical and clinical trials can be delayed for a number of reasons, including delays related
to:
| ● | failing to manufacture or obtain sufficient quantities of product candidate or, if applicable,
combination therapies for use in clinical trials; |
| ● | obtaining FDA or foreign regulatory authority authorization to commence a clinical trial or reaching
a consensus with the FDA or a foreign regulatory authority on clinical trial design; |
| ● | any failure or delay in reaching an agreement with CROs and clinical trial sites, the terms of
which can be subject to extensive negotiation and may vary significantly among different CROs and trial sites; |
| ● | obtaining approval from one or more IRBs/ECs; |
| ● | IRBs/ECs refusing to approve, suspending or terminating the trial at an investigational site, precluding
enrollment of additional subjects, or withdrawing their approval of the trial; |
| ● | changes to clinical trial protocol; |
| ● | clinical sites deviating from trial protocol or dropping out of a trial; |
| ● | patients failing to enroll or remain in our trial at the rate we expect, or failing to return for
post-treatment follow-up, including patients failing to remain in our trials due to movement restrictions, health reasons or otherwise
resulting from the evolving effects of the COVID-19 pandemic; |
| ● | patients choosing an alternative treatment, or participating in competing clinical trials; |
| ● | lack of adequate funding to continue the clinical trial; |
| ● | patients experiencing severe or unexpected drug-related adverse effects; |
| ● | occurrence of serious adverse events in trials of the same class of agents conducted by other companies; |
| ● | selecting or being required to use clinical end points that require prolonged periods of clinical
observation or analysis of the resulting data; |
| ● | a facility manufacturing our product candidates or any of their components being ordered by the
FDA or applicable foreign regulatory authorities to temporarily or permanently shut down due to violations of cGMP regulations
or other applicable requirements, or infections or cross- contaminations of product candidates in the manufacturing process; |
| ● | interruptions to operations of clinical sites, manufacturers, suppliers, or other vendors from
a health epidemic or pandemic, such as the COVID- 19 pandemic; |
| ● | any changes to our manufacturing process that may be necessary or desired; |
| ● | third-party
clinical investigators losing the licenses or permits necessary to perform our clinical trials,
not performing our clinical trials on our anticipated schedule or consistent with the clinical
trial protocol, good clinical practices (“GCP”) or other regulatory requirements; |
| ● | us, or our third-party contractors not performing data collection or analysis in a timely or accurate
manner or improperly disclosing data prematurely or otherwise in violation of a clinical trial protocol; |
| ● | third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other
government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute
contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications;
or |
| ● | disruptions caused by the COVID-19 pandemic, which may increase the likelihood that we encounter
difficulties or delays in initiating, enrolling, conducting or completing our planned clinical trials. |
Certain
of our current or future scientific advisors or consultants who may receive compensation from us may become investigators for our
future clinical trials. Under certain circumstances, we may be required to report some of these relationships to the FDA. Although
we expect any such relationships to be within the FDA’s guidelines, the FDA may conclude that a financial relationship between
us and a principal investigator has created a conflict of interest or otherwise affected interpretation of the study. The FDA may
therefore question the integrity of the data generated at the applicable clinical trial site and the utility of the clinical trial
itself may be jeopardized. This could result in a delay in approval, or rejection, of our marketing applications by the FDA and
may ultimately lead to the denial of marketing approval of our product candidates. Moreover, any delays in completing our clinical
trials will increase our costs, slow down our development and approval process and jeopardize our ability to commence product sales
and generate revenues which may harm our business, financial condition, results of operations and prospects significantly.
Varian Bio may
develop product candidates in combination with other therapies, which exposes it to additional risks.
Varian
Bio may develop product candidates in combination with other product candidates or existing therapies. Even if any
product candidate we develop was to receive marketing approval or be commercialized for use in combination with other existing
therapies, we would continue to be subject to the risks that the FDA or similar foreign regulatory authorities could revoke approval
of the therapy used in combination with our product candidate or that safety, efficacy, manufacturing or supply issues could arise
with these existing therapies. This could result in our own products being removed from the market or being less successful commercially.
We
may also evaluate our product candidates in combination with one or more other therapies that have not yet been approved for marketing
by the FDA or similar foreign regulatory authorities. We will not be able to market and sell the product candidates we develop
in combination with any such unapproved therapies that do not ultimately obtain marketing approval.
If
the FDA or similar foreign regulatory authorities do not approve these other drugs or revoke their approval of, or if safety, efficacy,
manufacturing, or supply issues arise with, the drugs we choose to evaluate in combination with our product candidates, we may
be unable to obtain approval of or market the product candidates we develop.
Enrollment and
retention of patients in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered
impossible by multiple factors outside our control, and we may face significant competition for recruiting patients in clinical
trials.
Identifying
and qualifying patients to participate in our clinical trials is critical to our success. Varian Bio may encounter delays in enrolling,
or be unable to enroll, a sufficient number of patients to complete any of our clinical trials, and even once enrolled Varian Bio
may be unable to retain a sufficient number of patients to complete any of our trials.
Factors
that may generally affect patient enrollment include:
| ● | the size and nature of the patient population; |
| ● | the number and location of clinical sites where patients are to be enrolled; |
| ● | the eligibility and exclusion criteria for the trial; |
| ● | the design of the clinical trial; |
| ● | inability to obtain and maintain patient consents; |
| ● | risk that enrolled participants will drop out before completion; |
| ● | competition with other companies for clinical sites or patients and clinicians’ and patients’
perceptions as to the potential advantages of the product being studied in relation to other available therapies, including any
new products that may be approved for the indications Varian Bio is investigating; and |
| ● | other factors outside of our control, such as the ongoing and evolving nature of the COVID-19 pandemic. |
In
addition, our clinical trials will compete with other clinical trials for product candidates that are in the same therapeutic areas
as our product candidates or similar areas, and this competition will reduce the number and types of patients available to us because
some patients who might have opted to enroll in our trials may instead opt to enroll in a trial being conducted by one of our competitors.
Since the number of qualified clinical investigators is limited, we expect to conduct some of our clinical trials at the same clinical
trial sites that some of our competitors use, which will reduce the number of patients who are available for our clinical trials
at such clinical trial sites.
In
addition, if any significant adverse events or other side effects are observed in any of our current or planned clinical trials,
recruitment of patients to our clinical trials may be more difficult for Varian Bio and patients may drop out of our trials, or
we may be required to abandon the trials or our development efforts of one or more product candidates altogether. Varian Bio’s
inability to enroll a sufficient number of patients for our clinical trials would result in significant delays, which would increase
our costs and have an adverse effect on Varian Bio.
Adverse side
effects or other safety risks associated with our product candidates or future product candidates could delay or preclude approval,
cause us to suspend or discontinue clinical trials or abandon further development, limit the commercial profile of an approved
label, or result in significant negative consequences following marketing approval, if any.
Undesirable
side effects caused by our product candidates could result in the delay, suspension or termination of clinical trials by us or
the FDA or foreign regulatory authorities for a number of reasons. Additionally, due to the high mortality rates of the cancers
for which we are initially pursuing development of VAR-101/102, a significant percentage of patients in these clinical trials may
die during a trial, which could impact development of these product candidates. If we elect or are required to delay, suspend or
terminate any clinical trial, the commercial prospects of our product candidates will be harmed and our ability to generate product
revenues from this product candidate will be delayed or eliminated. Serious adverse events observed in clinical trials could hinder
or prevent market acceptance of our product candidates. Any of these occurrences may harm our business, prospects, financial condition
and results of operations significantly.
Moreover,
if our product candidates are associated with undesirable side effects in clinical trials or have characteristics that are unexpected,
we may elect to abandon or limit their development to more narrow uses or subpopulations in which the undesirable side effects
or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective, which may limit the
commercial expectations for our product candidates, if approved. We may also be required to modify our study plans based on findings
in our clinical trials. Many drugs that initially showed promise in early stage testing have later been found to cause side effects
that prevented further development. In addition, regulatory authorities may draw different conclusions or require additional testing
to confirm these determinations.
It
is possible that as we test our product candidates in larger, longer and more extensive clinical trials, including with different
dosing regimens, or as the use of our product candidates becomes more widespread following any regulatory approval, illnesses,
injuries, discomforts and other adverse events that were observed in earlier trials, as well as conditions that did not occur or
went undetected in previous trials, will be reported by patients. If such side effects become known later in development or upon
approval, if any, such findings may harm our business, financial condition, results of operations and prospects significantly.
In
addition, if any of our product candidates receive marketing approval, and we or others later identify undesirable side effects
caused by treatment with such drug, a number of potentially significant negative consequences could result, including:
| ● | regulatory authorities may withdraw or limit their approval of the product; |
| ● | we may be required to recall a product or we may voluntarily remove it from the marketplace; |
| ● | we may be required to change the way the product is administered to patients or conduct additional
clinical trials; |
| ● | regulatory authorities may require additional warnings on the label, such as a “black box”
warning or a contraindication, or issue safety alerts, Dear Healthcare Provider letters, press releases or other communications
containing warnings or other safety information about the product; |
| ● | we
may be required to implement a Risk Evaluation and Mitigation Strategy (“REMS”)
or create a medication guide outlining the risks of such side effects for distribution to
patients; |
| ● | additional restrictions may be imposed on the marketing or promotion of the particular product
or the manufacturing processes for the product or any component thereof; |
| ● | we could be sued and held liable for harm caused to patients; |
| ● | the drug could become less competitive; and |
| ● | our reputation may suffer. |
Any
of these events could prevent us from achieving or maintaining market acceptance of our product candidates, if approved, and could
significantly harm our business, financial condition, results of operations and prospects.
The COVID-19
pandemic could adversely impact our business, including our planned development, manufacturing and pre-clinical studies.
The
COVID-19 pandemic in the United States and in other countries could cause significant disruptions that could severely impact our
business, including:
| ● | delays or difficulties in pre-formulation, formulation and manufacturing activities; |
| ● | delays or difficulties in recruiting advisors and consultants; |
| ● | inability or unwillingness of personnel to travel to the outside vendor sites; |
| ● | delays or difficulties in data collection and analysis and other related activities; |
| ● | interruption of key manufacturing and formulation development, due to limitations on travel imposed
or recommended by federal or state governments, employers and others; |
| ● | limitations in employee and consultant/advisor resources that would otherwise be focused on the
conduct of our research and development activities, including because of sickness of employees or their families or mitigation
measures such as lock-downs and social distancing; |
| ● | changes in local regulations as part of a response to the COVID-19 pandemic which may require us
to change the ways in which our research is conducted, which may result in unexpected costs, delays, or to discontinue the clinical
trials altogether; |
| ● | delays in necessary interactions with local regulators, ethics committees and other important agencies
and contractors due to limitations in employee resources or forced furlough of government employees; and |
| ● | adverse impacts on global economic conditions which could have an adverse effect on our business
and financial condition, including impairing our ability to raise additional capital when needed. |
Such
disruptions could impede, delay, limit or prevent completion of our manufacturing and formulation development, and preclinical
studies or commencement of future clinical trials and ultimately lead to the delay or denial of regulatory approval of our product
candidates, which would seriously harm our operations and financial condition and increase our costs and expenses. Future or revised
stay-at-home orders could result in delays or otherwise negatively impact our development activities. The COVID-19 pandemic could
also affect the business of the FDA or other health authorities which could result in delays in meetings related to planned clinical
trials and ultimately of reviews and approvals of our product candidates. Moreover, to the extent the evolving effects of the COVID-19
pandemic adversely affect our business and financial condition, they may also have the effect of heightening many of the other
risks and uncertainties described elsewhere in this “Risk Factors” section.
The
global COVID-19 pandemic continues to rapidly evolve. The extent to which the COVID-19 pandemic may impact our business, our planned
manufacturing and formulation activities and planned preclinical studies will depend on future developments, which are highly uncertain
and cannot be predicted with confidence, such as the ultimate duration and severity of the pandemic, travel restrictions and social
distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions
taken in the United States and other countries to contain and treat the disease.
We may expend
our limited resources to pursue a particular product candidate or indication and fail to capitalize on product candidates or indications
that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we focus on research programs and product candidates that we identify for specific
indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications
that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on
viable commercial products or profitable market opportunities. Our spending on current and future research and development programs
and product candidates for specific indications may not yield any commercially viable products. If we do not accurately evaluate
the commercial potential or target market for a particular product candidate, we may relinquish valuable rights to that product
candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous
for us to retain sole development and commercialization rights to such product candidate.
Risks Related to
the Commercialization of Our Product Candidates
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
The incidence
and prevalence of the target indications for our product candidates have not been established with precision. If the market opportunities
for our product candidates are smaller than we estimate or if any approval that we obtain is based on a narrower definition of
the patient population, our revenue potential and ability to achieve profitability will be adversely affected.
The
total addressable market opportunity for our product candidates will ultimately depend upon, among other things, the information
included in the final label for each such product candidate if our product candidates are approved for sale for these indications,
acceptance by the medical community and patient access, drug and any related companion diagnostic pricing and their reimbursement.
The number of patients in our targeted commercial markets and elsewhere may turn out to be lower than expected, patients may not
be otherwise amenable to treatment with our products, or new patients may become increasingly difficult to identify or gain access
to, all of which would adversely affect our results of operations and our business.
Even if approved,
our product candidates may not achieve adequate market acceptance among physicians, patients, healthcare payors and others in the
medical community necessary for commercial success.
Even
if our product candidates receive regulatory approval, they may not gain adequate market acceptance among physicians, patients,
healthcare payors and others in the medical community. The degree of market acceptance of any of our approved product candidates
will depend on a number of factors, including:
| ● | the efficacy and safety profile as demonstrated in clinical trials compared to alternative treatments; |
| ● | the timing of market introduction of the product candidate as well as competitive products; |
| ● | the clinical indications for which the product candidate is approved; |
| ● | restrictions on the use of our product candidates, such as boxed warnings or contraindications
in labeling, or a REMS, if any, which may not be required of alternative treatments and competitor products; |
| ● | the potential and perceived advantages of product candidates over alternative treatments; |
| ● | the cost of treatment in relation to alternative treatments; |
| ● | the availability of coverage and adequate reimbursement by third-party payors, including government
authorities, as well as pricing; |
| ● | the willingness of patients to pay insurance deductibles or other cost share amounts, or out of
pocket in the absence of coverage and adequate third party payor reimbursement; |
| ● | the availability of the approved product candidate for use as a combination therapy; |
| ● | relative convenience and ease of administration; |
| ● | the willingness of the target patient population to try new therapies and of physicians to prescribe
these therapies; |
| ● | the effectiveness of sales and marketing efforts; |
| ● | unfavorable publicity relating to our products or product candidates or similar approved products
or product candidates in development by third parties; and |
| ● | the approval of other new therapies for the same indications. |
If
any of our product candidates is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare
payors and patients, we may not generate or derive sufficient revenue from that product candidate and our financial results could
be negatively impacted.
We currently
have no marketing and sales organization and have no experience as a company in marketing products. If we are unable to establish
marketing and sales capabilities or enter into agreements with third parties to market and sell our product candidates,
if approved, we may not be able to generate product revenue.
We
currently have no sales, marketing or distribution capabilities and have no experience as a company in marketing products. We expect
to manage sales, marketing and distribution through internal resources and third-party relationships. We will have to compete with
other pharmaceutical and biotechnology companies to recruit, hire, train and retain marketing and sales personnel. While we may
commit significant financial and management resources to commercial activities, we will also consider collaborating with one or
more pharmaceutical companies to enhance our commercial capabilities.
If
we are unable or decide not to establish internal sales, marketing and distribution capabilities, we will pursue arrangements with
third-party sales, marketing, and distribution collaborators regarding the sales and marketing of our products, if approved. However,
there can be no assurance that we will be able to establish or maintain such arrangements on favorable terms or if at all, or if
we are able to do so, that these third-party arrangements will provide effective sales forces or marketing and distribution capabilities.
Any revenue we receive will depend upon the efforts of such third parties, which may not be successful. We may have little or no
control over the marketing and sales efforts of such third parties and our revenue from product sales may be lower than if we had
commercialized our product candidates ourselves. We also face competition in our search for third parties to assist us with the
sales and marketing efforts of our product candidates.
There
can be no assurance that we will be able to develop in-house sales and distribution capabilities or establish or maintain relationships
with third-party collaborators to commercialize any product in the United States or overseas.
Our business
entails a significant risk of product liability and if we are unable to obtain sufficient insurance coverage such inability could
have an adverse effect on our business and financial condition.
Our
business exposes us to significant product liability risks inherent in the development, testing, manufacturing and marketing of
therapeutic treatments. Product liability claims could delay or prevent completion of our development programs. If we succeed in
marketing products, such claims could result in an FDA, EMA or other regulatory authority investigation of the safety and effectiveness
of our products, our manufacturing processes and facilities or our marketing programs. FDA, EMA or other regulatory authority investigations
could potentially lead to a recall of our products or more serious enforcement action, limitations on the approved indications
for which they may be used or suspension or withdrawal of approvals. Regardless of the merits or eventual outcome, liability claims
may also result in decreased demand for our products, injury to our reputation, costs to defend the related litigation, a diversion
of management’s time and our resources and substantial monetary awards to trial participants or patients. Furthermore, clinical
trial and product liability insurance is becoming increasingly expensive. As a result, we may be unable to obtain sufficient insurance
at a reasonable cost to protect us against losses caused by product liability claims that could have an adverse effect on our business
and financial condition.
Any product
candidates we develop may become subject to unfavorable third-party coverage and reimbursement policies, as well as pricing regulations.
The
availability and extent of coverage and adequate reimbursement by third-party payors, including government health administration
authorities, private health coverage insurers, managed care organizations and other third-party payors is essential for most patients
to be able to afford expensive treatments. Sales of any of our product candidates that receive marketing approval will depend substantially,
both in the United States and internationally, on the extent to which the costs of our product candidates will be covered and reimbursed
by third-party payors. If coverage is not available, or is available only to limited indications or strict coverage criteria, we
may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain pricing sufficient to realize an adequate return on our investment.
Coverage and reimbursement may impact the demand for, or the price of, any product candidate for which we obtain marketing approval.
If coverage and reimbursement are not available or reimbursement is available only to limited levels, we may not successfully commercialize
any product candidate for which we obtain marketing approval.
There
is significant uncertainty related to third-party payor coverage and
reimbursement of newly approved products. In the United States, third- party payors, including private and governmental payors, such as
the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs will be covered and reimbursed.
The Centers for Medicare & Medicaid Services (“CMS”), an agency within the U.S. Department of Health and Human
Services (“HHS”) responsible for administering the Medicare program, determines whether and to what extent a new product
will be covered and reimbursed under Medicare. The Medicare program is increasingly used as a model for how private payors and other governmental
payors develop their coverage and reimbursement policies for drug products. One third-party payor’s determination to provide coverage
for a drug product, however, does not assure that other payors will also provide coverage for the product. As a result, the coverage determination
process is often time- consuming and costly. This process will require us to provide scientific and clinical support for the use of our
products to each third-party payor separately, with no assurance that coverage and adequate reimbursement will be applied consistently
or obtained in the first instance.
For
products administered under the supervision of a physician, obtaining coverage and adequate reimbursement may be particularly difficult
because of the higher prices often associated with such drugs. Additionally, separate reimbursement for the product itself or the
treatment or procedure in which the product is used may not be available, which may impact physician utilization.
Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts from list prices and are challenging
the prices charged for medical products. Further, such payors are increasingly challenging the price, examining the medical necessity
and reviewing the cost effectiveness of medical product candidates. There may be significant delays in obtaining coverage and reimbursement
for newly approved drugs. Third-party payors may limit coverage to specific product candidates on an approved list, known as a
formulary, which might not include all FDA-approved drugs for a particular indication. We may need to conduct expensive pharmacoeconomic
studies to demonstrate the medical necessity and cost effectiveness of our products. Nonetheless, our product candidates may not
be considered medically necessary or cost effective. We cannot be sure that coverage and reimbursement will be available for any
product that we commercialize and, if reimbursement is available, what the level of reimbursement will be.
Outside
the United States, international operations are generally subject to extensive governmental price controls and other market regulations,
and we believe the increasing emphasis on cost containment initiatives in Europe, Canada and other countries has and will continue
to put pressure on the pricing and usage of therapeutics such as our product candidates. In many countries, particularly the countries
of the European Union, medical product prices are subject to varying price control mechanisms as part of national health systems.
In these countries, pricing negotiations with governmental authorities can take considerable time after a product receives marketing
approval. 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 product candidate to other available therapies. In general, product prices under such systems are
substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor
and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount
that we are able to charge for our product candidates. Accordingly, in markets outside the United States, the reimbursement for
our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenue
and profits.
If
we are unable to establish or sustain coverage and adequate reimbursement for any future product candidates from third-party payors,
the adoption of those products and sales revenue will be adversely affected, which, in turn, could adversely affect the ability
to market or sell those product candidates, if approved. Coverage policies and third-party payor reimbursement rates may change
at any time. Even if favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
We face substantial
competition, which may result in others discovering, developing or commercializing products before or more successfully than we
do.
The
development and commercialization of pharmaceutical products is highly competitive. We face competition with respect to our current
product candidates, and will face competition with respect to any product candidates that we may seek to develop or commercialize
in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. There
are a number of large pharmaceutical and biotechnology companies that currently market and sell products or are pursuing the development
of products for the treatment of the disease indications for which we are developing our product candidates. Some of these competitive
products and therapies are based on scientific approaches that are similar to our approach, and others are based on entirely different
approaches. Potential competitors also include academic institutions, government agencies and other public and private research
organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development,
manufacturing and commercialization.
There
are a large number of pharmaceutical and biotechnology companies developing or marketing targeted treatments for cancer that would
be competitive with the product candidates we are developing, if our product candidates are approved. Many of these companies are
developing cancer therapeutics that are also kinase inhibitors.
Many
of the companies against which we are competing or against which we may compete in the future have significantly greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining
marketing approvals and marketing and selling approved products than we do. Mergers and acquisitions in the pharmaceutical and
biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller
and other early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management
and sales and marketing personnel, establishing clinical trial sites and patient registration for clinical trials, as well as in
acquiring technologies complementary to, or necessary for, our programs.
Our
commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more
effective, have fewer or less severe side effects, are approved for broader indications or patient populations, are more convenient
or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other marketing approval for
their products more rapidly than any approval we may obtain for ours, which could result in our competitors establishing a strong
market position before we are able to enter the market. In addition, our ability to compete may be affected in many cases by insurers
or other third-party payors seeking to encourage the use of generic products. Generic products are currently on the market for
some of the indications that we are pursuing, and additional products are expected to become available on a generic basis over
the coming years. If our product candidates achieve marketing approval, we expect that they will be priced at a significant premium
over any competitive generic products.
Risks Related to
Regulatory Approval and Other Legal Compliance Matters
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
The regulatory
approval processes of the FDA and applicable foreign regulatory authorities are lengthy, time-consuming and inherently unpredictable.
We may be unable to obtain U.S. or foreign regulatory approvals and, as a result, may be unable to commercialize our product candidates.
Rigorous
preclinical testing and clinical trials and an extensive regulatory approval process must be successfully completed in the United
States and in many foreign jurisdictions before a new drug can be marketed. Satisfaction of these and other regulatory requirements
is costly, time consuming, uncertain and subject to unanticipated delays. We cannot provide any assurance that any product candidate
we may develop will progress through required clinical testing and obtain the regulatory approvals necessary for us to begin selling
them.
As
a company, we have not conducted any pre-clinical studies or clinical trials of any product candidates, nor have we managed the
regulatory approval process with the FDA or any other regulatory authority. The time required to obtain approvals from the FDA
and other regulatory authorities is unpredictable, and requires successful completion of extensive clinical trials which typically
takes many years, depending upon the type, complexity and novelty of the product candidate. The standards that the FDA and its
foreign counterparts use when evaluating clinical trial data can and often changes during drug development, which makes it difficult
to predict with any certainty how they will be applied. We may also encounter unexpected delays or increased costs due to new government
regulations, including future legislation or administrative action, or changes in FDA policy during the period of drug development,
clinical trials and FDA regulatory review.
Any
delay or failure in seeking or obtaining required approvals would have a material and adverse effect on our ability to generate
revenue from the particular product candidate for which we are developing and seeking approval. Furthermore, any regulatory approval
to market a drug may be subject to significant limitations on the approved uses or indications for which we may market the drug
or the labeling or other restrictions. In addition, the FDA has the authority to require a REMS as part of approving an NDA, or
after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug. These requirements
or restrictions might include limiting prescribing to certain physicians or medical centers that have undergone specialized training,
limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry. These
limitations and restrictions may significantly limit the size of the market for the drug and affect reimbursement by third-party
payors.
A Breakthrough
Therapy designation by the FDA, even if granted for any of our product candidates, may not lead to a faster development or regulatory
review or approval process, and it does not increase the likelihood that our product candidates will receive marketing approval.
We
may seek a Breakthrough Therapy designation for our product candidates if the clinical data support such a designation for one
or more product candidates. A Breakthrough Therapy is defined as a drug or biologic that is intended, alone or in combination with
one or more other drugs or biologics, to treat a serious or life-threatening disease or condition and preliminary clinical
evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant
endpoints, such as substantial treatment effects observed early in clinical development. For product candidates that have been
designated as Breakthrough Therapies, interaction and communication between the FDA and the sponsor can help to identify the most
efficient path for clinical development. Drugs designated as breakthrough therapies by the FDA may also be eligible for priority
review.
Designation
as a Breakthrough Therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets
the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation.
In any event, the receipt of a Breakthrough Therapy designation for a product candidate may not result in a faster development
process, review or approval compared to drugs considered for approval under non-expedited FDA review procedures and does not
assure ultimate approval by the FDA. In addition, even if one or more of our product candidates qualify as Breakthrough Therapies,
the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA
review or approval will not be shortened.
We may in the
future conduct clinical trials for our product candidates outside the United States, and the FDA and comparable foreign regulatory
authorities may not accept data from such trials.
We
may in the future choose to conduct one or more clinical trials outside the United States, including in Europe. The acceptance
of study data from clinical trials conducted outside the United States or another jurisdiction by the FDA or comparable foreign
regulatory authority may be subject to certain conditions or may not be accepted at all. In cases where data from foreign clinical
trials are intended to serve as the basis for marketing approval in the United States, the FDA will generally not approve the application
on the sole basis of foreign data unless (i) the data are applicable to the U.S. population and U.S. medical practice; (ii) the
trials were performed by clinical investigators of recognized competence; and (iii) the data are considered valid without the need
for an on-site inspection by the FDA or, if the FDA considers such an inspection to be necessary, the FDA is able to validate the
data through an on-site inspection or other appropriate means. Otherwise, for studies that are conducted at sites outside of the
United States and not subject to an IND and which are intended to support a marketing application, the FDA requires the clinical
trial to have been conducted in accordance with GCP requirements and the FDA must be able to validate the data from the clinical
trial through an onsite inspection if it deems such inspection necessary. Additionally, the FDA’s clinical trial requirements,
including sufficient size of patient populations and statistical powering, must be met. Many foreign regulatory authorities have
similar approval requirements. In addition, such foreign trials would be subject to the applicable local laws of the foreign jurisdictions
where the trials are conducted. There can be no assurance that the FDA or any comparable foreign regulatory authority will accept
data from trials conducted outside of the United States or the applicable jurisdiction. If the FDA or any comparable foreign regulatory
authority does not accept such data, it would result in the need for additional trials, which could be costly and time-consuming,
and which may result in product candidates that we may develop not receiving approval for commercialization in the applicable jurisdiction.
Obtaining and
maintaining regulatory approval of our product candidates in one jurisdiction does not mean that we will be successful in obtaining
regulatory approval of our product candidates in other jurisdictions.
Obtaining
and maintaining regulatory approval of our product candidates in one jurisdiction does not guarantee that we will be able to obtain
or maintain regulatory approval in any other jurisdiction. For example, even if the FDA grants regulatory approval of a product
candidate, comparable regulatory authorities in foreign jurisdictions must also approve the manufacturing, marketing and promotion
and reimbursement of the product candidate in those countries. However, a failure or delay in obtaining regulatory approval in
one the regulatory approval process in others. Approval procedures vary among jurisdictions and can involve requirements and administrative
review periods different from those in the United States, including additional preclinical studies or clinical trials as clinical
trials conducted in one jurisdiction may not be accepted by regulatory authorities in other jurisdictions. In many jurisdictions
outside the United States, a product candidate must be approved for reimbursement before it can be approved for sale in that jurisdiction.
In some cases, the price that we intend to charge for our products is also subject to approval.
Obtaining
foreign regulatory approvals and establishing and maintaining compliance with foreign regulatory requirements could result in significant
delays, difficulties and costs for us and could delay or prevent the introduction of our products in certain countries. If we or
any future collaborator fail to comply with the regulatory requirements in international markets or fail to receive applicable
marketing approvals, our target market will be reduced and our ability to realize the full market potential of our product candidates
will be harmed.
Even if our
product candidates receive regulatory approval, they will be subject to significant post-marketing regulatory requirements and
oversight. Additionally, our product candidates, if approved, could be subject to labeling and other restrictions on marketing
or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience
unanticipated problems with our product candidates, when and if any of them are approved.
Following
any regulatory approvals, our products will be subject to extensive governmental regulations relating to, among other things, research,
testing, development, manufacturing, safety, efficacy, approval, recordkeeping, reporting, labeling, storage, packaging, advertising
and promotion, pricing, marketing and distribution of drugs. Any regulatory approvals that we may receive for our product candidates
will require the submission of reports to regulatory authorities and surveillance to monitor the safety and efficacy of the product
candidate, may contain significant limitations related to use restrictions for specified age groups, warnings, precautions or contraindications,
and may include burdensome post-approval study or risk management requirements. For example, the FDA may require a REMS in order
to approve our product candidates, which could entail requirements for a medication guide, physician training and communication
plans or additional elements to ensure safe use, such as restricted distribution methods, patient registries and other risk minimization
tools. In addition, if the FDA or foreign regulatory authorities approve our product candidates, the manufacturing processes, labeling,
packaging, distribution, adverse event reporting, storage, advertising, promotion, import, export and recordkeeping for our product
candidates will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and
other post-marketing information and reports, registration, as well as on-going compliance with cGMPs and GCP for any clinical
trials that we conduct post-approval. In addition, manufacturers of drug products and their facilities are subject to continual
review and periodic, unannounced inspections by the FDA and other regulatory authorities for compliance with cGMP regulations and
standards. If we or a regulatory agency discover previously unknown problems with a product, such as adverse events of unanticipated
severity or frequency, or problems with the facilities where the product is manufactured, a regulatory agency may impose restrictions
on that product, the manufacturing facility or us, including requiring recall or withdrawal of the product from the market or suspension
of manufacturing. In addition, failure to comply with FDA and comparable foreign regulatory requirements may subject our company
to administrative or judicially imposed sanctions, including:
| ● | delays in or the rejection of product approvals; |
| ● | restrictions on our ability to conduct clinical trials, including full or partial clinical holds
on ongoing or planned trials; |
| ● | restrictions on the products, manufacturers or manufacturing process; |
| ● | warning or untitled letters; |
| ● | civil and criminal penalties; |
| ● | suspension or withdrawal of regulatory approvals; |
| ● | product seizures, detentions or import bans; |
| ● | voluntary or mandatory product recalls and publicity requirements; |
| ● | total or partial suspension of production; and |
| ● | imposition of restrictions on operations, including costly new manufacturing requirements. |
The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate
revenue and could require us to expend significant time and resources in response and could generate negative publicity.
The
FDA’s and other regulatory authorities’ policies may change, and additional government regulations may be enacted that
could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing
requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose
any marketing approval that we may have obtained, and we may not achieve or sustain profitability.
We
also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
or executive action, either in the United States or abroad. For example, certain policies of the current U.S. administration may
impact our business and industry. Namely, the current U.S. administration has taken several executive actions, including the issuance
of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, the FDA’s ability
to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance,
and review and approval of marketing applications. It is difficult to predict how these executive actions, including the Executive
Orders, will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority.
If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the
normal course, our business may be negatively impacted.
If
we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are
not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve
or sustain profitability, which would adversely affect our business, prospects, financial condition and results of operations.
The FDA and
other regulatory agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses.
If
any of our product candidates are approved and we are found to have improperly promoted off-label uses of those products, we may
become subject to significant liability. The FDA and other regulatory agencies 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 or such other regulatory agencies as reflected in the product’s approved labeling.
If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner
that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant
liability. The U.S. federal government has levied large civil and criminal fines against companies for alleged improper promotion
of off-label use and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies
enter into consent decrees or permanent injunctions under which specified promotional conduct is 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 and financial condition.
If we are required
by the FDA to obtain approval of a companion diagnostic test in connection with approval of any of our product candidates, and
we do not obtain or face delays in obtaining FDA approval of a diagnostic device, we will not be able to commercialize such product
candidate and our ability to generate revenue will be materially impaired.
If
safe and effective use of any of our product candidates depends on an in vitro diagnostic that is not otherwise commercially
available, then the FDA generally will require approval or clearance of that diagnostic, known as a companion diagnostic, at the
same time that the FDA approves our product candidates if at all. If a satisfactory companion diagnostic is not commercially available,
we may be required to create or obtain one that would be subject to regulatory approval requirements. The process of obtaining
or creating such diagnostic is time consuming and costly.
Companion
diagnostics are developed in conjunction with clinical programs for the associated therapeutic product candidate and are subject
to regulation as medical devices by the FDA and comparable regulatory authorities, and, to date, the FDA has required premarket
approval of all companion diagnostics for cancer therapies. The approval of a companion diagnostic as part of the therapeutic product’s
labeling limits the use of the therapeutic product to only those patients who express the specific genetic alteration that the
companion diagnostic was developed to detect.
If
the FDA or a comparable foreign regulatory authority requires approval of a companion diagnostic for any of our product candidates,
whether before or after it obtains marketing approval, we, and/or future collaborators, may encounter difficulties in developing
and obtaining approval for such product candidate. Any delay or failure by us or third-party collaborators to develop or obtain
regulatory approval of a companion diagnostic could delay or prevent approval or continued marketing of such product candidate.
We
may also experience delays in developing a sustainable, reproducible and scalable manufacturing process for the companion diagnostic
or in transferring that process to commercial partners or negotiating insurance reimbursement plans, all of which may prevent us
from completing our clinical trials or commercializing our product candidate, if approved, on a timely or profitable basis, if
at all.
Disruptions
at the FDA, the SEC and other government agencies caused by funding shortages or global health concerns could hinder their ability
to hire and retain key leadership and other personnel, or otherwise prevent new or modified products from being developed, approved
or commercialized in a timely manner or at all, or otherwise prevent those agencies from performing normal business functions on
which the operation of our business may rely, which could negatively impact our business.
The
ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and
funding levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy
changes, and other events that may otherwise affect the FDA’s ability to perform routine functions. Average review times
at the agency have fluctuated in recent years as a result. In addition, government funding of the SEC, and other government agencies
on which our operations may rely, including those that fund research and development activities is subject to the political process,
which is inherently fluid and unpredictable.
Disruptions
at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary government
agencies, which would adversely affect our business. For example, in recent years, including in 2018 and 2019, the U.S. government
shut down several times and certain regulatory agencies, such as the FDA and the SEC, had to furlough critical employees and stop
critical activities. Separately, in response to the COVID-19 pandemic, on March 10, 2020 the FDA announced its intention to postpone
most inspections of foreign manufacturing facilities and products through April 2020. On March 18, 2020, the FDA temporarily postponed
routine surveillance inspections of domestic manufacturing facilities and provided guidance regarding the conduct of clinical trials.
Subsequently, on July 10, 2020 the FDA announced its intention to resume certain on-site inspections of domestic manufacturing
facilities subject to a risk-based prioritization system. The FDA intends to use this risk-based assessment system to identify
the categories of regulatory activity that can occur within a given geographic area, ranging from mission critical inspections
to resumption of all regulatory activities. Regulatory authorities outside the United States may adopt similar restrictions or
other policy measures in response to the COVID-19 pandemic. If a prolonged government shutdown occurs, or if global health concerns
continue to prevent the FDA or other regulatory authorities from conducting their regular inspections, reviews, or other regulatory
activities, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which
could have a material adverse effect on our business. Further, after the Business Combination in our operations as a public company,
future government shutdowns or delays could impact our ability to access the public markets and obtain necessary capital in order
to properly capitalize and continue our operations.
We may face
difficulties from changes to current regulations and future legislation.
Existing
regulatory policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory
approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise
from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes
in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance,
we may not achieve or sustain profitability.
For
example, in March 2010, the Patient Protection and Affordable Care
Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “ACA”), was
passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts
the U.S. pharmaceutical industry. There remain judicial and Congressional challenges to certain aspects of the ACA, as well as efforts
by the Trump administration to repeal or replace certain aspects of the ACA. Since January 2017, President Trump has signed several Executive
Orders and other directives designed to delay the implementation of certain provisions of the ACA or otherwise circumvent some of the
requirements for health insurance mandated by the ACA. Concurrently, Congress has considered legislation that would repeal or repeal and
replace all or part of the ACA. While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation
of certain taxes under the ACA have passed. On December 22, 2017, President Trump signed into law federal tax legislation commonly referred
to as the Tax Cuts and Jobs Act (“Tax Act”), which includes a provision repealing, effective January 1, 2019, the tax-based
shared responsibility payment imposed by the ACA on certain individuals who fail to maintain qualifying health coverage for all or part
of a year that is commonly referred to as the “individual mandate”. In addition, the 2020 federal spending package permanently
eliminated, effective January 1, 2020, the ACA-mandated “Cadillac” tax on high-cost employer-sponsored health coverage and
medical device tax and, effective January 1, 2021, also eliminates the health insurer tax. The Bipartisan Budget Act of 2018 (BBA), among
other things, amended the ACA, effective January 1, 2019, to close the coverage gap in most Medicare Part D drug plans. In December 2018,
CMS published a new final rule permitting further collections and payments to and from certain ACA-qualified health plans and health insurance
issuers under the ACA risk adjustment program in response to the outcome of federal district court litigation regarding the method CMS
uses to determine this risk adjustment. On December 14, 2018, a Texas U.S. District Court Judge ruled that the ACA is unconstitutional
in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Act. On December 18, 2019, the
U.S. Court of Appeals for the 5th Circuit ruled that the individual mandate was unconstitutional and remanded the case back to the District
Court to determine whether the remaining provisions of the ACA are invalid as well. On March 2, 2020, the U.S. Supreme Court granted the
petitions for writs of certiorari to review the case, although it is unclear when a decision will be made or how the Supreme Court will
rule. In addition, there may be other efforts to challenge, repeal or replace the ACA. We are continuing to monitor any changes to the
ACA that, in turn, may potentially impact our business in the future.
In addition,
other legislative changes have been proposed and adopted in the United States since the ACA was enacted. These changes included aggregate
reductions to Medicare payments to providers of 2% per fiscal year, effective April 1, 2013, which, due to subsequent legislative amendments,
will stay in effect through 2030 unless additional congressional action is taken. The Coronavirus Aid, Relief and Economic Security Act
(“CARES Act”), which was signed into law in March 2020 and is designed to provide financial support and resources
to individuals and businesses affected by the COVID-19 pandemic, suspended the 2% Medicare sequester from May 1, 2020 through December
31, 2020, and extended the sequester by one year, through 2030. In January 2013, President Obama signed into law the American Taxpayer
Relief Act of 2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of limitations
period for the government to recover overpayments to providers from three to five years. These new laws may result in additional reductions
in Medicare and other healthcare funding, which could have a material adverse effect on customers for our drugs, if approved, and accordingly,
our financial operations.
Moreover,
there has been heightened governmental scrutiny recently over the manner in which drug manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed
to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drug products. For example, at the federal level, the
Trump administration released a “Blueprint” to lower drug prices and reduce out of pocket costs of drugs that contains
additional proposals to increase manufacturer competition, increase the negotiating power of certain federal healthcare programs,
incentivize manufacturers to lower the list price of their products and reduce the out of pocket costs of drug products paid by
consumers. On March 10, 2020, the Trump administration sent “principles” for drug pricing to Congress, calling for
legislation that would among other things, cap Medicare Part D beneficiary out-of-pocket pharmacy expenses, provide an option
to cap Medicare Part D beneficiary monthly out-of-pocket expenses, and place limits on pharmaceutical price increases. Additionally,
the Trump administration’s budget proposal for the fiscal year 2021 includes a $135 billion allowance to support legislative
proposals seeking to reduce drug prices, increase competition, lower out-of-pocket drug costs for patients, and increase patient
access to lower-cost generic and biosimilar drugs. Further, on July 24, 2020, the Trump administration announced four executive
orders related to prescription drug pricing that attempt to implement several of the administration’s proposals, including
a policy that would tie Medicare Part B drug prices to international drug prices; one that directs HHS to finalize the Canadian
drug importation proposed rule previously issued by HHS and makes other changes allowing for personal importation of drugs from
Canada; one that directs HHS to finalize the rulemaking process on modifying the anti-kickback law safe harbors for discounts
for plans, pharmacies, and pharmaceutical benefit managers; and one that reduces costs of insulin and epipens to patients of federally
qualified health centers. Although a number of these and other measures may require additional authorization to become effective,
Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative
measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations
designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts,
restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to
encourage importation from other countries and bulk purchasing.
We
expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous
coverage criteria and in additional downward pressure on the price that we receive for any approved product. Any reduction in reimbursement
from Medicare or other government programs may result in a similar reduction in payments from private payors. The implementation
of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability
or commercialize our product candidates. It is possible that additional governmental action is taken to address the COVID-19 pandemic.
For example, on August 6, 2020, the Trump administration issued another executive order that instructs the federal government to
develop a list of “essential” medicines and then buy them and other medical supplies from U.S. manufacturers instead
of from companies around the world, including China. The order is meant to reduce regulatory barriers to domestic pharmaceutical
manufacturing and catalyze manufacturing technologies needed to keep drug prices low and the production of drug products in the
United States.
Legislative
and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for
biotechnology products. We cannot be sure whether additional legislative changes will be enacted, or whether 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 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 testing and other requirements.
Varian Bio’s
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse, transparency
and other healthcare laws and regulations, which, if violated, could expose us to criminal sanctions, civil penalties, contractual
damages, reputational harm, administrative burdens and diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors will play a primary role in the recommendation and prescription of any product
candidates for which Varian Bio obtains marketing approval. Our current and future arrangements with healthcare providers, third-party payors
and customers may expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain
the business or financial arrangements and relationships through which Varian Bio researches, and if approved, markets, sells and
distributes our products. Restrictions under applicable federal and state healthcare laws and regulations, include the following:
| ● | the federal Anti-Kickback Statute prohibits persons from, among other things, knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward,
or in return for, the referral of an individual for the furnishing or arranging for the furnishing, or the purchase, lease or order,
or arranging for or recommending purchase, lease or order, of any good or service for which payment may be made under a federal
healthcare program, such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the federal Anti-Kickback Statute
or specific intent to violate it to have committed a violation. Violations are subject to civil and criminal fines and penalties
for each violation, plus up to three times the remuneration involved, imprisonment, and exclusion from government healthcare programs.
In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the federal False Claims Act or federal civil money penalties; |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, including the federal
False Claims Act, which can be enforced through civil whistleblower or qui tam actions, prohibit individuals or
entities from, among other things knowingly presenting, or causing to be presented, to the federal government or a government contractor,
grantee, or other recipient of federal funds, claims for payment that are false or fraudulent or making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government. Manufacturers can be held liable under the federal False
Claims Act even when they do not submit claims directly to government payors if they are deemed to “cause” the submission
of false or fraudulent claims. The federal False Claims Act also permits a private individual acting as a “whistleblower”
to bring actions on behalf of the federal government alleging violations of the federal False Claims Act and to share in any monetary
recovery; |
| ● | the federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created
new federal criminal statutes that prohibit a person from knowingly and willfully executing, or attempting to execute, a scheme
to defraud any healthcare benefit program or obtain, by means of false or fraudulent pretenses, representations or promises, any
of the money or property owned by, or under the custody or control of, any healthcare benefit program, regardless of the payor
(e.g., public or private) and knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact
or making any materially false, fictitious, or fraudulent statements or representations in connection with the delivery of, or
payment for, healthcare benefits, items or services relating to healthcare matters; similar to the federal Anti-Kickback Statute,
a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed
a violation; |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of
2009, or HITECH and their respective implementing regulations, including the Final Omnibus Rule published in January 2013, and
their implementing regulations, imposes obligations on certain healthcare providers, health plans and healthcare clearinghouses,
known as covered entities, as well as their business associates, which are individuals and entities that perform certain services
involving the use or disclosure of individually identifiable health information, including mandatory contractual terms, with respect
to safeguarding the privacy, security and transmission of individually identifiable health information. HITECH also created new
tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates,
and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the
federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions. In addition, there
may be additional federal, state and non-U.S. laws which govern the privacy and security of health and other personal information
in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating
compliance efforts; |
| ● | the U.S. federal transparency requirements under the ACA, including the provision commonly referred
to as the Physician Payments Sunshine Act, and its implementing regulations, which requires applicable manufacturers of drugs,
devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health
Insurance Program to report annually to CMS, information related to payments or other transfers of value made to physicians (defined
to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, as well as ownership and investment
interests held by the physicians described above and their immediate family members. Effective January 1, 2022, these reporting
obligations will extend to include transfers of value made to certain non-physician providers such as physician assistants
and nurse practitioners; and |
| ● | Varian
Bio is subject to state and foreign equivalents of each of the healthcare laws and regulations
described above, among others, some of which may be broader in scope and may apply regardless
of the payor. Many of the U.S. states have adopted laws similar to the federal Anti-Kickback Statute
and False Claims Act, and may apply to our business practices, including, but not limited
to, research, distribution, sales or marketing arrangements and claims involving healthcare
items or services reimbursed by non-governmental payors, including private insurers.
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 and/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 and require the registration of pharmaceutical sales representatives. State and
foreign laws, including for example the European Union General Data Protection Regulation
(the “EU GDPR”), which became effective May 2018 also govern the privacy
and security of health information in some circumstances, many of which differ from each
other in significant ways and often are not preempted by HIPAA, thus complicating compliance
efforts. There are ambiguities as to what is required to comply with these state requirements
and if Varian Bio or our employees fail to comply with an applicable state law requirement
the company could be subject to penalties. Finally, there are state and foreign laws governing
the privacy and security of health information, many of which differ from each other in significant
ways and often are not preempted by HIPAA, thus complicating compliance efforts. Efforts
to ensure that our business arrangements with third parties comply with applicable healthcare
laws and regulations will involve substantial costs. It is possible that governmental authorities
will conclude that Varian Bio’s business practices may not comply with current or future
statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare
laws and regulations. If our operations are found to be in violation of any of these laws
or any other governmental regulations that may apply to us, Varian Bio may be subject to
significant civil, criminal and administrative penalties, damages, fines, disgorgement, imprisonment,
exclusion from government funded healthcare programs, such as Medicare and Medicaid, integrity
oversight and reporting obligations, and the curtailment or restructuring of our operations.
If any of the physicians or other healthcare providers or entities with whom Varian Bio expects
to do business is found not to be in compliance with applicable laws, that person or entity
may be subject to criminal, civil or administrative sanctions, including exclusions from
government funded healthcare programs. |
Failure to comply
with health and data protection laws and regulations could lead to government enforcement actions (which could include civil or
criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
Varian
Bio and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws
and regulations that address privacy and data security). In the United States, numerous federal and state laws and regulations,
including federal health information privacy laws, state data breach notification laws, state health information privacy laws,
and federal and state consumer protection laws (e. g., Section 5 of the Federal Trade Commission Act and California Consumer Privacy
Act of 2018, or CCPA), that govern the collection, use, disclosure and protection of health-related and other personal information
could apply to our operations or the operations of our collaborators. The state of California, for example, recently adopted the
CCPA, which became effective January 2020. The CCPA has been characterized as the first “GDPR-like” privacy statute
to be enacted in the United States because it mirrors a number of the key provisions of the EU GDPR. The CCPA establishes a new
privacy framework for covered businesses by creating an expanded definition of personal information, establishing new data privacy
rights for consumers in the State of California, imposing special rules on the collection of consumer data from minors, and creating
a new and potentially severe statutory damages framework for violations of the CCPA and for businesses that fail to implement reasonable
security procedures and practices to prevent data breaches. In addition, Varian Bio may obtain health information from third parties
(including research institutions from which Varian Bio obtains clinical trial data) that are subject to privacy and security requirements
under HIPAA, as amended by HITECH. Depending on the facts and circumstances, Varian Bio could be subject to civil, criminal, and
administrative penalties if Varian Bio knowingly obtain, use, or disclose individually identifiable health information maintained
by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Compliance
with the U.S. and international data protection laws and regulations, including the EU GDPR and other European Union data protection
laws, could require us to take on more onerous obligations in our contracts, restrict our ability to collect, use and disclose
data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws and regulations
could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation,
and/or adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial subjects, employees
and other individuals about whom Varian Bio or our potential collaborators obtain personal information, as well as the providers
who share this information with us, may limit our ability to collect, use and disclose the information. Claims that Varian Bio
has violated individuals’ privacy rights, failed to comply with data protection laws, or breached our contractual obligations,
even if Varian Bio is not found liable, could be expensive and time-consuming to defend and could result in adverse publicity
that could harm our business.
Varian
Bio is subject to U.S. and certain foreign export and import controls, sanctions, embargoes, anti-corruption laws, and anti-money
laundering laws and regulations. Compliance with these legal standards could impair our ability to compete in domestic and international
markets. Varian Bio can face criminal liability and other serious consequences for violations, which can harm our business.
Varian
Bio is subject to export control and import laws and regulations, including the U.S. Export Administration Regulations, U.S. Customs
regulations, various economic and trade sanctions regulations administered by the U.S. Treasury Department’s Office of Foreign
Assets Controls, the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.S. domestic bribery statute contained in 18
U.S.C. § 201, the U.S. Travel Act, the USA PATRIOT Act, and other state and national anti-bribery and anti-money laundering
laws in the countries in which Varian Bio conducts activities. Anti-corruption laws are interpreted broadly and prohibit companies
and their employees, agents, contractors, and other collaborators from authorizing, promising, offering, or providing, directly
or indirectly, improper payments or anything else of value to recipients in the public or private sector. Varian Bio may engage
third parties to sell our products outside the United States, to conduct clinical trials, and/or to obtain necessary permits, licenses,
patent registrations, and other regulatory approvals. Varian Bio has direct or indirect interactions with officials and employees
of government agencies or government-affiliated hospitals, universities, and other organizations. Varian Bio can be held liable
for the corrupt or other illegal activities of our employees, agents, contractors, and other collaborators, even if Varian Bio
does not explicitly authorize or have actual knowledge of such activities. Any violations of the laws and regulations described
above may result in substantial civil and criminal fines and penalties, imprisonment, the loss of export or import privileges,
debarment, tax reassessments, breach of contract and fraud litigation, reputational harm, and other consequences.
Our employees,
independent contractors, consultants, CMOs, CROs, suppliers and vendors may engage in misconduct or other improper activities,
including noncompliance with regulatory standards and requirements.
We
are exposed to the risk that our employees, independent contractors, consultants, CMOs, CROs, suppliers and vendors may engage
in misconduct or other improper activities. Misconduct by these parties could include failures to comply with FDA requirements,
provide accurate information to the FDA, comply with federal and state health care fraud and abuse laws and regulations, accurately
report financial information or data or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements
in the health care industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, 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 commission, customer incentive programs and other business arrangements. Misconduct by these parties could
also 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 misconduct by these parties, 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 comply with these 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 significant impact on our business, including the imposition of significant penalties, including civil, criminal
and administrative penalties, damages, fines, disgorgement, imprisonment, exclusion from participation in government funded healthcare
programs, such as Medicare and Medicaid, integrity oversight and reporting obligations, contractual damages, reputational harm,
diminished profits and future earnings and the curtailment or restructuring of our operations.
Our research
and development activities could be affected or delayed as a result of possible restrictions on animal testing.
Certain
laws and regulations require us to test our product candidates on animals before initiating clinical trials involving humans. Animal
testing activities have been the subject of controversy and adverse publicity. Animal rights groups and other organizations and
individuals have attempted to stop animal testing activities by pressing for legislation and regulation in these areas and by disrupting
these activities through protests and other means. To the extent the activities of these groups are successful, our research and
development activities may be interrupted, delayed or become more expensive.
Risks Related to
Our Intellectual Property
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
Our success
depends on our ability to protect our intellectual property and our proprietary technologies.
Our
commercial success depends in part on our ability to obtain and maintain patent protection and trade secret protection for our
product candidates, proprietary technologies and their uses, as well as our ability to operate without infringing the proprietary
rights of others. If we or our licensors are unable to protect our intellectual property rights or if our intellectual property
rights are inadequate for our technology or our product candidates, our competitive position could be harmed. We generally seek
to protect our proprietary position by filing patent applications in the United States and abroad related to our product candidates,
proprietary technologies and their uses that are important to our business. Our patent applications cannot be enforced against
third parties practicing the technology claimed in such applications unless, and until, patents issue from such applications, and
then only to the extent the issued claims read on the technology. There can be no assurance that our patent applications will result
in patents being issued or that issued patents will afford sufficient protection against competitors with similar technology, nor
can there be any assurance that the patents, if issued, will not be infringed, designed around, invalidated or rendered unenforceable
by third parties. Even issued patents may later be found invalid or unenforceable or may be modified or revoked in proceedings
instituted by third parties before various patent offices or in courts. The degree of future protection for our proprietary rights
is uncertain. Only limited protection may be available and such protection may not adequately protect our rights or permit us to
gain or keep any competitive advantage. These uncertainties and/or limitations in our ability to properly protect the intellectual
property rights relating to our product candidates could have a material adverse effect on our financial condition and results
of operations.
Although
we have issued patents in the United States and foreign countries, we cannot be certain that the claims in our other pending patent applications
will be considered patentable by the United States Patent and Trademark Office (“USPTO”), courts in the United States
or by the patent offices and courts in foreign countries, nor can we be certain that the claims in our issued patents will not be found
invalid or unenforceable if challenged.
The
patent application process is subject to numerous risks and uncertainties, and there can be no assurance that we or our licensors
or any of our potential future collaborators will be successful in protecting our technologies and product candidates by obtaining
and defending patents. These risks and uncertainties include the following:
| ● | the USPTO and various foreign governmental patent agencies require compliance with a number of
procedural, documentary, fee payment and other provisions during the patent process, the noncompliance with which can result in
abandonment or lapse of a patent or patent application, and partial or complete loss of patent rights in the relevant jurisdiction; |
| ● | patent applications may not result in any patents being issued; |
| ● | patents may be challenged, invalidated, modified, revoked, circumvented, found to be unenforceable
or otherwise may not provide any competitive advantage; |
| ● | our competitors, many of which have substantially greater resources than we or our licensors have
and many of which have made significant investments in competing technologies, may seek or may have already obtained patents that
could or will limit, interfere with or block our ability to make, use and sell our product candidates; |
| ● | there may be significant pressure on the U.S. government and international governmental bodies
to limit the scope of patent protection both inside and outside the United States for disease treatments that prove successful,
as a matter of public policy regarding worldwide health concerns; and |
| ● | countries other than the United States may have patent laws less favorable to patentees than those
upheld by U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing products. |
The
patent prosecution process is also expensive and time-consuming, and we or our licensors may not be able to file and prosecute
all necessary or desirable patent applications at a reasonable cost or in a timely manner or in all jurisdictions where protection
may be commercially advantageous. It is also possible that we or our licensors may not identify patentable aspects of our research
and development output before it is too late to obtain patent protection. Moreover, in some circumstances, we do not have the right
to control, or are subject to certain obligations with respect to, the preparation, filing and prosecution of patent applications,
or to maintain the patents, directed to technology that we license or acquire, including those from our licensors and from third
parties. We also may require the cooperation of our licensors, whether current or future, in order to enforce the licensed patent
rights, and such cooperation may not be provided. Therefore, these patents and applications may not be prosecuted and enforced
in a manner consistent with the best interests of our business. We cannot be certain that patent prosecution and maintenance activities
by our licensors have been or will be conducted in compliance with applicable laws and regulations, which may affect the validity
and enforceability of such patents or any patents that may issue from such applications. If they fail to do so, this could cause
us to lose rights in any applicable intellectual property that we in-license, and as a result our ability to develop and commercialize
products or product candidates may be adversely affected and we may be unable to prevent competitors from making, using and selling
competing products.
In
addition, although we enter into non-disclosure and confidentiality agreements with parties who have access to patentable aspects
of our research and development output, such as our employees, outside scientific collaborators, CROs, third-party manufacturers,
consultants, advisors, licensors, and other third parties, any of these parties may breach such agreements and disclose such output
before a patent application is filed, thereby jeopardizing our ability to seek patent protection.
If we fail to
comply with our obligations in the agreements under which we license or otherwise acquire intellectual property rights from our
licensors and third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose
license rights that are important to our business or our business may otherwise be materially harmed.
In
July 2019, we licensed worldwide rights to certain patents under a license agreement with Cancer Research Technology Limited that
provide us rights to certain aPKC patents and know-how. This agreement imposes on us, and we expect that any future license or
other agreements where we in-license or acquire intellectual property will impose on us, various development, regulatory and/or
commercial diligence obligations, payment of milestones and/or royalties and other obligations.
We
may need to obtain licenses or acquired intellectual property from third parties to advance our research or allow commercialization
of our product candidates, and we cannot provide any assurances that third-party patents do not exist that might be enforced against
our product candidates in the absence of such a license or acquisition. We may fail to obtain any of these licenses on commercially
reasonable terms, if at all. 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. In that event, we may be required to expend significant time and resources to develop
or license replacement technology. If we are unable to do so, we may be unable to develop or commercialize the affected product
candidates, which could materially harm our business, and the third parties owning such intellectual property rights could seek
either an injunction prohibiting our sales, or, with respect to our sales, an obligation on our part to pay royalties and/or other
forms of compensation. Licensing and acquisitions of intellectual property involve complex legal, business and scientific issues.
Disputes may arise between us and our existing or future licensors and other third parties regarding intellectual property subject
to a license or purchase agreement, including:
| ● | the scope of rights granted under the license or purchase agreement and other interpretation-related
issues; |
| ● | whether and the extent to which our technology and processes infringe intellectual property of
the licensor or other third party that is not subject to the license or purchase agreement; |
| ● | our right to sublicense patents and other rights to third parties; |
| ● | our diligence obligations with respect to the use of the licensed or acquired technology in relation
to our development and commercialization of our product candidates, and what activities satisfy those diligence obligations; |
| ● | the effects of termination; |
| ● | our right to transfer or assign the license or purchase agreement; and |
| ● | the
ownership of inventions and know-how resulting from the joint creation or use of intellectual
property by our licensors and their affiliates and sub-licensees and by us and our
partners and sub-licensees. |
The
resolution of any contract interpretation disagreement that may arise could narrow what we believe to be the scope of our rights
to the relevant intellectual property, or increase what we believe to be our financial or other obligations under the relevant
agreement. And if disputes over intellectual property that we have licensed prevent or impair our ability to maintain our current
licensing arrangements on acceptable terms, we may not be able to successfully develop and commercialize the affected product candidates,
which would have a material adverse effect on our business. In addition, certain of our agreements may limit or delay our ability
to consummate certain transactions, may impact the value of those transactions, or may limit our ability to pursue certain activities.
If the scope
of any patent protection we obtain is not sufficiently broad, or if we lose any of the patent protection we have, our ability to
prevent our competitors from commercializing similar or identical product candidates would be adversely affected.
The
patent position of biopharmaceutical companies generally is highly uncertain, involves complex legal and factual questions, and
has been the subject of much litigation in recent years. As a result, the existence, issuance, scope, validity, enforceability
and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents
being issued that protect our product candidates or that effectively prevent others from commercializing competitive product candidates.
Moreover,
the scope of claims in a patent application can be significantly reduced before any claims in a patent issue, and claim scope can
be reinterpreted after issuance. Even if patent applications we currently have issue as patents in the future, they may not issue
in a form that will provide us with any meaningful protection, prevent competitors or other third parties from competing with us,
or otherwise provide us with any competitive advantage.
Any
patents that we have may be challenged or circumvented by third parties or may be narrowed or invalidated as a result of challenges
by third parties. Consequently, we do not know whether our product candidates will be protectable or remain protected by valid
and enforceable patents. Our competitors or other third parties may be able to circumvent our patents by developing similar or
alternative technologies or products in a non-infringing manner, which could materially and adversely affect our business, financial
condition, results of operations and prospects.
The issuance
of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and our patents may not cover our product candidates
or may be challenged in the courts or patent offices in the United States and abroad. We may be subject to a third party pre-issuance
submission of prior art to the USPTO, or become involved in opposition, derivation, revocation, reexamination, post-grant review (“PGR”),
and inter partes review (“IPR”), or other similar proceedings in the USPTO
or foreign patent offices challenging our patent rights. The outcome following legal assertions of invalidity and unenforceability is
unpredictable. With respect to validity of our patents, for example, we cannot be certain that there is no invalidating prior art, of
which we or third parties from whom we acquired our patents, their counsel, and the patent examiner were unaware during prosecution.
There is no assurance that all potentially relevant prior art relating to our patents and patent applications has been found. There is
also no assurance that there is not prior art of which we or third parties from whom we acquired patents and patent applications are
aware, but which we or the third parties do not believe affects the validity or enforceability of a claim in our patents and patent applications,
which may, nonetheless, ultimately be found to affect the validity or enforceability of a claim. An adverse determination in any such
submission, proceeding or litigation could reduce the scope of, or invalidate or render unenforceable, our patent rights, allow third
parties to commercialize our product candidates and compete directly with us, without payment to us. Such loss of patent rights, loss
of exclusivity or patent claims being narrowed, invalidated or held unenforceable 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 product candidates.
Such proceedings also may result in substantial cost and require significant time from our scientists and management, even if the eventual
outcome is favorable to us. In addition, if the breadth or strength of protection provided by our patents and patent applications is
threatened, regardless of the outcome, it could dissuade companies from collaborating with us to license, develop or commercialize current
or future product candidates.
The patent protection
and patent prosecution for some of our product candidates may be dependent on our licensors and third parties.
We
or our licensors may fail to identify patentable aspects of inventions made in the course of development and commercialization
activities before it is too late to obtain patent protection on them. Therefore, we may miss potential opportunities to strengthen
our patent position. It is possible that defects as to form in the preparation or filing of our owned or in-licensed patents or
patent applications may exist, or may arise in the future, for example with respect to proper priority claims, inventorship, claim
scope, or requests for patent term adjustments. If we or our licensors, whether current or future, fail to establish, maintain
or protect such patents and other intellectual property rights, such rights may be reduced or eliminated. If our current or future
licensors are not fully cooperative or disagree with us as to the prosecution, maintenance or enforcement of any patent rights,
such patent rights could be compromised. If there are material defects in the form, preparation, prosecution, or enforcement of
our owned or in-licensed patents or patent applications, such patents may be invalid and/or unenforceable, and such applications
may never result in valid, enforceable patents. Any of these outcomes could impair our ability to prevent competition from third
parties, which may have an adverse impact on our business.
As
a licensee of third parties, whether currently or in the future, we rely and may rely on third parties to file and prosecute patent
applications and maintain patents and otherwise protect the licensed intellectual property under in-license agreements. We have
not had, do not have, and may not have in the future, primary control over these activities for certain of our patents or patent
applications and other intellectual property rights. We cannot be certain that such activities by third parties 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. Pursuant to the terms of the license agreements with some of our licensors, whether current or future, the licensors
may have the right to control enforcement of our licensed patents or defense of any claims asserting the invalidity of these patents,
and even if we are permitted to pursue such enforcement or defense, we will require the cooperation of our licensors. We cannot
be certain that our licensors will allocate sufficient resources or prioritize their or our enforcement of such patents or defense
of such claims to protect our interests in the licensed patents. Even if we are not a party to these legal actions, an adverse
outcome could harm our business because it might prevent us from continuing to license intellectual property that we may need to
operate our business. If any of our licensors or any of our future licensors or future collaborators fails to appropriately prosecute
and maintain patent protection for patents covering any of our product candidates, our ability to develop and commercialize those
product candidates may be adversely affected and we may not be able to prevent competitors from making, using and selling competing
products. Furthermore, the terms of the license agreements with some of our licensors may be non-exclusive, such that we would
have no rights to enforce the licensed intellectual property against a competitor. In such cases, the licensors to our non-exclusive
licenses may offer licenses to our competitors.
In
addition, even where we have the right to control patent prosecution of patents and patent applications we have acquired or licensed
from third parties, we may still be adversely affected or prejudiced by actions or inactions of our licensors and their counsel
that took place prior to us assuming control over patent prosecution.
Our
technology acquired or licensed from various third parties, including our licensors, whether currently or in the future, may be
subject to retained rights. Our licensors, whether current or future, may often retain certain rights under their agreements with
us, including the right to use the underlying technology for use in fields other than the fields licensed to us or for use in noncommercial
academic and research use, to publish general scientific findings from research related to the technology, and to make customary
scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors
limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed
technology in the event of misuse.
If
we are limited in our ability to utilize acquired or licensed technologies, or if we lose our rights to critical in-licensed technology,
we may be unable to successfully develop, out-license, market and sell our products, which could prevent or delay new product introductions.
Our business strategy depends on the successful development of licensed and acquired technologies into commercial products. Therefore,
any limitations on our ability to utilize these technologies may impair our ability to develop, out-license or market and sell
our product candidate.
Intellectual
property rights do not necessarily address all potential threats to our competitive advantage.
The
degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have
limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. For example:
| ● | others may be able to develop products that are similar to our product candidates but that are
not within the scope of the claims of the patents that we own or license; |
| ● | we, third parties from whom we acquired intellectual property, or our licensors might not have
been the first to make the inventions covered by the issued patents or patent application that we own or license; |
| ● | we, third parties from whom we acquired intellectual property, or our licensors might not have
been the first to file patent applications directed to certain of our inventions; |
| ● | others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights; |
| ● | it is possible that our pending patent applications will not lead to issued patents; |
| ● | issued patents that we own or license may be held invalid or unenforceable, as a result of legal
challenges by our competitors; |
| ● | our competitors might conduct research and development activities in countries where we do not
have patent rights and then use the information learned from such activities to develop competitive products for sale in our major
commercial markets; |
| ● | we may not develop additional proprietary technologies that are patentable; and |
| ● | the patents of others may have an adverse effect on our business.
Should any of these events occur, it could significantly harm our business, results of operations and prospects. |
Our commercial
success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties.
Claims by third parties that we infringe their proprietary rights may result in liability for damages or prevent or delay our developmental
and commercialization efforts.
Our
commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. However, our
research, development and commercialization activities may be subject to claims that we infringe or otherwise violate patents or
other intellectual property rights owned or controlled by third parties. Other entities may have or obtain patents or proprietary
rights that could limit our ability to make, use, sell, offer for sale or import our product candidates and products that may be
approved in the future, or impair our competitive position. There is a substantial amount of litigation, both within and outside
the United States, involving patent and other intellectual property rights in the biopharmaceutical industry, including patent
infringement lawsuits, oppositions, reexaminations, inter partes review proceedings and post-grant review proceedings before
the USPTO and/or foreign patent offices. Numerous third-party U.S. and foreign issued patents and pending patent applications exist
in the fields in which we are developing product candidates. There may be third-party patents or patent applications with claims
to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our product candidates.
As
the biopharmaceutical industry expands and more patents are issued, the risk increases that our product candidates may be subject
to claims of infringement of the patent rights of third parties. Because patent applications are maintained as confidential for
a certain period of time, until the relevant application is published, we may be unaware of third-party patents that may be infringed
by development or commercialization of any of our product candidates, and we cannot be certain that we were the first to file a
patent application related to a product candidate or technology. Moreover, because patent applications can take many years to issue,
there may be currently pending patent applications that may later result in issued patents that our product candidates may infringe.
In addition, identification of third-party patent rights that may be relevant to our technology is difficult because patent searching
is imperfect due to differences in terminology among patents, incomplete databases and the difficulty in assessing the meaning
of patent claims. As such, we may not identify relevant third-party patents or may incorrectly interpret the relevance, scope or
expiration of a third-party patent, which might subject us to infringement claims or adversely affect our ability to develop and
market our product candidates. We cannot guarantee that any of our or our licensors’ patent searches or analyses, including
the identification of relevant patents, the scope of patent claims or the expiration of relevant patents, are complete or thorough,
nor can we be certain that we have identified each and every third-party patent and pending patent application in the United States
and abroad that is relevant to or necessary for the commercialization of our product candidates in any jurisdiction. In addition,
third parties may obtain patents in the future and claim that use of our technologies infringes upon these patents. Any claims
of patent infringement asserted by third parties would be time consuming and could:
| ● | result in costly litigation that may cause negative publicity; |
| ● | divert the time and attention of our technical personnel and management; |
| ● | cause development delays; |
| ● | prevent us from commercializing any of our product candidates until the asserted patent expires
or is held finally invalid or unenforceable or not infringed in a court of law; |
| ● | require us to develop non-infringing technology, which may not be possible on a cost-effective
basis; |
| ● | subject us to significant liability to third parties; or |
| ● | require us to enter into royalty or licensing agreements, which may not be available on commercially
reasonable terms, or at all, or which might be non-exclusive, which could result in our competitors gaining access to the same
technology. |
Although
no third party has asserted a claim of patent infringement against us as of the date of this proxy statement/prospectus, others
may hold proprietary rights that could prevent our product candidates from being marketed. Any patent-related legal action against
us claiming damages and seeking to enjoin activities relating to our product candidates or processes could subject us to potential
liability for damages, including treble damages if we were determined to willfully infringe, and require us to obtain a license,
if available, to manufacture or develop our product candidates. Defense of these claims, regardless of their merit, would involve
substantial litigation expense and would be a substantial diversion of management and employee resources from our business. We
cannot predict whether we would prevail in any such actions or that any license required under any of these patents would be made
available on commercially acceptable terms, if at all. Moreover, even if we or our future strategic partners were able to obtain
a license, the rights may be non-exclusive, which could result in our competitors gaining access to the same intellectual property.
In addition, we cannot be certain that we could redesign our product candidates or processes to avoid infringement, if necessary.
Accordingly, an adverse determination in a judicial or administrative proceeding, or the failure to obtain necessary licenses,
could prevent us from developing and commercializing our product candidates, which could harm our business, financial condition
and operating results.
Parties
making claims against us may be able to sustain the costs of complex patent litigation more effectively than we can because they
have substantially greater resources. Furthermore, because of the substantial amount of discovery required in connection with intellectual
property litigation or administrative proceedings, there is a risk that some of our confidential information could be compromised
by disclosure. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material
adverse effect on our ability to raise additional funds or otherwise have a material adverse effect on our business, results of
operations, financial condition and prospects.
We may become
involved in lawsuits or administrative disputes to protect or enforce our patents or other intellectual property, which could be
expensive, time-consuming and unsuccessful.
Competitors
and other third parties may infringe, misappropriate or otherwise violate our patents, trademarks, copyrights, trade secrets or
other intellectual property. To counter infringement, misappropriation or other violations, we may be required to file infringement,
misappropriation or other violation claims, which can be expensive and time-consuming and divert the time and attention of our
management and business and scientific personnel. In addition, many of our adversaries in these proceedings may have the ability
to dedicate substantially greater resources to prosecuting these legal actions than we can. Moreover, it may be difficult or impossible
to obtain evidence of infringement in a competitor’s or potential competitor’s product or service. It may be difficult
to detect infringers who do not advertise the components or methods that are used in connection with their products and services.
Any
claims we assert against perceived infringers could provoke these parties to assert counterclaims against us alleging that we infringe,
misappropriate or otherwise violate their patents or their other intellectual property, in addition to counterclaims asserting
that our patents are invalid or unenforceable, or both. In patent litigation in the United States, counterclaims challenging the
validity, enforceability or scope of asserted patents are commonplace. Similarly, third parties may initiate legal proceedings
against us seeking a declaration that certain of our intellectual property is not infringed, invalid or unenforceable. The outcome
of any such proceeding is generally unpredictable.
In
any patent infringement proceeding, there is a risk that a court will decide that a patent of ours is invalid or unenforceable,
in whole or in part, and that we do not have the right to stop the other party from using the invention at issue. There is also
a risk that, even if the validity of such patents is upheld, the court will construe the patent’s claims narrowly or decide
that we do not have the right to stop the other party from using the invention at issue on the grounds that our patent claims do
not cover the invention. An adverse outcome in a litigation or proceeding involving our patents could limit our ability to assert
our patents against those parties or other competitors, and may curtail or preclude our ability to exclude third parties from making
and selling similar or competitive products. If a defendant were to prevail on a legal assertion of invalidity or unenforceability
of our patents covering one of our product candidates, we could lose at least a part, and perhaps all, of the patent protection
covering such a product candidate. Competing drugs may also be sold in other countries in which our patent coverage might not exist
or be as strong. If we lose a foreign patent lawsuit, alleging our infringement of a competitor’s patents, we could be prevented
from marketing our drugs in one or more foreign countries. Any of these occurrences could adversely affect our competitive business
position, business prospects and financial condition. Similarly, if we assert trademark infringement claims, a court may determine
that the marks we have asserted are invalid or unenforceable, or that the party against whom we have asserted trademark infringement
has superior rights to the marks in question. In this case, we could ultimately be forced to cease use of such trademarks.
Even
if we establish infringement, the court may decide not to grant an injunction against further infringing activity and instead award
only monetary damages, which may or may not be an adequate remedy. 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. There could also be public announcements of the results of hearings, motions or other
interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have a
material adverse effect on the price of shares of our common stock. 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 concluded.
Even if we ultimately prevail in such claims, the monetary cost of such litigation and the diversion of the attention of our management
and scientific personnel could outweigh any benefit we receive as a result of the proceedings.
Furthermore,
third parties may also raise invalidity or unenforceability claims before administrative bodies in the United States or foreign
authorities, even outside the context of litigation. Such mechanisms include re-examination, inter partes review, post-grant review,
interference proceedings, derivation proceedings and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings).
Such proceedings could result in revocation, cancellation or amendment to our patents in such a way that they no longer cover and
protect our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. Grounds
for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness, enablement or written description. Grounds for an unenforceability assertion could be an allegation that someone connected
with the prosecution of the patent withheld relevant information from the USPTO, or made a misleading statement, during prosecution
of the patent. With respect to the validity of our patents, for example, we cannot be certain that there is no invalidating prior
art of which we, third parties from whom we acquired patents and patent applications and their patent counsel, our licensors, our
patent counsel, patent counsel for licensors or third parties, and the patent examiner were unaware during prosecution. Moreover,
it is possible that prior art may exist that we, our licensors, or third parties from whom we acquired patents and patent applications
are aware of but do not believe is relevant to our current or future patents, but that could nevertheless be determined to render
our patents invalid. If a third party were to prevail on a legal assertion of invalidity or unenforceability, we could lose at
least part, and perhaps all, of the patent protection on one or more of our product candidates. Any such loss of patent protection
could have a material adverse impact on our business, financial condition, results of operations and prospects.
Patent reform
legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of our issued patents.
In September
2011, the Leahy-Smith America Invents Act (“Leahy-Smith Act”) was signed into law. The Leahy-Smith Act includes a
number of significant changes to U.S. patent law. These include provisions that affect the way patent applications are prosecuted and
may also affect patent litigation. In particular, under the Leahy-Smith Act, the United States transitioned in March 2013 to a “first
inventor to file” system in which, assuming that other requirements of patentability are met, the first inventor to file a patent
application will be entitled to the patent regardless of whether a third party was first to invent the claimed invention. A third party
that files a patent application in the USPTO after March 2013 but before the date of filing of our patents could therefore be awarded
a patent covering an invention of ours even if we had made the invention before it was made by such third party. This will require us
to be cognizant going forward of the time from invention to filing of a patent application. Furthermore, our ability to obtain and maintain
valid and enforceable patents depends on whether the differences between our technology and the prior art allow our technology to be
patentable over the prior art. Since patent applications in the United States and most other countries are confidential for a period
of time after filing or until issuance, we cannot be certain that we or the third parties from which we acquired our patents were the
first to either (i) file any patent application related to our product candidates or (ii) invent any of the inventions claimed in our
patents or patent applications.
The
Leahy-Smith Act also includes a number of significant changes that affect the way patent applications are prosecuted and also may
affect patent litigation. These include allowing third-party submission of prior art to the USPTO during patent prosecution and
additional procedures to attack the validity of a patent by USPTO administered post-grant proceedings, including PGR, IPR, and
derivation proceedings. An adverse determination in any such submission or proceeding could reduce the scope or enforceability
of, or invalidate, our patent rights, which could adversely affect our competitive position.
Because
of a lower evidentiary standard in USPTO proceedings compared to the evidentiary standard in United States federal courts necessary
to invalidate a patent claim, a third party could potentially provide evidence in a USPTO proceeding sufficient for the USPTO to
hold a claim invalid even though the same evidence would be insufficient to invalidate the claim if first presented in a district
court action. Accordingly, a third party may attempt to use the USPTO procedures to invalidate our patent claims that would not
have been invalidated if first challenged by the third party as a defendant in a district court action. Thus, the Leahy-Smith Act
and its implementation could increase the uncertainties and costs surrounding the prosecution of our or licensors’ patent
applications and the enforcement or defense of our issued patents, all of which could have a material adverse effect on our business,
financial condition, results of operations and prospects.
Changes in U.S.
patent law, or laws in other countries, could diminish the value of patents in general, thereby impairing our ability to protect
our product candidates.
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 a high degree of technological and legal complexity.
Therefore, obtaining and enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. Changes in either
the patent laws or in the interpretations of patent laws in the United States and other countries may diminish the value of our
intellectual property and may increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement
or defense of issued patents. We cannot predict the breadth of claims that may be allowed or enforced in our patents or in third-party
patents. In addition, Congress or other foreign legislative bodies may pass patent reform legislation that is unfavorable to us.
For
example, 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 or our licensors’ 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 legislation and decisions made by the U.S. Congress, the U.S.
federal courts, the USPTO, or similar authorities in foreign jurisdictions, the laws and regulations governing patents could change
in unpredictable ways that would weaken our or our licensors’ ability to obtain new patents or to enforce our existing patents
and patents we might obtain in the future.
We, or our licensors,
may be subject to claims by third parties asserting that our, or our licensor’s, employees or consultants or we, or our licensor,
have misappropriated their intellectual property, or claiming ownership of what we regard as our own intellectual property.
As
is common in the biopharmaceutical industry, in addition to our employees, we engage the services of consultants to assist us in
the development of our product candidates. Some of our employees and consultants, or employees or consultants of our licensor,
are currently or have been previously employed at universities or at other biotechnology or pharmaceutical companies, or may have
previously provided or may be currently providing consulting services to other biopharmaceutical companies, including our competitors
or potential competitors. These employees and consultants may have executed proprietary rights, non-disclosure and non-competition
agreements, or similar agreements, in connection with such other current or previous employment. Although we, and likely our licensor,
try to ensure that our and their employees and consultants do not use the proprietary information or know-how of others in their
work for us or them, we or they may be subject to claims that we or these individuals have used or disclosed intellectual property,
including trade secrets or other proprietary information, of third parties or former employers or former or current clients, or
claims that we, or our licensor have wrongfully hired an employee from a competitor. Litigation may be necessary to defend against
such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual
property or personnel or sustain damages. Such intellectual property could be awarded to a third party, and we could be required
to obtain a license from such third party to commercialize our technology or products. Such a license may not be available on commercially
reasonable terms or at all. Even if we are successful in defending against such claims, litigation could result in substantial
costs and be a distraction to our management. Any of the foregoing would have a material adverse effect on our business, financial
condition, results of operations and prospects.
In
addition, while it is our policy to require our employees, consultants and contractors who may be involved in the conception or
development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful in
executing such an agreement with each party who, in fact, conceives or develops intellectual property that we regard as our own,
which may result in claims by or against us related to the ownership of such intellectual property. Likewise, our licensor may
have been or may be unsuccessful in executing such an agreement with each party who conceived or developed intellectual property
that we purchased or licensed, which may result in additional such claims by or against us. In addition, such agreements may not
be self-executing such that the intellectual property subject to such agreements may not be assigned to us without additional assignments
being executed, and we, or our licensor may fail or may have failed to obtain such assignments. In addition, such agreements may
be breached. Accordingly, we, or our licensor may be forced to bring claims against third parties, or defend claims that they may
bring against us, or our licensor to determine the ownership of what we regard as our owned or licensed intellectual property.
If we, or our licensor fail in prosecuting or defending any such claims, in addition to paying monetary damages, we may lose valuable
intellectual property. Even if we are successful in prosecuting or defending against such claims, litigation could result in substantial
costs and be a distraction to our senior management and scientific personnel, which would have a material adverse effect on our
business, financial condition, results of operations and prospects.
Patent terms
may be inadequate to protect our competitive position on our product candidates for an adequate amount of time.
Patents
have a limited lifespan. In the United States, if all maintenance fees are timely paid, the natural expiration of a patent is generally
20 years from its earliest U.S. non-provisional filing date. Various extensions may be available, but the term of a patent, and
the protection it affords, is limited. In addition, the term of a patent may be reduced if a terminal disclaimer is or was filed
in that patent, limiting the term of the patent to that of one or more other patents referenced in the terminal disclaimer. Even
if patents directed to our product candidates are obtained, once the patent term has expired, we may be open to competition from
competitive products. Given the amount of time required for the development, testing and regulatory review of product candidates,
patents directed to our product candidates might expire before or shortly after such candidates are commercialized. As a result,
our patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical
to ours.
If we or our
licensors do not obtain patent term extension for our product candidates, our business may be materially harmed.
Depending
upon the timing, duration and specifics of FDA marketing approval of our product candidates, one or more of our U.S. patents may be eligible
for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 (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 product development and the FDA regulatory review process. A maximum of one patent may be extended per FDA-approved product
as compensation for the patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining
term of a patent beyond a total of 14 years from the date of product approval and only those claims covering such approved drug product,
a method for using it or a method for manufacturing it may be extended. Patent term extension may also be available in certain foreign
countries upon regulatory approval of our product candidates. However, we or our licensors 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 or our licensors are unable to obtain patent term extension or restoration or the term of any such extension is less
than we request, our competitors may obtain approval of competing products following our patent expiration, and our revenue could be
reduced, possibly materially. Further, if this occurs, our competitors may take advantage of our investment in development and clinical
trials by referencing our clinical and preclinical data and launch their product earlier than might otherwise be the case.
We may not be
able to protect our intellectual property rights throughout the world.
Although
we own or have acquired or in-licensed issued patents and have pending patent applications in the United States and certain other
countries, filing, prosecuting and defending patents in all countries throughout the world would be prohibitively expensive, and
our intellectual property rights in some countries outside the United States can be less extensive than those in the United States.
In addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state
laws in the United States. Consequently, we may not be able to prevent third parties from practicing our technology in all countries
outside the United States or from selling or importing products made using our technology in and into the United States or other
jurisdictions. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their
own products and, further, may export otherwise infringing products to territories where we or our licensors have patent protection
but enforcement is not as strong as that in the United States. These products may compete with our product candidates, and our
or our licensors patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many
companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions.
The legal systems of many foreign countries do not favor the enforcement of patents and other intellectual property protection,
which could make it difficult for us to stop the infringement of our or our licensors’ patents or marketing of competing
products in violation of our proprietary rights. Proceedings to enforce our or our licensors’ patent rights in foreign jurisdictions
could result in substantial costs and divert our efforts and attention from other aspects of our business, could put our or our
licensors’ patents at risk of being invalidated or interpreted narrowly, could put our or our licensors’ patent applications
at risk of not issuing and could provoke third parties to assert claims against us. We or our licensors may not prevail in any
lawsuits that we or our licensors initiate, and the damages or other remedies awarded, if any, may not be commercially meaningful.
Accordingly, our or our licensors’ efforts to enforce our intellectual property rights around the world may be inadequate
to obtain a significant commercial advantage from the intellectual property that we develop or license.
Many
countries have compulsory licensing laws under which a patent owner may be compelled to grant licenses to third parties. In addition,
many countries limit the enforceability of patents against government agencies or government contractors. In these countries, the
patent owner may have limited remedies, which could materially diminish the value of such patents. If we or our licensors are forced
to grant a license to third parties with respect to any patents relevant to our business, our competitive position may be impaired,
and our business, financial condition, results of operations and prospects may be adversely affected.
Obtaining and
maintaining our patent protection depends on compliance with various procedural, documentary, fee payment and other requirements
imposed by regulations and governmental patent agencies, and our patent protection 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 applications will be due to
the USPTO and various foreign patent offices at various points over the lifetime of our patents and/or applications. We have systems
in place to remind us to pay these fees, and we rely on third parties to pay these fees when due. Additionally, the USPTO and various
foreign patent offices require compliance with a number of procedural, documentary, fee payment and other similar provisions during
the patent application process. We employ reputable law firms and other professionals to help us comply, and in many cases, an
inadvertent lapse can be cured by payment of a late fee or by other means in accordance with rules applicable to the particular
jurisdiction. 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 such an event were to occur, it could have
a material adverse effect on our business.
If we are unable
to protect the confidentiality of our trade secrets, our business and competitive position would be harmed.
In
addition, we rely on the protection of our trade secrets, including unpatented know-how, technology and other proprietary information
to maintain our competitive position. Although we have taken steps to protect our trade secrets and unpatented know-how, including
entering into confidentiality agreements with third parties, and confidential information and inventions agreements with employees,
consultants, licensors and advisors, we cannot provide any assurances that all such agreements have been duly executed, and any
of these parties may breach the agreements and disclose our proprietary information, including our trade secrets, and we may not
be able to obtain adequate remedies for such breaches. Unauthorized parties may also attempt to copy or reverse engineer certain
aspects of our products that we consider proprietary. Monitoring unauthorized uses and disclosures is difficult, and we do not
know whether the steps we have taken to protect our proprietary information will be effective. Enforcing a claim that a party illegally
disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition,
some courts inside and outside the United States are less willing or unwilling to protect trade secrets.
Moreover,
third parties may still obtain this information or may come upon this or similar information independently, and we would have no
right to prevent them from using that technology or information to compete with us. If any of these events occurs or if we otherwise
lose protection for our trade secrets, the value of this information may be greatly reduced and our competitive position would
be harmed. If we or our licensors do not apply for patent protection prior to such publication or if we cannot otherwise maintain
the confidentiality of our proprietary technology and other confidential information, then our ability to obtain patent protection
or to protect our trade secret information may be jeopardized.
Risks Related to
Our Reliance on Third Parties
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
We rely, and
expect to rely in the future, on third parties, including independent clinical investigators, CMOs and CROs, to conduct certain
aspects of our manufacturing, preclinical studies and planned clinical trials. If these third parties do not successfully carry
out their contractual duties, comply with applicable regulatory requirements or meet expected deadlines, we may not be able to
obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We
have relied upon and plan to rely in the future upon third parties, including independent clinical investigators and third-party
CMOs and CROs, to conduct certain aspects of our manufacturing, preclinical studies and planned clinical trials and to monitor
and manage data for our ongoing preclinical and planned clinical programs.
We
rely or will rely on these parties for execution of our preclinical studies and planned clinical trials, and may not control, or
will only control certain aspects of, their activities. Nevertheless, we are or will be responsible for ensuring that each of our
studies and trials 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 third-party contractors and
CROs are required to comply with GCP requirements, which are regulations and guidelines enforced by the FDA and comparable foreign
regulatory authorities for all of our products candidates in clinical development. Regulatory authorities enforce these GCPs through
periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of these third parties or our CROs
fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or
comparable foreign regulatory authorities may require us to perform additional 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 product produced under
cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the
regulatory approval process. Moreover, our business may be adversely affected if any of these third parties violates federal or
state fraud and abuse or false claims laws and regulations or healthcare privacy and security laws.
Further,
these investigators and CROs are not our employees and we will not be able to control, other than by contract, the amount of resources,
including time, which they devote to our product candidates and clinical trials. These third parties may also have relationships
with other commercial entities, including our competitors, for whom they may also be conducting clinical trials or other product
development activities, which could affect their performance on our behalf. If independent investigators or CROs fail to devote
sufficient resources to the development of our product candidates, or 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 clinical data they
obtain is compromised due to the failure to adhere to our clinical 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. If we are unable to rely on clinical data collected by our CROs, we could be required to
repeat, extend the duration of, or increase the size of any clinical trials we conduct. As a result, our results of operations
and the commercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues
could be delayed or precluded entirely.
We may form
or seek collaborations or strategic alliances or enter into additional strategic arrangements in the future, which involve risks,
and we may not realize the benefits of such collaborations, alliances or strategic arrangements.
We
may form or seek strategic alliances, create joint ventures or collaborations, or enter into additional strategic arrangements
with third parties that we believe will complement or augment our development and commercialization efforts with respect to our
product candidates and any future product candidates that we may develop. Any of these relationships may require us to incur non-recurring
and other charges, increase our near and long-term expenditures, issue securities that dilute our existing stockholders or disrupt
our management and business.
In
addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming
and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements
for our product candidates because they may be deemed to be at too early of a stage of development for collaborative effort and
third parties may not view our product candidates as having the requisite potential to demonstrate safety, potency, purity and
efficacy and obtain marketing approval. If we are unable to do so, we may have to curtail the development of the product candidate
for which we are seeking to collaborate, reduce or delay its development program or one or more of our other development programs,
delay its potential commercialization or reduce the scope of any sales or marketing activities, or increase our expenditures and
undertake development or commercialization activities at our own expense. If we elect to increase our expenditures to fund development
or commercialization activities on our own, we may need to obtain additional capital, which may not be available to us on acceptable
terms or at all.
Further,
collaborations involving our product candidates are subject to numerous risks, which may include the following:
| ● | collaborators have significant discretion in determining the efforts and resources that they will
apply to a collaboration; |
| ● | collaborators may not pursue development and commercialization of our product candidates or may
elect not to continue or renew development or commercialization of our product candidates based on clinical trial results, changes
in their strategic focus due to the acquisition of competitive products, availability of funding or other external factors, such
as a business combination that diverts resources or creates competing priorities; |
| ● | collaborators may delay clinical trials, provide insufficient funding for a clinical trial, stop
a clinical trial, abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product
candidate for clinical testing; |
| ● | collaborators could independently develop, or develop with third parties, products that compete
directly or indirectly with our product candidates; |
| ● | a collaborator with marketing and distribution rights to one or more products may not commit sufficient
resources to their marketing and distribution; |
| ● | collaborators may not properly maintain or defend our intellectual property rights or may use our
intellectual property or proprietary information in a way that gives rise to actual or threatened litigation that could jeopardize
or invalidate our intellectual property or proprietary information or expose us to potential liability; |
| ● | disputes may arise between us and a collaborator that cause the delay or termination of the research,
development or commercialization of our product candidates, or that result in costly litigation or arbitration that diverts management
attention and resources; |
| ● | collaborations may be terminated and, if terminated, may result in a need for additional capital
to pursue further development or commercialization of the applicable product candidates; and |
| ● | collaborators may own or co-own intellectual property covering our products that results from our
collaborating with them, and in such cases, we would not have the exclusive right to commercialize such intellectual property.
If we are unable to obtain exclusive licenses to any such co- owner’s interest in such intellectual property, such co-owner
may be able to license their rights to third parties, including our competitors, and our competitors could market competing products
and technology. |
As
a result, if we enter into collaboration agreements and strategic partnerships or license our product candidates, we may not be
able to realize the benefit of such transactions if we are unable to successfully integrate them with our existing operations and
company culture, which could delay our timelines or otherwise adversely affect our business. We also cannot be certain that, following
a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Any delays
in entering into new collaborations or strategic partnership agreements related to our product candidates could delay the development
and commercialization of our product candidates in certain geographies for certain indications, which would harm our business prospects,
financial condition and results of operations.
We will rely
on third parties to manufacture our pre-clinical and future clinical product supplies, and we may rely on third parties to produce
and process our product candidates, if approved.
We
do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to
continue to rely for the foreseeable future, on third parties for the manufacture of our product candidates for preclinical and
clinical testing, as well as for commercial manufacture of any products that we may commercialize.
We
will need to negotiate and maintain contractual arrangements with outside vendors for the supply of our product candidates and
we may not be able to do so on favorable terms. In addition, these third-party manufacturing providers may not be able to provide
adequate resources or capacity to meet our needs. We expect to initially obtain our supplies from manufacturers on a purchase order
basis without long-term supply arrangements in place. We have not yet caused any product candidates to be manufactured and may
not be able to do so for any of our product candidates. In the future, we may be unable to enter into agreements with third-party
manufacturers for commercial supplies of any product candidate, or may be unable to do so on acceptable terms.
Reliance
on third-party manufacturers entails risks, including reliance on single sources for product components and lack of qualified backup
suppliers for those components purchased from a sole or single source supplier. We cannot be sure that single source suppliers
for our product components will remain in business or that they will not be purchased by one of our competitors or another company
that is not interested in continuing to produce these components for our intended purpose. In addition, the lead time needed to
establish a relationship with a new supplier can be lengthy, and we may experience delays in meeting demand in the event we must
switch to a new supplier. The time and effort to qualify a new supplier could result in additional costs, diversion of resources
or reduced manufacturing yields, any of which would negatively impact our operating results.
The
facilities used by our contract manufacturers to manufacture our product candidates must be approved by the FDA or other foreign
regulatory authorities following inspections that will be conducted after we submit an application to the FDA or other foreign
regulatory authorities. We may not control the manufacturing process of, and may be completely dependent on, our contract manufacturing
partners for compliance with cGMPs and any other regulatory requirements of the FDA or other regulatory authorities for the manufacture
of our product candidates. Beyond periodic audits, we have no control over the ability of our contract manufacturers to maintain
adequate quality control, quality assurance and qualified personnel. If the FDA or a comparable foreign regulatory authority does
not approve these facilities for the manufacture of our product candidates or if it withdraws any approval in the future, we may
need to find alternative manufacturing facilities, which would require the incurrence of significant additional costs and significantly
impact our ability to develop, obtain regulatory approval for or market our product candidates, if approved. Similarly, if any
third-party manufacturers on which we will rely fail to manufacture quantities of our product candidates at quality levels necessary
to meet regulatory requirements and at a scale sufficient to meet anticipated demand at a cost that allows us to achieve profitability,
our business, financial condition and prospects could be materially and adversely affected.
Formulation
and manufacturing our product candidates is complex and we may encounter difficulties in production. If we encounter such difficulties,
our ability to provide supply of our product candidates for preclinical studies and clinical trials or for commercial purposes
could be delayed or stopped.
The
process of formulating and manufacturing our product candidates is complex and highly regulated.
We
expect to rely on third parties for the formulation and manufacture of our product candidates. These third-party manufacturers
may incorporate their own proprietary processes into our product candidate manufacturing processes. We will have limited control
and oversight of a third party’s proprietary process, and a third party may elect to modify its process without our consent
or knowledge. These modifications could negatively impact our manufacturing, including product loss or failure that requires additional
manufacturing runs or a change in manufacturer, both of which could significantly increase the cost of and significantly delay
the manufacture of our product candidates.
As
our product candidates progress through preclinical studies and clinical trials towards approval and commercialization, it is expected
that various aspects of the manufacturing process will be altered in an effort to optimize processes and results. Such changes
may require amendments to be made to regulatory applications which may further delay the timeframes under which modified manufacturing
processes can be used for any of our product candidates and additional bridging studies or trials may be required.
In
addition, in order to conduct clinical trials of our product candidates, we will need to have them manufactured in potentially
large quantities. Our third-party manufacturers may be unable to successfully increase the manufacturing capacity for any of our
clinical drug supplies (including key starting and intermediate materials) in a timely or cost-effective manner, or at all. In
addition, quality issues may arise during scale-up activities and at any other time. If the third-party manufacturers are unable
to successfully scale up the manufacture of our product candidates in sufficient quality and quantity, the development, testing
and clinical trials of that product candidate may be delayed or infeasible, and regulatory approval or commercial launch of that
product candidate may be delayed or not obtained, which could significantly harm our business.
If our third-party
manufacturers use hazardous and biological materials in a manner that causes injury or violates applicable law, we may be liable
for damages.
Our
research and development activities may involve the controlled use of potentially hazardous substances, including chemical and
biological materials, by our third-party manufacturers. Our manufacturers are subject to federal, state and local laws and regulations
in the United States governing the use, manufacture, storage, handling and disposal of medical and hazardous materials. Although
we believe that our manufacturers’ procedures for using, handling, storing and disposing of these materials comply with legally
prescribed standards, we cannot completely eliminate the risk of contamination or injury resulting from medical or hazardous materials.
As a result of any such contamination or injury, we may incur liability or local, city, state or federal authorities may curtail
the use of these materials and interrupt our business operations. In the event of an accident, we could be held liable for damages
or penalized with fines, and the liability could exceed our resources. We do not have any insurance for liabilities arising from
medical or hazardous materials. Compliance with applicable environmental laws and regulations is expensive, and current or future
environmental regulations may impair our research, development and production efforts, which could harm our business, prospects,
financial condition or results of operations.
Risks Related to
Managing Our Growth, Employee Matters and Other Risks
For purposes of
this subsection, “Varian Bio,” “the Company,” “we,” “us” or “our” refer
to Varian Bio and its subsidiaries, unless the context otherwise requires.
Our success
is highly dependent on our ability to attract and retain highly skilled executive officers and employees.
To
succeed, we must recruit, retain, manage and motivate qualified clinical, scientific, technical and management personnel, and we
face significant competition for experienced personnel. We are highly dependent on the principal members of our management and
scientific and medical staff. If we do not succeed in attracting and retaining qualified personnel, particularly at the management
level, it could adversely affect our ability to execute our business plan and harm our operating results. In particular, the loss
of one or more of our executive officers could be detrimental to us if we cannot recruit suitable replacements in a timely manner.
The competition for qualified personnel in the biotechnology field is intense and as a result, we may be unable to continue to
attract and retain qualified personnel necessary for the future success of our business. We could in the future have difficulty
attracting experienced personnel to our company and may be required to expend significant financial resources in our employee recruitment
and retention efforts.
Many
of the other biotechnology companies that we compete against for qualified personnel have greater financial and other resources,
different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better
prospects for career advancement. Some of these characteristics may be more appealing to high-quality candidates than what we have
to offer. If we are unable to continue to attract and retain high-quality personnel, the rate and success at which we can discover,
develop and commercialize our product candidates will be limited and the potential for successfully growing our business will be
harmed.
We will need
to grow the size of our organization and expand our capabilities, and we may experience difficulties in managing this growth.
We
expect to experience significant growth in the number of our employees and the scope of our operations, particularly in the areas
of clinical development, clinical operations, manufacturing, regulatory affairs, and, if any of our product candidates receives
marketing approval, sales, marketing and distribution. To manage our anticipated future growth, we must continue to implement and
improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified
personnel.
Due
to our limited financial resources and the limited experience of our management team in managing a company with such anticipated
growth and with building clinical development, manufacturing and internal accounting and finance infrastructure, we may not be
able to effectively manage the expansion of our operations or recruit and train additional qualified personnel. The expansion of
our operations may lead to significant costs and may divert our management and business development resources.
Further,
we currently rely, and for the foreseeable future will continue to rely, in substantial part on certain third-party contract organizations,
advisors and consultants to provide certain services, including assuming substantial responsibilities for the conduct of our planned
clinical trials and the manufacture of our current or future product candidates. We cannot assure you that the services of such
third-party contract organizations, advisors and consultants will continue to be available to us on a timely basis when needed,
or that we can find qualified replacements. In addition, if we are unable to effectively manage our outsourced activities or if
the quality or accuracy of the services provided by our vendors or consultants is compromised for any reason, our clinical trials
may be extended, delayed or terminated, and we may not be able to obtain marketing approval of any of our product candidates or
otherwise advance our business. We cannot assure you that we will be able to properly manage our existing vendors or consultants
or find other competent outside vendors and consultants on economically reasonable terms, or at all.
If
we are not able to effectively manage growth and expand our organization, we may not be able to successfully implement the tasks
necessary to develop our product candidates or any future product candidates and, accordingly, may not achieve our research and
development goals.
Our information
technology systems, or those used by our third-party CROs or other contractors or consultants, may fail, be disrupted or suffer
security breaches, which could result in a material disruption of our discovery and development programs or otherwise materially
and adversely affect our business.
Despite
the implementation of security measures, our internal computer systems and those of our current and future CMOs, CROs and other
contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, and telecommunication
and electrical failures. If such an event were to occur and cause interruptions in our operations, it could result in a material
disruption of our discovery and development programs and our business operations. For example, the loss of data from completed
or future preclinical studies and clinical trials could result in delays in our regulatory approval efforts and significantly increase
our costs to recover or reproduce the data. Likewise, we rely on third parties for the manufacture of our product candidates and
will rely on third parties to conduct our clinical trials, and similar events relating to their computer systems could also have
a material adverse effect on our business. 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 the further development and commercialization of our product candidates could be delayed.
Business disruptions
could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our
operations, and those of our CROs, CMOS and other contractors and consultants, could be subject to earthquakes, power shortages,
telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, epidemics and pandemics
such as the COVID-19 pandemic, and other natural or man-made disasters or business interruptions, for which we are predominantly
self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and
increase our costs and expenses. We rely on third-party manufacturers to produce our product candidates. Our ability to obtain
pre-clinical and clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected
by a man-made or natural disaster or other business interruption.
Unstable market
and economic conditions may have serious adverse consequences on our business, financial condition and stock price.
As
widely reported, global credit and financial markets have experienced extreme volatility and disruptions in the past several years,
most recently due to the COVID-19 pandemic, including severely diminished liquidity and credit availability, declines in consumer
confidence, declines in economic growth, increases in unemployment rates and uncertainty about economic stability. There can be
no assurance that further deterioration in credit and financial markets and confidence in economic conditions, whether due to the
evolving effects of the COVID-19 pandemic or otherwise, will not occur. Our general business strategy may be adversely affected
by any such economic downturn, volatile business environment or continued unpredictable and unstable market conditions. If the
current equity and credit markets deteriorate, or do not improve, it may make any necessary debt or equity financing more difficult,
more costly, and more dilutive.
Failure
to secure any necessary financing in a timely manner and on favorable terms could have a material adverse effect on our growth
strategy, financial performance and stock price and could require us to delay or abandon clinical development plans. In addition,
there is a risk that one or more of our current service providers, manufacturers and other partners may not survive these difficult
economic times, which could directly affect our ability to attain our operating goals on schedule and on budget.
After
the completion of the Business Combination, our stock price may decline due in part to the volatility of the stock market and the
general economic downturn.
We may be unable
to adequately protect our information systems from cyberattacks, which could result in the disclosure of confidential or proprietary
information, including personal data, damage our reputation, and subject us to significant financial and legal exposure.
We
rely on information technology systems that we or our third-party vendors operate to process, transmit and store electronic information.
In addition, the COVID-19 pandemic has intensified our dependence on information technology systems as many of our critical business
activities are currently being conducted remotely. In connection with our discovery and development efforts, we may collect and
use a variety of personal data, such as name, mailing address, email addresses, phone number and clinical trial information. A
successful cyberattack could result in the theft or destruction of intellectual property, data, or other misappropriation of assets,
or otherwise compromise our confidential or proprietary information and disrupt our operations. Cyberattacks are increasing in
their frequency, sophistication and intensity, and have become increasingly difficult to detect. Moreover, the prevalent use of
mobile devices to access confidential information increases the risk of security breaches. Cyberattacks could include wrongful
conduct by hostile foreign governments, industrial espionage, wire fraud and other forms of cyber fraud, the deployment of harmful
malware, denial-of-service, social engineering fraud or other means to threaten data security, confidentiality, integrity and availability.
A successful cyberattack could cause serious negative consequences for us, including, without limitation, the disruption of operations,
the misappropriation of confidential business information, including financial information, trade secrets, financial loss and the
disclosure of corporate strategic plans. Although we devote resources to protect our information systems, we realize that cyberattacks
are a threat, and there can be no assurance that our efforts will prevent information security breaches that would result in business,
legal, financial or reputational harm to us, or would have a material adverse effect on our results of operations and financial
condition. Any failure to prevent or mitigate security breaches or improper access to, use of, or disclosure of our clinical data
or patients’ personal data could result in significant liability under state (e.g., state breach notification laws),
federal (e.g., HIPAA, as amended by HITECH), and international law (e.g., the GDPR) and may cause a material adverse
impact to our reputation, affect our ability to conduct our planned clinical trials and potentially disrupt our business. In addition,
failure to maintain effective internal accounting controls related to security breaches and cybersecurity in general could impact
our ability to produce timely and accurate financial statements and subject us to regulatory scrutiny.
In
addition, the information technology systems of various third parties on which we rely, including our CMOs, CROs and other contractors,
consultants and legal and accounting firms, may sustain damage from computer viruses, unauthorized access, data breaches, phishing
attacks, cybercriminals, natural disasters (including hurricanes and earthquakes), terrorism, war and telecommunication and electrical
failures. We rely on our third-party providers to implement effective security measures and identify and correct for any such failures,
deficiencies or breaches. If we or our third-party providers fail to maintain or protect our information technology systems and
data integrity effectively or fail to anticipate, plan for or manage significant disruptions to our information technology systems,
we or our third-party providers could have difficulty preventing, detecting and controlling such cyber-attacks and any such attacks
could result in losses described above as well as disputes with physicians, patients and our partners, regulatory sanctions or
penalties, increases in operating expenses, expenses or lost revenues or other adverse consequences, any of which could have a
material adverse effect on our business, results of operations, financial condition, prospects and cash flows. Any failure by such
third parties to prevent or mitigate security breaches or improper access to or disclosure of such information could have similarly
adverse consequences for us. If we are unable to prevent or mitigate the impact of such security or data privacy breaches, we could
be exposed to litigation and governmental investigations, which could significantly increase our costs and lead to a potential
disruption to our business.
Varian Bio’s ability to use
its net operating loss carryforwards and certain other tax attributes may be limited.
As of December 31, 2021, Varian
Bio had net operating loss carryforwards for U.S. federal income tax purposes and state income tax purposes of $1,458,956 and
$1,458,956, respectively, available to offset future taxable income. The net operating loss carryforward amounts are
limited to 80% of taxable income, only carried forward and carried forward indefinitely. Realization of these net operating loss
carryforwards depends on Varian Bio’s future taxable income, and there is a risk that Varian Bio’s existing carryforwards
could expire unused and be unavailable to offset future income tax liabilities, which could materially and adversely affect Varian Bio’s
operating results. In addition, under Sections 382 and 383 of the Code, if a corporation undergoes an “ownership change,”
generally defined as a greater than 50% change (by value) in its equity ownership over a three (3) year period, the corporation’s
ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research tax credits, to
offset its post-change income may be limited. Varian Bio may have previous experienced an “ownership change” and may experience
ownership changes in the future because of subsequent shifts in its stock ownership. As a result, if Varian Bio earns net taxable income,
its ability to use its pre-change net operating loss carryforwards and other tax attributes to offset U.S. federal taxable income may
be subject to limitations, which could potentially result in increased future tax liability to Varian Bio. Additionally, the deductibility
of such U.S. federal net operating losses will generally be limited to 80% of Varian Bio’s taxable income in any taxable year.
Risks Related to SPKA’s Business
and the Business Combination
Going public through a business combination/merger rather
than an underwritten offering presents risks to unaffiliated investors. Subsequent to completion of the Business Combination, the Combined
Company may be required to take write-downs or write-offs, restructure its operations, or take impairment of other charges, any of which
could have a significant negative effect on the Combined Company’s financial condition, results of operations and share price,
which could cause you to lose some or all of your investment.
Going public through a
business combination/merger, rather than an underwritten offering as Varian Bio is seeking to do through the Business Combination, presents
risks to unaffiliated investors. Such risks include the absence of a due diligence investigation conducted by an underwriter that would
be subject to liability for any material misstatements or omissions in a registration statement. Although SPKA has conducted due diligence
on Varian Bio, SPKA cannot assure you that this due diligence has identified all material issues that may be present in Varian Bo, that
it would be possible to uncover all material issues through a customary amount of due diligence, or that factors outside of Varian Bio’s
business or SPKA’s business and outside of Varian Bio’s and SPKA’s control will not later arise. Due diligence
reviews in a typical IPO may include an independent investigation of the background of the company, any advisors and their respective
affiliates, review of the offering documents and independent analysis of the business plan and any underlying financial assumptions.
Because the Combined Company will become a public reporting company by means of consummating the Business Combination rather than by
means of a traditional underwritten initial public offering, there is no independent third-party underwriter selling the shares of Common
Stock of the Combined Company, and, accordingly, the Combined Company’s stockholders (including SPKA’s public stockholders)
will not have the benefit of an independent review and due diligence investigation of the type normally performed by an unaffiliated,
independent underwriter in a public securities offering. As a result of these factors, the Combined Company may be forced to later write-down
or write-off assets, restructure operations, or incur impairments or other charges that could result in reporting losses. Even if SPKA’s
due diligence successfully identifies certain risks, unexpected risks may arise and previously known risks may materialize in a manner
not consistent with SPKA’s preliminary risk analysis. Even though these charges may be non-cash items and not have an immediate
impact on the Combined Company’s liquidity, the fact that we report charges of this nature could contribute to negative market
perceptions about the Combined Company or its securities. Accordingly, any of SPKA’s stockholders who choose to remain stockholders
of the Combined Company could suffer a reduction in the value of their shares and these stockholders are unlikely to have a remedy for
the reduction in value.
Because the Combined
Company will become a public reporting company by means other than a traditional underwritten initial public offering, the Combined Company’s
stockholders may face additional risks and uncertainties.
Because
the Combined Company will become a public reporting company by means of consummating the Business Combination rather than by means of
a traditional underwritten initial public offering, there is no independent third-party underwriter selling the shares of the Combined
Company’s Common Stock, and, accordingly, the Combined Company’s stockholders will not have the benefit of an independent
review and investigation of the type normally performed by an unaffiliated, independent underwriter in a public securities offering.
Due diligence reviews typically include an independent investigation of the background of the company, any advisors and their respective
affiliates, review of the offering documents and independent analysis of the plan of business and any underlying financial assumptions.
Because there is no independent third-party underwriter selling the shares of the Combined Company’s Common Stock, SPKA’s
stockholders must rely on the information included in this proxy statement. Although SPKA performed a due diligence review and investigation
of Varian Bio in connection with the Business Combination, the lack of an independent due diligence review and investigation increases
the risk of investment in the Combined Company because it may not have uncovered facts that would be important to a potential investor.
In addition, because
the Combined Company will not become a public reporting company by means of a traditional
underwritten initial public offering, security or industry analysts may not provide, or be less likely to provide, coverage of the Combined
Company. Investment banks may also be less likely to agree to underwrite secondary offerings on behalf of the Combined Company than they
might if the Combined Company became a public reporting company by means of a traditional underwritten initial public offering, because
they may be less familiar with the Combined Company as a result of more limited coverage by analysts and the media. The failure to receive
research coverage or support in the market for the Combined Company’s Common Stock could have an adverse effect on the Combined
Company’s ability to develop a liquid market for the Combined Company’s Common Stock.
SPKA has different incentives
and objectives in the Business Combination than an underwriter would in a traditional initial public offering, and therefore SPKA’s
due diligence review and investigation should not be viewed as equivalent to the review and investigation that an underwriter would be
expected to conduct. Even if SPKA’s due diligence successfully identifies certain risks, unexpected risks may arise and previously
known risks may materialize in a manner not consistent with SPKA’s preliminary risk analysis. Even though these charges may be
non-cash items and not have an immediate impact on the Combined Company’s liquidity, the fact that we report charges of this nature
could contribute to negative market perceptions about the Combined Company or its securities. In addition, charges of this nature may
cause us to violate net worth or other covenants to which we may be subject as a result of assuming pre-existing debt held by a target
business or by virtue of our obtaining debt financing thereafter. Accordingly, any SPKA stockholders or warrant holders who choose to
remain stockholders or warrant holders following the Business Combination could suffer a reduction in the value of their securities.
These stockholders or warrant holders are unlikely to have a remedy for the reduction in value.
SPKA will be forced to liquidate
the Trust Account if it cannot consummate a business combination by the date that is 12 months from the closing of the IPO, or
June 10, 2022 (or up to September 10, 2022 if the time to complete a business combination is extended). In the event of a liquidation,
SPKA’s public stockholders will receive $[10.00] per share of common stock, and the Rights will expire worthless.
If SPKA is unable to complete
a business combination by March 10, 2022, or, as long as SPKA has filed a proxy statement, registration statement or similar filing
for an initial business combination by such date, June 10, 2022 (or up to September 10, 2022 if the time to complete a business
combination is extended), and is forced to liquidate, the per-share liquidation distribution will be $10.00 per shares of common
stock.
You must tender your shares of
common stock in order to validly seek redemption at the Meeting of stockholders.
In connection with tendering
your shares of common stock for redemption, you must elect either to physically tender your share certificates to Continental or
to deliver your shares of common stock to Continental electronically using DTC’s DWAC (Deposit/Withdrawal At Custodian) System,
in each case at least two business days before the Meeting. The requirement for physical or electronic delivery ensures that a
redeeming holder’s election to redeem is irrevocable once the Business Combination is consummated. Any failure to observe
these procedures will result in your loss of redemption rights in connection with the vote on the Business Combination.
If third parties bring claims against
SPKA, the proceeds held in trust could be reduced and the per share liquidation price received by SPKA’s common stock holders
may be less than $[•].
SPKA’s placing of
funds in trust may not protect those funds from third party claims against SPKA. Although SPKA has received from many of the vendors,
service providers (other than its independent accountants) and prospective target businesses with which it does business executed
agreements waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit
of SPKA’s public stockholders, they may still seek recourse against the Trust Account. Additionally, a court may not uphold
the validity of such agreements. Accordingly, the proceeds held in trust could be subject to claims which could take priority over
those of SPKA’s public stockholders. If SPKA liquidates the Trust Account before the completion of a business combination
and distributes the proceeds held therein to its public stockholders, the Sponsor has contractually agreed that it will be liable
to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other
entities that are owed money by us for services rendered or contracted for or products sold to us, but only if such a vendor or
prospective target business does not execute such a waiver. However, SPKA cannot assure you that they will be able to meet such
obligation. Therefore, the per-share distribution from the Trust Account for our stockholders may be less than $10.00 per Share
of common stock due to such claims.
Additionally, if SPKA is
forced to file a bankruptcy case or an involuntary bankruptcy case is filed against it which is not dismissed, the proceeds held
in the Trust Account could be subject to applicable bankruptcy law, and may be included in SPKA’s bankruptcy estate and subject
to the claims of third parties with priority over the claims of its stockholders. To the extent any bankruptcy claims deplete the
Trust Account, SPKA may not be able to return $10.00 to our public stockholders.
Any distributions received by SPKA
stockholders could be viewed as an unlawful payment if it was proved that immediately following the date on which the distribution
was made, SPKA was unable to pay its debts as they fell due in the ordinary course of business.
SPKA’s Certificate
of Incorporation provides that it will continue in existence only until March 10, 2022, or, as long as SPKA has filed a proxy statement,
registration statement or similar filing for an initial business combination by such date, June 10, 2022 (or up to September 10,
2022 if the time to complete a business combination is extended). If SPKA is unable to consummate a transaction within the required
time periods, upon notice from SPKA, the trustee of the Trust Account will distribute the amount in its Trust Account to its public
stockholders. Concurrently, SPKA shall pay, or reserve for payment, from funds not held in trust, its liabilities and obligations,
although SPKA cannot assure you that there will be sufficient funds for such purpose.
We expect that all costs
and expenses associated with implementing our plan of dissolution, as well as payments to any creditors, will be funded from amounts
remaining out of the approximately $550,000 of proceeds held outside the trust account, although we cannot assure you that there
will be sufficient funds for such purpose. We will depend on sufficient interest being earned on the proceeds held in the Trust
Account to pay any tax obligations we may owe or for working capital purposes.
However, we may not properly
assess all claims that may be potentially brought against us. As such, our stockholders could potentially be liable for any claims
to the extent of distributions received by them (but no more) and any liability of our stockholders may extend well beyond the
third anniversary of the date of distribution. Accordingly, third parties may seek to recover from our stockholders amounts owed
to them by us.
If, after we distribute
the proceeds in the Trust Account to our public stockholders, we file a bankruptcy petition or an involuntary bankruptcy petition
is filed against us that is not dismissed, any distributions received by stockholders could be viewed under applicable debtor/creditor
and/or bankruptcy laws as either a “preferential transfer” or a “fraudulent conveyance.” As a result, a
bankruptcy court could seek to recover all amounts received by our stockholders. In addition, our Board may be viewed as having
breached its fiduciary duty to our creditors and/or having acted in bad faith, thereby exposing itself and us to claims of punitive
damages, by paying public stockholders from the trust account prior to addressing the claims of creditors.
If SPKA’s due diligence investigation
of Varian Bio was inadequate, then stockholders of SPKA following the Business Combination could lose some or all of their investment.
Even though SPKA conducted
a due diligence investigation of Varian Bio, it cannot be sure that this diligence uncovered all material issues that may be present
inside Varian Bio or its business, or that it would be possible to uncover all material issues through a customary amount of due
diligence, or that factors outside of Varian Bio and its business and outside of its control will not later arise.
The Amended Charter will provide that
the courts located in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders,
which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers,
or employees.
The Amended Charter will
provide that except with the consent of the Combined Company to the selection of an alternative forum, the Court of Chancery of the State
of Delaware shall be the sole and exclusive forum for certain stockholder litigation, except for any action as to which the Chancery
Court determines that there is an indispensable party not subject to the jurisdiction of such court and to which jurisdiction such party
does not consent within 10 days of such determination, which is vested in the exclusive jurisdiction of a court or forum other than the
Chancery Court or for which the Chancery Court does not have subject matter jurisdiction, or any action arising under the Securities
Act as to which the Chancery Court and the federal district court for the District of Delaware shall have concurrent jurisdiction. The
preceding exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Exchange Act or any
other claim for which the federal courts have exclusive jurisdiction. The choice of forum provision may limit a stockholder’s ability
to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which
may discourage such lawsuits against us and our directors, officers, and other employees. Alternatively, if a court were to find the
choice of forum provision contained in the Amended Charter to be inapplicable or unenforceable in an action, we may incur additional
costs associated with resolving such action in other jurisdictions, which could harm our business, results of operations, and financial
condition.
Stockholder litigation and regulatory
inquiries and investigations are expensive and could harm SPKA’s business, financial condition and operating results and
could divert management attention.
In the past, securities
class action litigation and/or stockholder derivative litigation and inquiries or investigations by regulatory authorities
have often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic
transaction, such as the Business Combination. Any stockholder litigation and/or regulatory investigations against SPKA, whether
or not resolved in SPKA’s favor, could result in substantial costs and divert SPKA’s management’s attention from
other business concerns, which could adversely affect SPKA’s business and cash resources and the ultimate value SPKA’s
stockholders receive as a result of the Business Combination.
The Initial Stockholders who own
shares of common stock and Private Units will not participate in liquidation distributions and, therefore, they may have a conflict
of interest in determining whether the Business Combination is appropriate.
As of the Record Date, the
Initial Stockholders owned an aggregate of [1,478,623] shares of common stock and 206,824 Private Units. They have waived
their right to redeem any shares of common stock in connection with a stockholder vote to approve a proposed initial business combination
or sell any shares of common stock to SPKA in a tender offer in connection with a proposed initial business combination, or to
receive distributions with respect to any shares of common stock upon the liquidation of the Trust Account if SPKA is unable to
consummate a business combination. Based on a market price of $[•] per Unit on [•], 2022, the value of the Units was
$[•]. The Private Units (including underlying securities) and founder shares acquired prior to the IPO will be worthless if
SPKA does not consummate a business combination. Consequently, our directors’ discretion in identifying and selecting Varian
Bio as a suitable target business may result in a conflict of interest when determining whether the terms, conditions and timing
of the Business Combination are appropriate and in SPKA’s public stockholders’ best interest.
If SPKA’s security holders
exercise their registration rights with respect to their securities, it may have an adverse effect on the market price of SPKA’s
securities.
SPKA’s Initial Stockholders
are entitled to make a demand that it register the resale of their founder shares at any time commencing three months prior to
the date on which their shares may be released from escrow. Additionally, the holders of Representative Shares, the Private Units
and any Units the Sponsor, Initial Stockholders, officers, directors, or their affiliates may be issued in payment of working capital
loans made to SPKA, are entitled to demand that SPKA register the resale of the Representative Shares, Private Units and any other
Units SPKA issues to them (and the underlying securities) commencing at any time after SPKA consummates an initial business combination.
If such persons exercise their registration rights with respect to all of their securities, then there will be an additional 1,478,623 shares
of common stock and 206,823 Units (and underlying securities) eligible for trading in the public market. The presence of these
additional shares of common stock and Units (and underlying securities) trading in the public market may have an adverse effect
on the market price of SPKA’s securities.
SPKA will not obtain an opinion
from an unaffiliated third party as to the fairness of the Business Combination to its stockholders.
SPKA is not required to
obtain an opinion from an unaffiliated third party that the price it is paying in the Business Combination is fair to its public
stockholders from a financial point of view. SPKA’s public stockholders therefore, must rely solely on the judgment of the
Board.
If the Business Combination’s
benefits do not meet the expectations of financial or industry analysts, the market price of SPKA’s securities may decline.
The market price of SPKA’s
securities may decline as a result of the Business Combination if:
| ● | SPKA does not achieve the perceived benefits of the acquisition as rapidly as, or to the extent
anticipated by, financial or industry analysts; or |
| ● | The effect of the Business Combination on the financial statements is not consistent with the expectations
of financial or industry analysts. |
Accordingly, investors may
experience a loss as a result of decreasing stock prices.
SPKA’s directors and officers
may have certain conflicts in determining to recommend the acquisition of Varian Bio, since certain of their interests, and certain
interests of their affiliates and associates, are different from, or in addition to, your interests as a shareholder.
SPKA’s management
and directors have interests in and arising from the Business Combination that are different from, or in addition to, your interests
as a shareholder, which could result in a real or perceived conflict of interest. These interests include the fact that certain
of the shares of common stock and Private Units (including the underlying securities) owned by SPKA’s management and directors,
or their affiliates and associates, would become worthless if the Business Combination Proposal is not approved and SPKA otherwise
fails to consummate a business combination prior to June 10, 2022 as long as SPKA has filed a proxy statement, registration statement
or similar filing for an initial business combination by March 10, 2022 (or up to September 10, 2022 if the time to complete a
business combination is extended). See “Proposal 1 — The Business Combination Proposal — Interests of Certain
Persons in the Business Combination” beginning on page [•] for additional information.
SPKA and Varian Bio have incurred
and expect to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed,
the incurrence of these costs will reduce the amount of cash available to be used for other corporate purposes by SPKA if the Business
Combination is completed or by SPKA if the Business Combination is not completed.
SPKA and Varian Bio expect
to incur significant costs associated with the Business Combination. Whether or not the Business Combination is completed, SPKA
expects to incur approximately $[•] in expenses. These expenses will reduce the amount of cash available to be used for other
corporate purposes by SPKA if the Business Combination is completed or by SPKA if the Business Combination is not completed.
SPKA will incur significant transaction
costs in connection with transactions contemplated by the Merger Agreement.
SPKA will incur significant
transaction costs in connection with the Business Combination. If the Business Combination is not consummated, SPKA may not have
sufficient funds to seek an alternative business combination and may be forced to liquidate and dissolve.
The unaudited pro forma condensed
combined financial information included in this proxy statement/prospectus may not be indicative of what the Combined Company’s
actual financial position or results of operations would have been.
The unaudited pro forma
condensed combined financial information in this proxy statement/prospectus is presented for illustrative purposes only and is
not necessarily indicative of what Combined Company’s actual financial position or results of operations would have been
had the Business Combination been completed on the dates indicated. See the section titled “Unaudited Pro Forma Condensed
Combined Financial Information” for more information.
In the event that a significant
number of shares of common stock are redeemed, our common stock may become less liquid following the Business Combination.
If a significant number of shares
of common stock are redeemed, SPKA may be left with a significantly smaller number of stockholders. As a result, trading in the shares
of the Combined Company may be limited and your ability to sell your shares in the market could be adversely affected. The Combined Company
intends to apply to list its shares on the Nasdaq Stock Market (“Nasdaq”), and Nasdaq may not list the common stock
on its exchange, which could limit investors’ ability to make transactions in SPKA’s securities and subject SPKA to additional
trading restrictions.
The Combined Company will be required
to meet the initial listing requirements to be listed on the Nasdaq Stock Market. However, the Combined Company may be unable to
maintain the listing of its securities in the future.
If the Combined Company
fails to meet the continued listing requirements and Nasdaq delists its securities, SPKA could face significant material adverse
consequences, including:
| ● | a limited availability of market quotations for its securities; |
| ● | a limited amount of news and analyst coverage for the Combined Company; and |
| ● | a decreased ability to issue additional securities or obtain additional financing in the future. |
SPKA may waive one or more of the
conditions to the Business Combination without resoliciting shareholder approval for the Business Combination.
SPKA may agree to waive,
in whole or in part, some of the conditions to its obligations to complete the Business Combination, to the extent permitted by
applicable laws. The Board will evaluate the materiality of any waiver to determine whether amendment of this proxy statement/prospectus
and resolicitation of proxies is warranted. In some instances, if the Board determines that a waiver is not sufficiently material
to warrant resolicitation of stockholders, SPKA has the discretion to complete the Business Combination without seeking further
shareholder approval. For example, it is a condition to SPKA’s obligations to close the Business Combination that there be
no applicable law and no injunction or other order restraining or imposing any condition on the consummation of the Business Combination,
however, if the Board determines that any such order or injunction is not material to the business of Varian Bio, then the Board
may elect to waive that condition without shareholder approval and close the Business Combination.
SPKA’s stockholders will
experience immediate dilution as a consequence of the issuance of common stock as consideration in the Business Combination and
the PIPE Investment. Having a minority share position may reduce the influence that SPKA’s current stockholders have on the
management of SPKA.
It
is anticipated that upon completion of the Business Combination, and
assuming (a) in the No Redemption Scenario, (b) Interim Redemption Scenario, and (c) the Maximum Redemption, (i) SPKA’s
public stockholders would retain an ownership interest of approximately 45.9%, 34.0% and 15.4%, respectively, in the Combined
Company, (ii) the Sponsor, officers, directors and other holders of founder shares will own approximately 13.3% 16.3%, and 20.8%,
respectively, of the Combined Company, (iii) the Representative will own approximately 0.2% 0.3%,and 0.4%, respectively, of the
Combined Company, and (iv) the Varian Bio shareholders will own approximately 40.6% 49.5%, and 63.4%, respectively, of the Combined
Company.
The ownership percentage with respect
to the Combined Company does not take into account the issuance of any additional shares upon the closing of the Business Combination
under the Incentive Award Plan. If the actual facts are different from these assumptions (which they are likely to be), the percentage
ownership retained by the SPKA stockholders will be different. See “Unaudited Pro Forma Condensed Combined Financial Information.”
Risks Related to Combined Company’s
Common Stock
The Combined Company’s stock price
may fluctuate significantly.
The market price of the
Combined Company’s Common Stock may fluctuate widely, depending on many factors, some of which may be beyond our control,
including:
| ● | actual or anticipated fluctuations in our results of operations due to factors related to its business; |
| ● | success or failure of its business strategies; |
| ● | competition and industry capacity; |
| ● | changes in interest rates and other factors that affect earnings and cash flow; |
| ● | its level of indebtedness, its ability to make payments on or service its indebtedness and its
ability to obtain financing as needed; |
| ● | its ability to retain and recruit qualified personnel; |
| ● | its quarterly or annual earnings, or those of other companies in its industry; |
| ● | announcements by us or its competitors of significant acquisitions or dispositions; |
| ● | changes in accounting standards, policies, guidance, interpretations or principles; |
| ● | the failure of securities analysts to cover, or positively cover, the
Common Stock after the Business Combination; |
| ● | changes in earnings estimates by securities analysts or its ability to meet those estimates; |
| ● | the operating and stock price performance of other comparable companies; |
| ● | investor perception of the company and its industry; |
| ● | overall market fluctuations unrelated to its operating performance; |
| ● | results from any material litigation or government investigation; |
| ● | changes in laws and regulations (including tax laws and regulations) affecting its business; |
| ● | changes in capital gains taxes and taxes on dividends affecting stockholders; and |
| ● | general economic conditions and other external factors. |
Low trading volume for the
Combined Company’s Common Stock, which may occur if an active trading market does not develop, among other reasons, would
amplify the effect of the above factors on stock price volatility.
Should the market price
of our shares drop significantly, stockholders may institute securities class action lawsuits against us. A lawsuit against the
Combined Company could cause the Combined Company to incur substantial costs and could divert the time and attention of its management
and other resources.
An active, liquid trading market for
the Combined Company’s Common Stock may not develop, which may limit your ability to sell your shares.
An active trading market
for the Combined Company’s Common Stock may never develop or be sustained following the consummation of the Business Combination.
A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of
willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers
over which neither the Combined Company nor any market maker has control. The failure of an active and liquid trading market to
develop and continue would likely have a material adverse effect on the value of the Combined Company’s Common Stock. An
inactive market may also impair the Combined Company’s ability to raise capital to continue to fund operations by issuing
shares and may impair the Combined Company’s ability to acquire other companies or technologies by using the Combined Company’s
shares as consideration.
Your percentage ownership in the Combined
Company may be diluted in the future.
Stockholders’ percentage
ownership in the Company may be diluted in the future because of equity issuances for acquisitions, capital market transactions
or otherwise, including equity awards that the Combined Company will be granting to directors, officers and other employees. Our
Board has adopted the incentive plan subject to stockholder approval, for the benefit of certain of our current and future employees,
service providers and non-employee directors. Such awards will have a dilutive effect on our earnings per share, which could adversely
affect the market price of our Common Stock.
From time-to-time, the Combined
Company may opportunistically evaluate and pursue acquisition opportunities, including acquisitions for which the consideration
thereof may consist partially or entirely of newly-issued shares of Combined Company Common Stock and, therefore, such transactions,
if consummated, would dilute the voting power and/or reduce the value of our Common Stock.
The issuance of additional shares of
Common Stock, preferred stock or other convertible securities may dilute your ownership and could adversely affect the stock price.
From time to time in the
future, the Combined Company may issue additional shares of Common Stock, preferred stock or other securities convertible into
Common Stock pursuant to a variety of transactions, including acquisitions. Additional shares of Common Stock may also be issued
upon exercise of outstanding stock options and warrants to purchase common stock. The issuance by us of additional shares of Common
Stock or securities convertible into Common Stock would dilute your ownership of the Combined Company and the sale of a significant
amount of such shares in the public market could adversely affect prevailing market prices of our common stock. Subject to the
satisfaction of vesting conditions and the expiration of lockup agreements, shares issuable upon exercise of options will be available
for resale immediately in the public market without restriction.
Issuing additional shares
of the Combined Company’s capital stock, other equity securities or securities convertible into equity may dilute the economic
and voting rights of our existing stockholders, reduce the market price of our common stock or both. Debt securities convertible
into equity could be subject to adjustments in the conversion ratio pursuant to which certain events may increase the number of
equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions
or a preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock.
The Combined Company’s decision to issue securities in any future offering will depend on market conditions and other factors
beyond our control, which may adversely affect the amount, timing, or nature of our future offerings. As a result, holders of the
Combined Company’s Common Stock bear the risk that the Combined Company’s future offerings may reduce the market price
of the Combined Company’s Common Stock and dilute their percentage ownership.
Future sales, or the perception of future
sales, of the Combined Company’s Common Stock by the Combined Company or its existing stockholders in the public market could
cause the market price for the Combined Company’s Common Stock to decline.
The sale of substantial
amounts of shares of the Combined Company’s Common Stock in the public market, or the perception that such sales could occur,
could harm the prevailing market price of shares of common stock. These sales, or the possibility that these sales may occur, also
might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
In connection with the Business
Combination, certain of SPKA’s stockholders agreed that, subject to certain exceptions, they will not, during the period
beginning at the effective time of the Business Combination and the date that is [•] days after the date of the Business Combination
(subject to early release if Varian Bio consummates a liquidation, merger, share exchange or other similar transaction with an
unaffiliated third party), directly or indirectly, offer, sell, contract to sell, pledge, grant any option to purchase, make any
short sale, or otherwise dispose of any shares of common stock, or any options or warrants to purchase any shares of common stock,
or any securities convertible into, exchangeable for, or that represent the right to receive shares of common stock, or any interest
in any of the foregoing.
Upon the expiration or waiver
of the lock-up described above, shares held by these stockholders will be eligible for resale, subject to, in the case of stockholders
who are our affiliates, volume, manner of sale, and other limitations under Rule 144 promulgated under the Securities Act.
In addition, certain of our stockholders
may have registration rights under a registration rights agreement to be entered into if there
is a PIPE Investment pursuant to which we would be obligated to register such stockholders’
shares of common stock and other securities that such stockholders may acquire after the Closing. Upon the effectiveness of the applicable
registration statement, these shares of common stock would be available for resale without
restriction, subject to any lock-up agreement.
In addition, shares of our
common stock issuable upon exercise or vesting of incentive awards under our incentive plans are, once issued, eligible for sale
in the public market, subject to any lock-up agreements and, in some cases, limitations on volume and manner of sale applicable
to affiliates under Rule 144. Furthermore, shares of our common stock reserved for future issuance under the Stock Plan may become
available for sale in future.
The market price of shares
of our common stock could drop significantly if the holders of the shares described above sell them or are perceived by the market
as intending to sell them. These factors could also make it more difficult for us to raise additional funds through future offerings
of shares of our common stock or other securities.
If securities or industry analysts publish
inaccurate or unfavorable research or reports about the Combined Company’s business, its stock price and trading volume could
decline.
The trading market for the
Common Stock depends, in part, on the research and reports that third-party securities analysts publish about us and the industries
in which we operate. We may be unable or slow to attract research coverage and if one or more analysts cease coverage of the Combined
Company, the price and trading volume of our securities would likely be negatively impacted. If any of the analysts that may cover
us change their recommendation regarding our Common Stock adversely, or provide more favorable relative recommendations about our
competitors, the price of our Common Stock would likely decline. If any analyst that may cover the Combined Company ceases covering
us or fails to regularly publish reports on us, we could lose visibility in the financial markets, which could cause the price
or trading volume of our Common Stock to decline. Moreover, if one or more of the analysts who cover us downgrades our Common Stock,
or if our reporting results do not meet their expectations, the market price of our Common Stock could decline.
The Combined Company may be subject to
securities litigation, which is expensive and could divert management attention.
Following the Business Combination,
the per share price of the Common Stock may be volatile and, in the past, companies that have experienced volatility in the market
price of their stock have been subject to securities litigation, including class action litigation. Litigation of this type could
result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect
on the Combined Company’s business, financial condition, and results of operations. Any adverse determination in litigation
could also subject the Company to significant liabilities.
Proposed legislation
in the U.S. Congress may adversely impact the Combined Company and the value of the Combined Company’s Common Stock.
The
U.S. Congress is currently considering numerous items of legislation which may be enacted prospectively or with retroactive effect,
which legislation could adversely impact the Combined Company’s performance and the value of the Combined Company’s
Common Stock. In particular, new proposed legislation known as the Build Back Better Act is under consideration within both houses
of the U.S. Congress. The proposed legislation includes, without limitation, new corporate minimum income taxes. If enacted, most
of the proposals would be effective for 2022 or later years. The proposed legislation remains subject to change, and its impact
on the Combined Company is uncertain.
Risks Related to Redemptions
In connection with any vote to approve a
business combination, SPKA will offer each public stockholder the option to vote in favor of a proposed business combination and still
seek redemption of his, her or its shares of common stock.
In
connection with any vote to approve a business combination, SPKA will offer each public stockholder (but not the Sponsor, officers
or directors) the right to have his, her or its shares of common stock redeemed to cash (subject to the limitations described elsewhere
in this prospectus) regardless of whether such stockholder votes for or against such proposed business combination or does not
vote at all. The ability to seek redemption while voting in favor of SPKA’s proposed business combination may make it more
likely that SPKA will consummate a business combination.
SPKA does not have a specified maximum redemption
threshold. The absence of such a redemption threshold may make it easier for SPKA to consummate a business combination even where a substantial
number of public stockholders seek to redeem their shares of common stock to cash in connection with the vote on the business combination.
SPKA
has no specified percentage threshold for redemption. As a result, SPKA may be able to consummate a business combination even though
a substantial number of its public stockholders do not agree with the Transaction and have redeemed their shares of common stock.
However, in no event will SPKA consummate an initial business combination unless it has net tangible assets of at least $5,000,001
immediately prior to or upon consummation of its initial business combination.
SPKA is requiring stockholders
who wish to redeem their shares of common stock in connection with a proposed business combination to comply with specific requirements
for redemption that may make it more difficult for them to exercise their redemption rights prior to the deadline for exercising
their rights.
SPKA is requiring stockholders
who wish to redeem their shares of common stock to either tender their certificates to Continental or to deliver their shares of
common stock to Continental electronically using the DTC’s DWAC (Deposit/Withdrawal At Custodian) System at least two business
days before the Meeting. In order to obtain a physical certificate, a stockholder’s broker and/or clearing broker, DTC and
Continental will need to act to facilitate this request. It is SPKA’s understanding that stockholders should generally allot
at least two weeks to obtain physical certificates from Continental. However, because we do not have any control over this process
or over the brokers or DTC, it may take significantly longer than two weeks to obtain a physical certificate. While we have been
advised that it takes a short time to deliver shares of common stock through the DWAC System, we cannot assure you of this fact.
Accordingly, if it takes longer than SPKA anticipates for stockholders to deliver their shares of common stock, stockholders who
wish to redeem may be unable to meet the deadline for exercising their redemption rights and thus may be unable to redeem their
shares of common stock.
In connection
with any stockholder meeting called to approve a proposed business combination, if public stockholders who wish to redeem their
shares of common stock have to comply with specific requirements for redemption, such redeeming stockholders may be unable to sell
their securities when they wish to in the event that the proposed business combination is not approved.
If SPKA requires
public stockholders who wish to redeem their shares of common stock to comply with specific requirements for redemption and such
proposed business combination is not consummated, SPKA will promptly return such certificates to the tendering public stockholders.
Accordingly, investors who attempted to redeem their shares of common stock in such a circumstance will be unable to sell their
securities after the failed acquisition until SPKA has returned their securities to them. The market price for SPKA’s shares
of common stock may decline during this time and you may not be able to sell your securities when you wish to, even while other
stockholders that did not seek redemption may be able to sell their securities.
THE MEETING
General
SPKA is furnishing this
proxy statement/prospectus to the SPKA stockholders as part of the solicitation of proxies by the Board for use at the Meeting
of SPKA stockholders to be held on [•], 2022 and at any adjournment or postponement thereof. This proxy statement/prospectus
is first being furnished to our stockholders on or about [•], 2022 in connection with the vote on the Proposals. This proxy
statement/prospectus provides you with the information you need to know to be able to vote or instruct your vote to be cast at
the Meeting.
Date, Time and Place
The Meeting will be held
virtually at [•] [•].m., Eastern Time, on [•] and conducted exclusively via live audio cast at [•], or such
other date, time and place to which such meeting may be adjourned or postponed, for the purposes set forth in the accompanying
notice. There will not be a physical location for the Meeting, and you will not be able to attend the meeting in person. We are
pleased to utilize the virtual stockholder meeting technology to provide ready access and cost savings for our stockholders and
SPKA. The virtual meeting format allows attendance from any location in the world. You will be able to attend, vote your shares,
view the list of stockholders entitled to vote at the Meeting and submit questions during the Meeting via a live audio cast available
at [•].
Virtual Meeting Registration
To register for the virtual
meeting, please follow these instructions as applicable to the nature of your ownership of our common stock.
If your shares are registered
in your name with Continental and you wish to attend the online-only virtual meeting, go to [•], enter the control number
you received on your proxy card and click on the “Click here” to preregister for the online meeting link at the top
of the page. Just prior to the start of the meeting you will need to log back into the meeting site using your control number.
Pre-registration is recommended but is not required in order to participate in the virtual Meeting.
Beneficial stockholders
who wish to participate in the online-only virtual meeting must obtain a legal proxy by contacting their account representative
at the bank, broker, or other nominee that holds their shares and email a copy (a legible photograph is sufficient) of their legal
proxy to [•]. Beneficial stockholders who email a valid legal proxy will be issued a meeting control number that will allow
them to register to attend and participate in the online-only meeting. After contacting Continental a beneficial holder will receive
an email prior to the meeting with a link and instructions for entering the virtual Meeting. Beneficial stockholders should contact
Continental at least five business days prior to the meeting date.
Accessing the Virtual Meeting Audio Cast
You will need your control number
for access. If you do not have your control number, contact Continental at the phone number or email address below. Beneficial investors
who hold shares through a bank, broker or other intermediary, will need to contact them and obtain a legal proxy. Once you have your
legal proxy, contact Continental to have a control number generated. Continental contact information is as follows: (212) 845-3299
or email proxy@continentalstock.com.
Record Date; Who is Entitled to Vote
SPKA has fixed the close
of business on [•], 2022, as the record date for determining those SPKA stockholders entitled to notice of and to vote at
the Meeting. As of the close of business on [•], 2022, there were [•] shares of common stock issued and outstanding and
entitled to vote, of which [•] are Public Shares, [•] are founder shares held by the Initial Stockholders. Each holder
of shares of common stock is entitled to one vote per share on each Proposal. If your shares are held in “street name,”
you should contact your broker, bank or other nominee to ensure that shares held beneficially by you are voted in accordance with
your instructions.
In connection with our IPO,
we entered into certain letter agreements pursuant to which the Initial Stockholders agreed to vote any shares of common stock
owned by them in favor of our initial business combination. The Initial Stockholders also entered into a certain support agreement
with Varian Bio, pursuant to which they agreed to, among other things, vote in favor of the Business Combination Proposal and the
other Proposals. As of the date of this proxy statement, the Initial Stockholder hold approximately [•]% of the outstanding
common stock.
Quorum and Required Vote for Shareholder
Proposals
A quorum of SPKA stockholders
is necessary to hold a valid meeting. A quorum will be present at the Meeting if a majority of the shares of common stock issued
and outstanding is present in person by virtual attendance or represented by proxy and entitled to vote at the Meeting. Abstentions
by virtual attendance and by proxy will count as present for the purposes of establishing a quorum but broker non-votes will not.
Approval of the Business
Combination Proposal, the Stock Plan Proposal, the Nasdaq Proposal, and the Adjournment Proposal will each require the affirmative
vote of the holders of a majority of the issued and outstanding shares of common stock present in person by virtual attendance
or represented by proxy and entitled to vote at the Meeting or any adjournment thereof. Approval of the Charter Approval Proposal
will require the approval of a majority of the issued and outstanding shares of common stock. Attending the Meeting either in person
by virtual attendance or represented by proxy and abstaining from voting and a broker non-vote will have the same effect as voting
against the Charter Approval Proposal. Approval of the Directors Proposal will require a plurality of the votes cast.
Along with the approval
of the Charter Approval Proposal, the Directors Proposal, the Stock Plan Proposal, the Nasdaq Proposal and the approval of the
Business Combination Proposal are conditions to the consummation of the Business Combination. If the Business Combination Proposal
is not approved, the Business Combination will not take place. Approval of this Business Combination Proposal is also a condition
to Proposal 2, Proposals 3A-3D, Proposal 4 and Proposal 5. If the Charter Approval Proposal, the Directors Proposal, the Stock
Plan Proposal, or the Nasdaq Proposal are not approved, unless waived, this Business Combination Proposal will have no effect (even
if approved by the requisite vote of our stockholders at the Meeting of any adjournment or postponement thereof) and the Business
Combination will not occur.
Voting Your Shares
Each share of common stock
that you own in your name entitles you to one vote on each Proposal for the Meeting. Your proxy card shows the number of shares
of common stock that you own.
There are two ways to ensure
that your shares of common stock are voted at the Meeting:
| ● | You can vote your shares by signing, dating and returning the enclosed proxy card in the pre-paid
postage envelope provided. If you submit your proxy card, your “proxy,” whose name is listed on the proxy card, will
vote your shares as you instruct on the proxy card. If you sign and return the proxy card but do not give instructions on how to
vote your shares, your shares will be voted, as recommended by our board. Our Board recommends voting “FOR” each of
the Proposals. If you hold your shares of common stock in “street name,” which means your shares are held of record
by a broker, bank or other nominee, you should follow the instructions provided to you by your broker, bank or nominee to ensure
that the votes related to the shares you beneficially own are properly represented and voted at the Meeting. |
| ● | You can participate in the virtual Meeting and vote during the Meeting even if you have previously
voted by submitting a proxy as described above. However, if your shares are held in the name of your broker, bank or another nominee,
you must get a proxy from the broker, bank or other nominee. That is the only way SPKA can be sure that the broker, bank or nominee
has not already voted your shares. |
IF YOU RETURN YOUR PROXY
CARD WITHOUT AN INDICATION OF HOW YOU WISH TO VOTE, YOUR SHARES WILL BE VOTED IN FAVOR OF THE BUSINESS COMBINATION PROPOSAL (AS
WELL AS THE OTHER PROPOSALS).
Revoking Your Proxy
If you give a proxy, you may revoke it at any
time before it is exercised by doing any one of the following:
| ● | you may send another proxy card with a later date; |
| ● | if you are a record holder, you may notify our proxy solicitor, [PROXY SOLICITOR], in writing before
the Meeting that you have revoked your proxy; or |
| ● | you may participate in the virtual Meeting, revoke your proxy, and vote during the virtual Meeting,
as indicated above. |
Who Can Answer Your Questions About Voting Your Shares
If you have any questions about how to vote or
direct a vote in respect of your shares of common stock, you may contact [PROXY SOLICITOR], our proxy solicitor as follows:
[PROXY SOLICITOR]
No Additional Matters May Be Presented
at the Meeting
This Meeting has been called
only to consider the approval of the Business Combination Proposal, the Charter Approval Proposal, the Governance Proposals, the
Stock Plan Proposal, the Nasdaq Proposal and the Adjournment Proposal. Under our Certificate of Incorporation, other than procedural
matters incident to the conduct of the Meeting, no other matters may be considered at the Meeting if they are not included in the
notice of the Meeting.
Approval of the Business
Combination Proposal, the Stock Plan Proposal, the Nasdaq Proposal, and the Adjournment Proposal will each require the affirmative
vote of the holders of a majority of the issued and outstanding shares of common stock present in person by virtual attendance
or represented by proxy and entitled to vote at the Meeting or any adjournment thereof.
Redemption Rights
Pursuant to our Certificate
of Incorporation, a holder of shares of common stock may demand that SPKA redeem such shares of common stock for cash in connection
with a business combination. You may not elect to redeem your shares of common stock prior to the completion of a business combination.
If you are a public stockholder
and you seek to have your shares redeemed, you must submit your request in writing that we redeem your Public Shares for cash
no later than [•] [•].m., Eastern Time on [•], 2022 (at least two business days before the Meeting). The request
must be signed by the applicable stockholder in order to validly request redemption. A stockholder is not required to submit a
proxy card or vote in order to validly exercise redemption rights. The request must identify the holder of the shares of common
stock to be redeemed and must be sent to Continental at the following address:
Continental Stock Transfer & Trust
Company
1 State Street, 30th floor
New York, NY 10004
Attention: Mark Zimkind
Email: mzimkind@continentalstock.com
Tel: (212)
845-3287
You must tender the shares
of common stock for which you are electing redemption at least two business days before the Meeting by either:
| ● | Delivering certificates representing the shares of common stock to Continental, or |
| ● | Delivering the shares of common stock electronically through the DWAC system. |
Any corrected or changed
written demand of redemption rights must be received by Continental at least two business days before the Meeting. No demand for
redemption will be honored unless the holder’s shares have been delivered (either physically or electronically) to Continental
at least two business days prior to the vote at the Meeting.
Public stockholders may
seek to have their shares of common stock redeemed regardless of whether they vote for or against the Business Combination and
whether or not they are holders of shares of common stock as of the Record Date. Any public stockholder who holds shares common
stock of SPKA on or before [•], 2022 (at least two business days before the Meeting) will have the right to demand that his,
her or its shares of common stock be redeemed for a pro rata share of the aggregate amount then on deposit in the Trust Account,
less any taxes then due but not yet paid, at the consummation of the Business Combination.
In connection with tendering
your shares for redemption, you must elect either to physically tender your certificates to Continental or deliver your shares
of common stock to Continental electronically using DTC’s DWAC (Deposit/Withdrawal At Custodian) System, in each case, at
least two business days before the Meeting.
If you wish to tender through
the DWAC system, please contact your broker and request delivery of your shares of common stock through the DWAC system. Delivering
shares of common stock physically may take significantly longer. In order to obtain a physical certificate, a stockholder’s
broker and/or clearing broker, DTC, and Continental will need to act together to facilitate this request. It is SPKA’s understanding
that stockholders should generally allot at least two weeks to obtain physical certificates from Continental. SPKA does not have
any control over this process or over the brokers or DTC, and it may take longer than two weeks to obtain a physical certificate.
Stockholders who request physical certificates and wish to redeem may be unable to meet the deadline for tendering their shares
of common stock before exercising their redemption rights and thus will be unable to redeem their shares of common stock.
In the event that a stockholder
tenders its shares of common stock and decides prior to the consummation of the Business Combination that it does not want to redeem
its shares of common stock, the stockholder may withdraw the tender. In the event that a stockholder tenders shares of common stock
and the Business Combination is not completed, these shares of common stock will not be redeemed for cash and the physical certificates
representing these shares of common stock will be returned to the stockholder promptly following the determination that the Business
Combination will not be consummated. SPKA anticipates that a stockholder who tenders shares of common stock for redemption in connection
with the vote to approve the Business Combination would receive payment of the redemption price for such shares of common stock
soon after the completion of the Business Combination.
If properly demanded by
SPKA’s public stockholders, SPKA will redeem each share of common stock into a pro rata portion of the funds available in
the Trust Account, calculated as of two business days prior to the anticipated consummation of the Business Combination. As of
[•], 2022, this would amount to approximately $[10.00] per share of common stock. If you exercise your redemption rights,
you will be exchanging your shares of common stock for cash and will no longer own the shares of common stock.
Notwithstanding the foregoing,
a holder of the shares of common stock, together with any affiliate of his or her or any other person with whom he or she is acting
in concert or as a “group” (as defined in Section 13(d)-(3) of the Exchange Act) will be restricted from seeking
redemption rights with respect to more than 20% of the shares of common stock.
If too many public stockholders
exercise their redemption rights, we may not be able to meet certain closing conditions, and as a result, would not be able to
proceed with the Business Combination.
Appraisal Rights
Appraisal rights are not
available to security holders of SPKA in connection with the proposed Business Combination.
Proxies and Proxy Solicitation Costs
SPKA is soliciting proxies
on behalf of the Board. This solicitation is being made by mail but also may be made by telephone or in person. SPKA and its directors,
officers and employees may also solicit proxies in person, by telephone or by other electronic means. Any solicitation made and
information provided in such a solicitation will be consistent with the written proxy statement/prospectus and proxy card. SPKA
will bear the cost of solicitation. [PROXY SOLICITOR], a proxy solicitation firm that SPKA has engaged to assist it in soliciting
proxies, will be paid a fixed fee of approximately $[•] and be reimbursed out-of-pocket expenses.
SPKA will ask banks, brokers
and other institutions, nominees and fiduciaries to forward its proxy materials to their principals and to obtain their authority
to execute proxies and voting instructions. SPKA will reimburse them for their reasonable expenses.
PROPOSAL 1 — THE
BUSINESS COMBINATION PROPOSAL
We are asking our stockholders
to adopt the Merger Agreement and approve the Business Combination and the other transactions contemplated thereby. Our stockholders
should read carefully this proxy statement/prospectus in its entirety, including the subsection below titled “The Merger
Agreement,” for more detailed information concerning the Business Combination and the terms and conditions of the Merger
Agreement. We also urge our stockholders to read carefully the Merger Agreement in its entirety before voting on this Proposal.
A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus.
The Merger Agreement
On February 11, 2022, SPKA entered
into a Merger Agreement (as defined herein) by and among Varian Bio, SPKA, and Merger Sub. Pursuant to the terms of the Merger Agreement,
a business combination between SPKA and Varian Bio will be effected through the merger of Merger Sub with and into Varian Bio with Varian
Bio surviving the merger as a wholly owned subsidiary of SPKA. The Board has (i) approved and declared advisable the Merger Agreement,
the Additional Agreements and the transactions contemplated thereby and (ii) resolved to recommend approval of the Merger Agreement and
related transactions by the stockholders of SPKA.
The Merger is expected to
be consummated after obtaining the required approval by the stockholders of SPKA and Varian Bio and the satisfaction of certain
other customary closing conditions.
Merger Consideration; Treatment of Varian Bio Securities
The Merger Consideration to
be paid at Closing by SPKA to Varian Bio shareholders will be an amount equal to $45 million payable in 4,500,000 SPKA common stock.
At the signing of the Merger
Agreement, Varian Bio has only one class of stock, Varian Bio Common Stock. Each share of Varian Bio Common Stock, if any, that is owned
by SPKA or Merger Sub (or any other Subsidiary of SPKA) or Varian Bio (or any of its Subsidiaries) (as treasury stock or otherwise),
will automatically be cancelled and retired without any conversion thereof and will cease to exist, and no consideration will be delivered
in exchange therefor. Each share of Varian Bio Common Stock, if any, held immediately prior to the consummation of the Merger by Varian
Bio as treasury stock shall be automatically canceled and extinguished, and no consideration shall be paid with respect thereto. Each
share of Varian Bio Common Stock issued and outstanding immediately prior to the consummation of the Merger (other than any such shares
of Varian Bio Common Stock cancelled pursuant to the first sentence of this paragraph and any Dissenting Shares) shall be exchanged for
and otherwise converted into the right to receive the applicable Merger Consideration per share pursuant to the Merger Agreement.
Representations and Warranties
The Merger Agreement contains
customary representations and warranties of the parties thereto with respect to, among other things: (a) corporate existence
and power; (b) authorization to enter into the Merger Agreement and related transactions; (c) governmental authorization;
(d) non-contravention; (e) capitalization; (f) finders’ fees; (g) related party transactions; (h) litigation;
(i) compliance with laws; (j) absence of certain changes; (k) tax matters; and (l) certain representations
related to securities law and activity. Varian Bio has additional representations and warranties, including (a) corporate
records; (b) subsidiaries; (c) consents; (d) financial statements; (e) books and records; (f) internal
accounting controls; (g) properties; title to assets; (h) contracts; (i) licenses and permits; (j) compliance
with health care laws and certain contracts; (k) intellectual property; (l) accounts payable; affiliate loans; (m) employee
matters and benefits; (n) real property; (o) environmental laws; (p) powers of attorney, suretyships and bank accounts;
(q) directors and officers; (r) anti-money laundering laws; and (s) insurance. SPKA has additional representations
and warranties, including (a) issuance of shares; (b) trust fund; (c) listing; (d) board approval; (e) SEC
documents and financial statements; and (f) expenses, indebtedness and other liabilities.
Covenants
The Merger Agreement includes customary
covenants of the parties with respect to operation of their respective businesses prior to consummation of the Merger and efforts to satisfy
conditions to consummation of the Merger. The Merger Agreement also contains additional covenants of the parties, including, among others,
access to information, cooperation in the preparation of the Form S-4 and Proxy Statement required to be filed in connection with the
Merger and to obtain all requisite approvals of each party’s respective stockholders. SPKA has also agreed to include in the Proxy
Statement the recommendation of its board that its stockholders approve all of the proposals to be presented at the special meeting.
Exclusivity
Each of SPKA and Varian Bio has
agreed that from the date of the Merger Agreement until the Closing Date or, if earlier, the valid termination of the Merger Agreement
in accordance with its terms, it will not initiate, encourage or engage in any negotiations with any party relating to an Alternative
Transaction, take any action intended to facilitate an Alternative Transaction or approve, recommend or enter into any agreement relating
to an Alternative Transaction. Each of SPKA and Varian Bio has also agreed to be responsible for any acts or omissions of any of its respective
representatives that, if they were the acts or omissions of SPKA and Varian Bio, as applicable, would be deemed a breach of such party’s
obligations with respect to these non-solicitation restrictions.
Conditions to Closing
The consummation of the Merger
is conditioned upon, among other things, (i) the absence of any applicable law or order that makes the transactions contemplated by the
Merger Agreement illegal or otherwise prohibits consummation of such transactions; (ii) receipt of any consent, approval or authorization
required by any Authority; (iii) SPKA having at least $5,000,001 of net tangible assets upon consummation of the Merger; (iv) approval
by Varian’s stockholders of the Merger and related transactions; (v) approval by SPKA’s stockholders of the Merger and related
transactions; (vi) the conditional approval for listing by the Nasdaq Stock Market of the shares of SPKA common stock to be issued
in connection with the transactions contemplated by the Merger Agreement and the Additional Agreements and satisfaction of initial and
continued listing requirements; and (vii) the Form S-4 becoming effective in accordance with the provisions of the Securities
Act of 1933, as amended (“Securities Act”).
Solely with respect to SPKA and
Merger Sub, the consummation of the Merger is conditioned upon, among other things: (i) Varian Bio having duly performed or complied
with all of its obligations under the Merger Agreement in all material respects; (ii) the representations and warranties of Varian
Bio, other than certain fundamental representations as set forth in the Merger Agreement, being true and correct in all respects unless
failure to be true and correct would not have or reasonably be expected to have material adverse
effect on Varian’s ability to consummate the Merger and related transactions; (iii) certain fundamental representations,
as set forth in the Merger Agreement, being true and correct in all respects, other than de minimis inaccuracies; (iv) no event
having occurred that would result in a material adverse effect on Varian Bio or any of its
subsidiaries; (v) Varian Bio providing SPKA a certificate from the chief executive officer of Varian Bio as to the accuracy of the
foregoing conditions; (vi) Varian Bio providing SPKA a certificate from the secretary which has attached true and complete copies
of (a) Varian’s certified articles of incorporation, (b) Varian’s bylaws, (c) Varian’s board resolutions
approving the Merger Agreement, the Additional Agreements and the transactions contemplated thereby, and (d) Varian’s certified
certificate of good standing; (vii) Varian’s stockholders shall have executed and delivered to SPKA each Additional Agreement
to which they are each a party; (viii) Varian Bio providing a certificate to SPKA conforming to certain tax-related regulations
and delivering a notice to the United States Internal Revenue Service as required under certain tax-related regulations; (ix) not
more than five percent (5%) of the issued and outstanding shares of Varian Bio Common Stock constituting Dissenting Shares; (x) Varian
Bio having delivered executed resignations of certain Varian Bio directors as set forth in the Merger Agreement; (xi) Varian Bio
having delivered financial statements required to be included in any filings with the SEC; and (xii) cumulative indebtedness
of Varian Bio, excluding (a) accounts payable to person(s) un-affiliated with
Varian Bio for goods and services incurred in the ordinary course of business consistent with past practices and (b) indebtedness
secured by permitted liens, shall be less than or equal to $5,000,000.
Solely with respect to Varian
Bio, the consummation of the Merger is conditioned upon, among other things: (i) SPKA and Merger Sub having duly performed or complied
with all of their respective obligations under the Merger Agreement in all material respects; (ii) the representations and warranties
of SPKA, other than certain fundamental representations as set forth in the Merger Agreement, being true and correct in all respects
unless failure would not have or reasonably be expected to have a material adverse effect on SPKA or Merger Sub; (iii) certain
fundamental representations, as set forth in the Merger Agreement, being true and correct in all respects other than de minimis inaccuracies;
(iv) no event having occurred that would result in a material adverse effect on SPKA or Merger Sub; (v) SPKA providing Varian
Bio a certificate from the chief executive officer of SPKA as to the accuracy of the foregoing conditions; (vi) SPKA having filed
its Amended Charter and such Amended Charter being declared effective by, the Delaware Secretary of State; (vii) SPKA providing
Varian Bio a certificate from the secretary of SPKA which has attached true and complete copies of (a) SPKA’s certified articles
of incorporation, (b) SPKA’s bylaws, (c) SPKA’s board resolutions approving the Merger Agreement, the Additional
Agreements and the transactions contemplated thereby, and (d) SPKA’s certified certificate of good standing; (viii) Merger
Sub providing Varian Bio a certificate from the secretary of Merger Sub which as attached true and complete copies of (a) Merger
Sub’s board resolutions approving the Merger Agreement, the Additional Agreements and the transactions contemplated thereby and
(b) Merger Sub’s certified certificate of good standing; (ix) SPKA, SPK Ventures I, LLC (the “Sponsor”),
and any other stockholder of SPKA, shall have executed and delivered to Varian Bio each Additional Agreement to which they each are a
party; (x) the size and composition of the post-closing board of directors of SPKA shall have been constituted as set forth in the
Merger Agreement; (xi) SPKA having delivered executed resignations of certain SPKA directors as set forth in the Merger Agreement,
and (xii) cumulative indebtedness of SPKA, excluding (a) accounts payable to person(s) un-affiliated with SPKA
for goods and services incurred in the ordinary course of business consistent with past practices and (b) indebtedness secured
by permitted liens shall be less than or equal to $2,000,000.
Termination
The Merger Agreement may
be terminated as follows:
|
(i) |
In the event that the Closing of the transactions
contemplated under the Merger Agreement has not occurred by the 12-month anniversary of the date of the Merger Agreement (as
may be extended as provided in the immediately following proviso, the “Outside Closing Date”) (provided that,
if the SEC has not declared the Proxy Statement/Form S-4 effective on or prior to the four (4)-month anniversary of the date of the
Merger Agreement, the Outside Closing Date shall be automatically extended by one (1) month), then SPKA and Varian Bio shall each
have the right, in its sole discretion, to terminate the Merger Agreement; provided that the material breach of any representation,
warranty, covenant or obligation under the Merger Agreement by the party (i.e., SPKA or the Merger Sub, on one hand, or Varian Bio,
on the other hand) seeking to terminate the Merger Agreement pursuant to this Section 10.1(a) was not the cause of, or did not result
in, the failure of the Closing to occur on or before the Outside Closing Date. Such right may be exercised by SPKA or Varian Bio,
as the case may be, giving written notice to the other at any time after the Outside Closing Date but not after the Closing has occurred; |
|
(ii) |
In the event an Authority shall have issued an order or enacted a law, having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, which order or law is final and non-appealable, SPKA or Varian Bio shall each have the right, in its sole discretion, to terminate the Merger Agreement without liability to the other party; |
|
(iii) |
SPKA
and Varian Bio shall each have the right, in its sole discretion, to terminate the Merger
Agreement if, at a meeting of the stockholders of SPKA (including any postponements
or adjournments thereof), proposals contemplated by the Merger Agreement shall fail
to be approved by the affirmative vote of SPKA stockholders required under SPKA’s organizational
documents and applicable law; |
|
(iv) |
by mutual written consent of SPKA and Varian Bio duly authorized by each of their respective boards of directors; |
|
(v) |
by either SPKA or Varian Bio, if the other party
has breached any of its covenants or representations and warranties such that it would be impossible or would reasonably be expected
to be impossible to satisfy any of its closing conditions and such breach is incapable of being cured or is not cured by the earlier
of (A) the Outside Closing Date and (B) five days following receipt by the breaching party of a written notice of the breach; provided
that the terminating party is not then in breach of the Merger Agreement so as to prevent the satisfaction of its closing conditions;
and |
|
|
|
|
(vi) |
by SPKA if Varian Bio has not received approval
from Varian’s stockholders of the Merger and related transactions by the date that is five business days after
the Form S-4 is declared effective provided that SPKA is not then in breach of the Merger Agreement so as to prevent the satisfaction
of its closing conditions, further provided that upon Varian Bio receiving such stockholder approval, SPKA will no longer
have any right to so terminate the Merger Agreement. |
Effect of Termination and Termination Fees
If the Merger Agreement
is terminated in accordance with its terms, the Merger Agreement will become void and of no further force and effect without liability
of any party, except for liability arising out of any party’s breach of the Merger Agreement, intentional fraud or willful
misconduct. In the event the merger agreement is terminated due to breach by either party, a termination fee shall be payable from
the breaching party to the non-breaching party of $2,200,000 within two days of such termination.
Certain Related Agreements
Parent Stockholder Support Agreement
In connection with the execution
of the Merger Agreement, SPKA, Varian Bio and certain stockholders of SPKA entered into those certain Parent Stockholder Support
Agreements dated February 11, 2022 (the “Parent Stockholder Support Agreements”) pursuant to which those certain
SPKA stockholders who are parties thereto agreed to vote all shares of SPKA common stock beneficially owned by them, including
any additional shares of SPKA they acquire ownership of or the power to vote, in favor of the Merger and related transactions.
Company Stockholder Support Agreement
In connection with the execution
of the Merger Agreement, SPKA, Varian Bio and certain shareholders of Varian Bio entered into those certain Company Stockholder
Support Agreements dated February 11, 2022 (the “Company Stockholder Support Agreements”), pursuant to which
those certain Varian Bio shareholders parties thereto agreed to vote all Varian Bio Common Stock beneficially owned by them, including
any additional shares of Varian Bio they acquire ownership of or the power to vote, in favor of the Merger and related transactions.
Company Lock-Up Agreement
In connection with the execution
of the Merger Agreement, SPKA and certain Varian Bio shareholders entered into a lock-up agreement dated February 11, 2022 (the
“Company Lock-Up Agreement”), pursuant to which those certain Varian Bio shareholders parties thereto agreed,
subject to certain customary exceptions, not to (i) sell, offer to sell, contract or agree to sell, pledge or otherwise dispose
of, directly or indirectly, any shares of SPKA common stock held by them (such shares, together with any securities convertible
into or exchangeable for or representing the rights to receive shares of common stock if any, acquired during the Company Lock-Up
Period (as defined below), the “Company Lock-Up Shares”), (ii) enter into a transaction that would have the
same effect, (iii) enter into any swap, hedge or other arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the Company Lock-Up Shares or otherwise, or engage in any short sales or other arrangement with respect
to the Company Lock-Up Shares or (iv) publicly announce any intention to effect any transaction specified in clause (i) or (ii)
until the date that is 6 months after the Closing Date (the period from the date of the Company Lock-Up Agreement until such date,
the “Company Lock-Up Period”).
Voting Agreement
In connection with the
execution of the Merger Agreement, SPKA, the Sponsor, Varian Bio and certain holders of SPKA common stock entered into a voting
agreement (the “Voting Agreement”), pursuant to which such holders of SPKA common stock, including any additional
shares of SPKA common stock they acquire after the signing of the Merger Agreement, vote or agree to vote in favor of certain
matters relating to the nomination and election of the Board of Directors of SPKA and Varian Bio after closing of the Merger
Agreement (as described in the Voting Agreement).
Agreements to be Executed at Closing
Employment Agreements
Upon consummation of the Business
Combination, SPKA, on the one hand, and each of Jeffrey Davis (the CEO of Varian Bio) and Jonathan Lewis (the CMO of Varian Bio), on
the other hand, will enter into employment agreements with the Combined Company pursuant to which each such person will agree to the
terms of their existing employment agreements with Varian Bio for a term of two years and includes other terms regarding such employees’
employment by the Combined Company.
Restrictive Covenant Agreements
Upon consummation of the Business
Combination, the Combined Company, on the one hand, and each of Jeffrey Davis (the CEO of Varian Bio) and Jonathan Lewis (the CMO of
Varian Bio), on the other hand, will enter into Restrictive Covenant Agreements pursuant to which each such person agrees to non-competition,
non-solicitation, confidentiality, non-disparagement and other restrictive covenants with respect to the Combined Company.
Background of the
Business Combination
SPKA is a blank
check company incorporated in Delaware on December 30, 2020. SPKA was formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. On June 7, 2021,
SPKA consummated its IPO of 5,000,000 Units, each Unit consisting of one share of common stock of SPKA, and a right to receive one-tenth
(1/10) of one share of common stock upon the consummation of an initial business combination. The Units were sold at an offering price
of $10.00 per Unit, generating gross proceeds of $50,000,000. The Company granted the underwriters a 45-day option to purchase up to
750,000 additional Units to cover over-allotments. Subsequently, on July 20, 2021, the underwriters partially exercised the option and
the closing of the issuance and sale of the additional Units occurred on July 22, 2021. The total aggregate issuance by the Company of
91,196 units at a price of $10.00 per unit resulted in total gross proceeds of $911,960. Simultaneously with the closing of the IPO,
the Company consummated the private placement (“Private Placement”) of 205,000
units (the “Private Units”) at a price of $10.00 per Private Unit, generating
total proceeds of $2,050,000. The Private Units are identical to the Units sold in the IPO, except as otherwise disclosed in the Registration
Statement. On July 22, 2021, the Company consummated the sale of an additional 1,824 Private Units generating additional gross proceeds
of $18,240.
After
deducting the underwriting fee (excluding the deferred underwriting commission, which amount will be payable upon consummation
of the Business Combination, if consummated) and the IPO expenses, the total net proceeds from SPKA’s IPO and the sale of
the Private Units, approximately $50,911,960 (or $10.00 per Unit Sold), was placed in
the Trust Account.
Prior to
the consummation of its IPO, neither SPKA nor anyone on its behalf, contacted any prospective target business or had any substantive
discussions, formal or otherwise, with respect to such a transaction with SPKA.
After the
closing of its IPO, the officers and directors of SPKA commenced an active, targeted search for an initial set of potential business
combination targets, leveraging their network of relationships, and initiated contact with and were approached by several potential
targets and/or advisors.
Our CEO, Ms. Tao has had a limited experience
with a previous special purpose acquisition company (“SPAC”). Previously, Ms. Tao was Co-Chair of the Board of Directors
of China VantagePoint Acquisition Company, a SPAC which completed its IPO on February 25, 2011. The company was not able to consummate
a business combination by February 25, 2013, the deadline to consummate a business combination due to market conditions at that time.
The stockholders of the company voted in favor of the redemption and received their pro-rata portion of the trust account, consisting
in the aggregate of $16,529,397.
From the date of
the closing of the IPO through our entering into an exclusive Letter of Intent (“LOI”)
with Varian Bio, SPKA had communicated with approximately 25 potential targets. Of those potential targets, SPKA entered into
non-disclosure agreements with 21 potential targets and conducted additional due diligence and/or detailed discussions with them.
As discussed in
our IPO prospectus, the Board used several criteria to come up with our initial list of potential targets, initially beginning with Asia-based
companies that operate within the sectors of telecommunications, media, and technology (“TMT”)
and/or consumer sector and with whom the management team and the board members have a direct
relationship. After our decision to expand our target search to include U.S.-based targets for the reasons later discussed, we also began
to look for targets within the biosciences sector given our belief that this sector contained a rich selection of suitable potential
business combination targets. Apart from the above criteria, we also considered other attributes in selecting private company candidates
including those with strong management teams, defensible market positions, which are at a growth inflection point, operate in sectors
that are underpenetrated by dominant global players, and would benefit from being a public company.
After further review
and discussion with the Board, SPKA drafted an initial list of 10 candidates to approach. Our initial list did not include Varian Bio,
which was introduced to us later in the process.
Background of Discussions with Initial
Business Combination Targets
On June 16,
2021, Ms. Tao was able to arrange an introductory telephone conference call with a film and television content production company
and investment company based in China. After the call, the company agreed to share a data room and additional due diligence materials,
including on the company’s film slate and its internal financials with SPKA. After conducting an initial review of the due
diligence materials, Mr. Kwan and Ms. Tao concluded that the company was too small to be considered a viable target candidate.
On June 18, 2021,
Ms. Tao was able to arrange an introductory meeting for Mr. Kwan and Ms. Tao to meet with the CEO and founder of a leading artificial
intelligence and natural language processing company based in Shanghai, China. The company primarily uses artificial intelligence and
natural language processing technology to meet the customer services needs of banks and consumer facing service providers in China. Subsequent
to the meeting, Mr. Kwan and Ms. Tao decided the opportunity was worth exploring further and executed a non-disclosure agreement (“NDA”)
with the company on June 23, 2021. After reviewing the materials provided in the data room,
including customer contracts and technology, and after speaking with competitors in the space, Mr. Kwan and Ms. Tao concluded that the
company did not have a significant technology advantage relative to its competitors and did not possess any other strong competitive
advantages. For these reasons, SPKA chose not continue discussions with the company.
On June 19,
2021, Mr. Kwan and Ms. Tao held an introductory video conference call with the CEO and CFO of a newly established hydrocarbon recycling
company based in London, UK. While the company was still pre-revenue, the SPKA team felt the company could be an interesting merger
candidate given its unique technology and compelling business model proposition. After executing an NDA and conducting further
due diligence, Mr. Kwan and Ms. Tao felt the company was too early stage to be a suitable target, and terminated discussions with
the company.
On June 21,
2021, Ms. Tao and Mr. Kwan met with the CEO and founder of a leading cloud services and internet security services company based
in Hangzhou, China. During the meeting, the CEO provided an overview of the business, a financial forecast for the business, and
discussed the reasons he felt a public listing in the United States made sense for the company. The company provided a wide array
of cloud computing services and internet security services to large corporate clients, primarily in mainland China. Mr. Kwan and
Ms. Tao felt the company could be an interesting target candidate and executed an NDA with the company the following day. After
conducting further due diligence, the SPKA team believed that there was a high degree of regulatory risk in the sector. Furthermore,
the company was competing with a number of very large competitors, which introduced a significant degree of uncertainty over the
company’s long-term business prospects. For these reasons, the SPKA team did not further discussions with the company.
On June 22, 2021, Ms. Tao held an introductory telephone
call with the chief executive officer and founder of an autonomous driving technology company based in China. After internal discussion,
Mr. Kwan and Ms. Tao executed an NDA in order to conduct further due diligence on the company. The company granted SPKA with data
room access on June 24, 2021 and after reviewing the materials in the data room, Ms. Tao held a follow up call with the company’s
adviser to discuss next steps. Because the company did not have its financial audits completed to-date, Mr. Kwan and Ms. Tao concluded
that it would not be possible to consummate a merger with this target within the timeframe allowed. As a result, Ms. Tao did not continue
discussions with the company.
On the morning of June 23, 2021, Mr. Kwan and Ms.
Tao were introduced to the CEO of a manufacturer of electric motorcycles and scooters based in Shanghai. After meeting with the CEO,
the SPKA team walked away from the meeting impressed by the management team and moved towards executing an NDA in order to conduct further
due diligence on the target, including reviewing presentation materials and conducting market and technology due diligence. Between June
24, 2021 and August 25, 2021, Mr. Kwan and Ms. Tao held several due diligence sessions with management and on June 29, 2021, Mr. Kwan
traveled to visit the company’s assembly plant. Over the course of the next several weeks, the SPKA continued to conduct due diligence
and exchanged drafts of the letter of intent. SPKA executed a non-binding LOI with the company on July 26, 2021. Under the
terms of the non-binding LOI, SPKA and the target entered into a mutual exclusivity clause for 90 days, whereby both parties agreed not
to pursue discussions with any other targets in the case of SPKA, or acquirers in the case of the target, during the exclusivity period.
On June 23,
2021, Mr. Kwan and Ms. Tao met with the Director of an electric vehicle company focused on providing shipping solutions for corporate
customers. The company manufactures light trucks and vans that are primarily utilized by delivery, logistics, and warehousing companies
in China and Europe. The Director discussed the company’s competitive advantages, expansion plans, and financial forecast.
The team also discussed the rationale for going public in the United States, including having access to the U.S. capital markets
in order to support the company’s future fundraising needs. Following the discussion, Mr. Kwan and Ms. Tao concluded that
the company did not have the key executives in place who would be able to readily assume public company management; in addition,
Mr. Kwan and Ms. Tao believed the company was too small to be an attractive target. On this basis, Mr. Kwan and Ms. Tao terminated
discussions with this company.
On June 24, 2021,
Ms. Tao held a conference call with the CEO of a cloud gaming platform provider. The CEO provided an overview of the business model and
discussed the company’s key performance metrics, including user engagement metrics. The CEO also discussed the company’s
near-term capital needs and expressed the need for a significant PIPE Investment
to go along with any SPAC merger. Ms. Tao discussed SPKA’s IPO, SPKA’s acquisition criteria, and target timeline. After executing
an NDA, SPKA continued to do further due diligence on the opportunity by accessing materials provided in an online data room. Mr. Kwan
and Ms. Tao concluded that the value expectations of the company were too high and the business plan contained too much execution risk
to be a suitable merger candidate. As a result, Ms. Tao did not continue discussions with the company.
On June 26, 2021,
Mr. Kwan and Ms. Tao held a telephone conference call with the co-founder and COO of an electric vehicle charging station company based
in China. The company partners with local governments across Europe and Asia to establish and operate a rapidly growing network of electric
vehicle charging stations for cars and electric bikes. Over the last two years, the company had demonstrated impressive organic growth
and was a proven innovator in the space. After executing an NDA, Mr. Kwan and Ms. Tao continued to conduct further due diligence on the
company and held several follow up calls with the company’s financial advisor regarding the company’s valuation expectations,
financial forecast, and future fundraising plans. Upon concluding that the company was an attractive target candidate, SPKA submitted
a non-binding LOI to the company on July 15, 2021,
but the LOI was not ultimately executed due to Mr.
Kwan and Ms. Tao concluding upon doing further due diligence that
the company was not a good merger candidate because the company’s management team and shareholders were divided on whether and
when they wanted to pursue a SPAC merger, which made closing a deal highly uncertain.
On July 1,
2021, Ms. Tao held a telephone conference call with the CEO and founder of a live entertainment and agency company based in China.
The company focuses on training and developing dancers who perform in talent and live shows. The CEO provided a two-year strategic
and financial outlook for the company. Ms. Tao concluded that the company was not a good target candidate because it was operating
under a purely domestic legal structure and was not ready to become a public company. On this basis, Ms. Tao decided to eliminate
this company from SPKA’s list of potential target companies.
On July 8,
2021, Ms. Tao held a telephone conference call with the CEO and founder of a SaaS provider for the restaurant and retail industries
in China. The company operates a cloud platform that consolidates a number of administrative functions including supply chain management,
accounting, queueing and delivery, payments, and CRM under one system and allow its clients to reduce administrative cost and overhead.
Following the discussion, the CEO expressed reservations about the company’s readiness to be a public company. Ms. Tao also
had reservations about the company’s product and felt that it would be difficult to conduct due diligence on the robustness
of the technology offering. On that basis, Mr. Kwan and Ms. Tao concluded that SPKA should not pursue the company as a potential
target.
It was at that time that U.S.-listed shares of Chinese
companies began to experience significant drops in their stock prices and valuations. The market turbulence was further intensified by
subsequent news out of China that raised uncertainty over whether the Chinese government would allow future listings of Chinese companies
overseas at all, including on U.S. stock exchanges. At the time, SPKA was engaged in discussions with the manufacturer of electric motorcycles
and scooters described above. Despite SPKA’s favorable assessment of the target’s product, technology, and market potential,
Mr. Kwan and Ms. Tao made the decision to terminate discussions with the target due to the high degree of uncertainty surrounding the
ability of Chinese companies to list in the U.S. at that time. Mr. Kwan and Ms. Tao believed that the uncertainty of being able to close
a transaction with the target in a timely manner made pursuing a business combination with this company untenable. In connection with
this decision, SPKA and the target company mutually agreed to terminate the non-binding LOI that had been executed on July 26, 2021,
and in conjunction with this termination, also terminated the mutual exclusivity clause under which both parties had been bound in the
LOI. SPKA continues to be bound by the confidentiality clause that was initially executed under the NDA with the target on June 24, 2021.
No other material provisions remain in effect under the non-binding LOI that was executed with this target. It was also at this
time that Mr. Kwan and Ms. Tao decided to shift SPKA’s focus from seeking a business combination with a China-based target to one
based in the United States, for the reasons described above.
Immediate to the
decision by Mr. Kwan and Ms. Tao to refocus their efforts on U.S.-based targets, a decision was made to further direct the team’s
energies on companies operating within the consumer and biosciences sectors, under the belief that these sectors possessed the largest
number of suitable and appropriate combination targets for SPKA, when broadly considering target size and future growth potential. Subsequent
to making this strategy shift, SPKA communicated with a total of fourteen U.S.-based targets and/or their advisors between September
18, 2021 until the signing of our LOI with Varian Bio.
SPKA entered into non-disclosure agreements with all fourteen of these targets and conducted additional due diligence and/or detailed
discussions with them.
On September
18, 2021, Mr. Kwan and Ms. Tao held their first session with the CEO and management team of a manufacturer of electric vehicles
based in Los Angeles, California to discuss the company’s business plan. Mr. Kwan and Ms. Tao held a subsequent follow up
call with this target on September 22, 2021 to discuss valuation expectations and process, during which the CEO provided his rationale
for the valuation that he was seeking. After this call, Mr. Kwan and Ms. Tao conducted an analysis looking at the comparable companies
in the EV sector and concluded that the CEO’s valuation expectations were too high, and therefore terminated discussions
with this company.
On September
23, 2021, Mr. Kwan and Ms. Tao held a conference call with the CEO of an online land auctions company. After the call, Mr. Kwan
observed that the company was not public-ready. Mr. Kwan also expressed reservations about the sustainability of the company’s
revenues and EBITDA, which had experienced a large spike in 2020 due to COVID-19. Finally, Mr. Kwan and Ms. Tao felt the company’s
valuation expectations were high when compared to what the SPKA felt would be unexceptional growth prospects going forward. For
these reasons, SPKA elected not to further pursue this opportunity.
On September 23, 2021, Mr. Kwan and Ms. Tao held
a conference call with the management team of a decentralized water and wastewater treatment solutions provider. The company was at the
time already listed on an exchange outside of the United States, and was seeking a SPAC merger in order to be able to re-list on a US
exchange. After the call, Mr. Kwan and Ms. Tao felt the company was a good potential fit and conducted further analysis of the company’s
growth projections and its comparable companies. After conducting a follow up call with the company’s financial adviser on September
27, 2021, Mr. Kwan and Ms. Tao submitted a non-binding LOI to the company. Over the course of the next week, SPKA and the company
negotiated several key terms within the LOI including with respect to valuation, the requirement by SPKA that the company deliver its
PCAOB compliant financial statements within a specified period of time, and to delist from the foreign exchange by a specified date.
Ultimately, the parties were unable to come to an agreement on these terms, and as a result the LOI was not executed and SPKA decided
to terminate discussions with this company.
On September 28, 2021, Mr. Kwan and Ms. Tao held
an introductory conference call with a manufacturer of agricultural grow lights. After the call, Mr. Kwan and Ms. Tao requested access
to the company’s data room in order to conduct further due diligence on the company’s products and customers. Upon confirming
the company’s reputation in the industry and on the basis of the company’s existing revenue backlog, Mr. Kwan and Ms. Tao
agreed that the company was an interesting target and submitted a preliminary non-binding LOI on October 6, 2021 through the company’s
financial adviser. The company’s valuation expectations were high when considering the company’s near term financial projections,
publicly traded comparables, and the company’s competitive position as a relatively small player in the sector. In an attempt
to bridge the valuation gap, SPKA proposed an earnout structure that would reward management with additional shares predicated upon hitting
certain revenue and profitability targets. Ultimately, management rejected this earnout proposal, an LOI was not ultimately
executed and SPKA terminated discussions with this company.
On September
30, 2021, Mr. Kwan held an introductory conference call with a manufacturer of workout equipment and outdoor furniture. The company
had previously conducted a sale process but was unable to consummate a transaction and was now considering a SPAC transaction as
potentially a way to realize a liquidity event for its largest shareholder. After the introductory call, the CEO notified Mr. Kwan
a week later that their board had decided against a SPAC transaction, and discussions were subsequently terminated.
On October
1, 2021, Mr. Kwan and Ms. Tao held an introductory conference call with a biosciences company focused on developing treatments
for Hepatitis B. On the basis of the information gleaned from the call, the reputations of the target’s existing investors,
and a committed potential PIPE investor, SPKA held a follow up call on October 9, 2021 with the company’s financial advisor
to preview the high level terms of a potential non-binding LOI. A few days following this call, SPKA received notice from this
company through its adviser that it had completed a Series B funding round and was no longer contemplating a go-public transaction.
On October
29, 2021, Mr. Kwan and Ms. Tao held a conference call with the CEO of a wireless charging company, where the parties also discussed
valuation expectations for the company. A few days later, Mr. Kwan and Ms. Tao then held a follow up call with the regional manager
for Asia to discuss the China opportunity and ways SPKA could help the company further penetrate this market. After conducting
further market due diligence by talking to end customers and analyzing the market values of comparable companies, SPKA decided
not to pursue further conversations with this company due to the large disconnect between the company’s valuation expectations
and the market.
On November 5,
2021, Mr. Kwan and Ms. Tao held a conference call with a clinical-stage biotechnology company focused on developing cancer treatments.
Subsequent to the call, Mr. Kwan and Ms. Tao traded preliminary due diligence questions with the company and held a follow up due diligence
session with SPKA’s financial adviser to discuss the science underpinning the target’s therapies. SPKA had reservations
about the strength of the management team and whether it was ready to go public. In addition, the company’s leading compound was
licensed from a university, and given the historical uneven commercial performance of similar university-licensed compounds, SPKA was
not fully convinced about the commercial viability of the company’s leading compound. For these reasons, SPKA decided
to terminate discussions with the company.
On November
6, 2021, SPKA was introduced to and had an introductory call with the CEO and founder of a manufacturer of intelligent robots used
primarily in the service and food industries. On the call, the CEO provided a detailed introduction to the company and the parties
also discussed the company’s valuation expectations. After executing an NDA, Mr. Kwan and Ms. Tao were subsequently granted
data room access and began to conduct due diligence on the company’s products, customers, and the overall market. While Mr.
Kwan and Ms. Tao felt the company’s valuation expectations were high, they also felt it could be justified if due diligence
findings showed the company possessed superior technology and products relative to its competitors. Over the next two weeks, SPKA
sent a series of due diligence questions covering the company’s R&D spend, customers, and revenue backlog, and conducted
several follow up calls with the company’s CEO and COO to discuss these topics. On November 23, 2021, Mr. Kwan held a conference
call with the company’s largest customer by revenue to discuss the customer’s opinion of the company and its products.
On November 28, 2021, Ms. Tao held a conference call with the company’s financial adviser to inform him of SPKA’s proposed
valuation which was based on the due diligence that had been conducted to-date, and which was significantly below the CEO’s
initial expectation. Due to the inability of both sides to bridge the large disconnect in valuation, discussions were ultimately
terminated.
On November
16, 2021, SPKA was introduced to a company focused on developing treatments for debilitating medical conditions. This company had
recently pursued an initial public offering but had decided to pull the IPO due to prevailing market conditions, and was now considering
a SPAC merger. After conducting further due diligence by speaking to market participants with knowledge about the company’s
IPO process, Mr. Kwan and Ms. Tao developed reservations regarding the company’s near-term prospects as a public company
and decided to terminate discussions.
On November
24, 2021, SPKA held a conference call with a medical device company focused on the prevention of inflammation in patients. Subsequent
to the call, Mr. Kwan and Ms. Tao decided to pass on the opportunity due to what they believed was the limited market upside for
the treatment.
On December
1, 2021, SPKA held a conference call with a biopharmaceutical company engaged in the development of treatments for cardiovascular
diseases. On the call, the parties discussed valuation and the capital needs of the company, which were substantial. Mr. Kwan and
Ms. Tao had significant reservations about the company’s ability to raise such a large amount of capital and discussions
were terminated on that basis.
On December 5,
2021, SPKA held a conference call with a biopharmaceutical company focused on the development of novel cancer treatments. Mr. Kwan, Ms.
Tao, and the CEO discussed the company’s developmental history, fundraising history, and the company’s go-public plans. The
parties also discussed the company’s valuation expectations. Initially, Mr. Kwan and Ms. Tao found the deal attractive, in part
because public shares of comparable companies engaged in novel cancer treatments were trading well, and also because the company was
fully ready to go public, having recently filed an S-1 with the SEC. Subsequent to the initial discussion, SPKA prepared a non-binding
LOI and submitted it to the company via email two days later. Over the next five days, the parties traded markups of the LOI, with particular
focus on valuation, indemnification, and earn-out clauses. With respect to valuation, the company had initially come back one-third
higher than had been originally proposed under our original LOI and twenty percent higher than their IPO valuation which had already
failed to generate sufficient investor interest. With respect to the earnout clause, the company reduced the hurdle rates originally
proposed in our original term sheet by nearly fifty percent. Given the significant gap between the parties on these terms, Mr. Kwan and
Ms. Tao held a follow up conference call with the CEO on December 14, 2021 to discuss the key points of contention within the LOI. After
being unable to reach mutual agreement on these points, Mr. Kwan and Ms. Tao decided to terminate discussions. An LOI was not ultimately
executed with this company.
Background of Discussions with Varian
Bio
On September 10,
2021, through an introduction by Mitchell Nussbaum at Loeb & Loeb, Ms. Tao was introduced to Mr. David Dobkin of LifeSci Capital
(“LifeSci”) and an initial call between LifeSci and SPKA was held
on September 25, 2021 to introduce both parties. Over the course of the next month, LifeSci introduced two potential target companies
to SPKA, and following a number of subsequent phone conversations between Mr. Kwan, Ms. Tao, and Mr. Dobkin, SPKA agreed to engage LifeSci as SPKA’s non-exclusive financial adviser to assist SPKA in its search for a target company.
On October
29, 2021, the LifeSci team and SPKA held a video conference to discuss a list of potential targets for SPKA, of which Varian Bio was
one of the companies identified. An introductory video conference call was held on November 11, 2021 between SPKA and the principals
of Varian Bio, including Mr. Jeffrey Davis, CEO, Mr. Todd Wider, Director, and Mr. Daniel Wainstein, Director. The team from LifeSci
was also in attendance. During the call, Mr. Jeffrey Davis, the CEO of Varian Bio, gave a presentation on the company, its history, and
an overview of its lead compound which was licensed out of Cancer Research UK (“CRUK”)
and was a potential indication for the treatment of basal cell carcinoma. The parties also discussed the company’s valuation expectations
and the requirements for a potential PIPE Investment in connection with the deal, including an initial expectation
by Varian Bio’s shareholders of a pre-money valuation of approximately $50 million. On the call, the parties also discussed
the backgrounds of the company’s management team, their motivations for joining Varian Bio, and the Scientific Advisory Board members.
On November
15, 2021, SPKA held a follow up conference call with the LifeSci team to discuss the Varian Bio opportunity and go through the
other opportunities in the pipeline. SPKA viewed Varian Bio as an attractive opportunity given the large addressable market opportunity
for basal cell carcinoma and the market appeal of targeted oncology treatments, which compared to other treatments have a higher
probability of moving through clinical trials and receiving FDA approvals. SPKA also came away from the initial call highly
impressed by the backgrounds of the management team and directors, each of whom had significant experience running publicly-traded
biopharmaceutical companies and/or possessed high profile and relevant experience within medicine and the oncology sub-specialties.
Lastly, SPKA felt that Varian Bio’s valuation expectations of approximately $50 million were reasonable in comparison to
publicly traded comps, and would provide downside protection to SPKA’s stockholders post-merger. SPKA had outstanding questions
regarding Varian Bio’s molecule and in specifically its attractiveness from a scientific perspective, and asked the LifeSci
team to reach out to its research team to solicit their views. In the meantime, SPKA and LifeSci agreed to continue speaking to
other potential targets while maintaining a dialogue with Varian Bio.
On December 7,
2021, SPKA and LifeSci convened a conference call to discuss the deal pipeline and the Varian Bio opportunity. LifeSci reported that
their research team had completed a preliminary review of the Varian Bio compound and indication and came back with a favorable assessment
of its market potential. Upon a final assessment of Varian Bio and also weighing the other deals in the pipeline, SPKA decided to submit
a preliminary, non-binding LOI to Varian Bio. Pursuant to this decision, SPKA requested that LifeSci have a conversation with Varian
Bio in order to gauge their receptivity to several key clauses that SPKA would include in the LOI, namely, valuation, monies relating
to the extension of the SPAC if necessary (such that if SPKA was unable to file a registration statement relating to
a business combination by March 10, 2022, which would require a deposit of $509,120 into the Trust Account to extend the timeline until
June 10, 2022, plus an additional $509,120 if the timeline extends to September 10, 2022), and a termination fee. On valuation, SPKA
proposed a pre-money valuation of $45 million based on the valuation expectations of Varian Bio, public trading comparables, the stage
of the business, and the total amount of money raised by Varian Bio to date. SPKA discussed with Varian Bio their key anticipated near-term
inflection points, including the anticipated timing and probability of receiving FDA clearance to initiate clinical trials and the results
of those trials, which may materially affect its future clinical and commercial prospects. Given the high uncertainty of Varian Bio’s
future cash flows, as their lead assets had not yet entered into clinical trials, SPKA did not review detailed financial projections
for future performance of its business. SPKA did review projections related to the relevant addressable markets, including basal cell
carcinoma, among other oncology indications with the potential to be targeted by Varian Bio’s asset portfolio, and found the commercial
opportunity to be attractive relative to the proposed $45 million valuation for Varian Bio. SPKA requested that any cost to secure an
extension to complete the Business Combination of the SPAC should be covered by Varian Bio, and proposed a mutual termination fee applicable
to both parties. SPKA filed the registration statement on form S-4 before March 10, 2022, which entitled SPKA to a free 3-month extension
until June 10, 2022 in order to complete the Business Combination. If the Business Combination is not completed prior to June 10, 2022,
SPKA has the option to extend the time to complete the Business Combination until September 10, 2022 by depositing an additional $509,120
into the Trust Account.
On December 9, 2021, SPKA and LifeSci convened
another conference call, whereby LifeSci reported that Varian Bio was principally in agreement with the key terms that SPKA had proposed.
Given the alignment of both parties on the material deal terms, SPKA agreed to move towards drafting an LOI.
On December 18, 2021, LifeSci sent to Varian Bio
via email an initial draft of the LOI reflecting the terms negotiated and discussed to date, including
a termination fee of $3 million and proposed Varian Bio would place $1 million in escrow to fund any extension to complete the Business
Combination. Over the weekend, Varian Bio sent a markup of the LOI back to LifeSci, wherein Varian Bio had rejected the indemnification
escrow, extended the exclusivity period and made it mutual, and proposed that the extension funds be made a covenant post-signing rather
than through putting funds into escrow. Furthermore, Varian Bio proposed a reduction in the termination fee from the
proposed $3 million termination fee to $1.5 million. The parties also discussed SPKA having
the right to appoint a member to the board of directors of the Combined Company. Subsequent to receiving the markup, a conference
call between SPKA, Varian Bio and LifeSci was held on the morning of December 22, 2021 to discuss the key terms of contention. During
the call, the parties agreed preliminarily to make the exclusivity one-way for Varian Bio and reduce the period to 30 days. Instead of
requiring Varian Bio to deposit funds into escrow for the purpose of extending the life of the SPAC, Varian Bio would instead covenant
in the definitive agreement to pay for any extension fees as needed. Regarding the termination fee, both sides agreed to establish the
termination fee at $2.2 million.
On December 23, 2021, SPKA sent a revised markup
of the LOI back to Varian Bio reflecting the changes discussed on the last call and an all-hands conference call including SPKA, Varian
Bio, LifeSci, SPKA’s legal counsel from Loeb and Loeb LLP (“L&L”), and Varian Bio’s
legal counsel from Dorsey & Whitney LLP (“D&W”), was held the morning of December 24, 2021 to go through
the changes. During the call, the parties agreed to extend the one-way exclusivity from 30 days to 45 days, and SPKA agreed to reimburse
Varian Bio for up to $150,000 in expenses should SPKA choose to terminate discussions after signing the LOI. On the morning of December
25, 2021, a revised version of the LOI was sent back to Varian Bio reflecting the changes agreed to on the previous night’s conference
call.
On December 28,
2021, the LOI was executed. In connection with the entry into the LOI, Varian Bio agreed for the period not to initiate, continue, or
engage in any discussions or negotiations, or enter into any agreements, with respect to a competing business combination or similar
transaction until the earlier of 45 days or until entering into a definitive agreement, with the exclusivity extendable by mutual agreement.
The signed LOI also contemplated that Varian Bio would facilitate SPKA’s continued legal and financial due diligence investigation
by, among other things, providing SPKA reasonable access to the property, records, financial statements, internal and external audit
reports, regulatory reports and other reasonably requested documents and other information concerning Varian Bio (“Due
Diligence Materials”).
An all-hands organizational
virtual meeting was convened on December 29, 2021 with SPKA, Varian Bio, LifeSci, and their respective advisors. The meeting established
a mutually agreed upon transaction timeline along with the responsibilities of various teams on certain key items such as due diligence
deliverables, the Merger Agreement, and the PIPE investor outreach. The parties discussed a preliminary PIPE investor outreach target
list, which included a broad variety of prospective investors, including fundamental healthcare institutional investors and investors
in SPAC transactions, including both investors with no existing relationships with any of SPKA, the Sponsor, or Varian Bio, as well as
prospective investors with familiarity with one or more of the parties, including existing public shareholders of SPKA and existing private
shareholders of Varian Bio. With regard to the terms of the PIPE Investment, the parties determined to identify an independent
third party investor to provide a lead term sheet for a financing, which would establish and inform the appropriate terms of the PIPE
Investment.
Following the execution of the LOI and the all-hands
virtual meeting, and having been granted access to Due Diligence Materials, SPKA continued its business, scientific, legal, accounting,
tax, insurance, employee, regulatory, and IP due diligence, through reviewing documentation and several due diligence calls with Varian
Bio management. More specifically, the due diligence questions SPKA asked and the Due Diligence Materials it requested included, as
applicable, corporate records, stockholder information, securities issuances, financing documents, material contracts, management
and employee agreements, financial information, intellectual property, licensing agreements, real property, IT systems and networks,
governmental regulations and filings, litigation and audits, insurance policies and claims, tax returns and related records, and other
miscellaneous items. As part of its due diligence process, SPKA also engaged Vcheck Global to conduct background checks on each of Mr.
Jeffrey Davis, Dr. Jonathan M. Lewis, Mr. Paul Mann, and Dr. Todd Wider.
Between the signing of the LOI and the announcement
of the Merger, LifeSci, Varian Bio and SPKA conducted a broad outreach to potential PIPE investors, held a number of management calls
and facilitated due diligence calls between Varian Bio and some of these potential PIPE investors. None of the potential PIPE investors
had any pre-existing relationship with SPKA, Varian Bio or the Sponsor. From the time of signing the LOI to the announcement of the Merger,
however, LifeSci, Varian Bio and SPKA were unable to reach agreeable terms with any of these potential investors to secure a PIPE Investment
during that time.
On January 13, 2022, SPKA and L&L shared the
first draft of the Merger Agreement with Varian Bio and D&W.
In the following
days, SPKA continued to engage in discussions advancing due diligence directly and through its advisers. Key topics included scientific
due diligence, intellectual property, and legal contracts.
Throughout January and February 2022, SPKA
and Varian Bio exchanged drafts of the Merger Agreement and drafts of the accompanying schedules, including the Varian Bio and
SPKA Support Agreements, Lock-up Agreement and Voting Agreement. In addition, drafts of the Employment Agreements and Restrictive
Covenant Agreements for Jeffrey Davis (the CEO of Varian Bio) and Jonathan Lewis (the CMO of Varian Bio) were circulated to make
them permanent employees of the Combined Company in order to ensure continuity with the management of the business, this believed
to be in the best interest of the stockholders. Currently Messrs. Lewis and Davis are employees at will at Varian Bio. Discussions
were held regarding the term of employment and customary non-competition and non-solicitation provisions. The Voting Agreement issues were discussed about the
vote in favor of certain matters relating to the nomination and election of the Board of Directors of SPKA and Varian Bio after
closing of the Merger Agreement, if LifeSci should be a party to this agreement, and the length of its term.
During the same period, SPKA, assisted by L&L
completed its due diligence of the Due Diligence Materials, at the conclusion of which no material issues were identified that would
impact the economics of the transaction or the ability to move forward with the transaction. Items identified during the due diligence
process were addressed in the representations and warranties section of the exchanged drafts of the Merger Agreement, including the disclosure
schedules to the Merger Agreement. Additionally, the various drafts exchanged reflected the parties’ negotiations on, among other
things, the indemnification escrow, permitted indebtedness, termination, and post-closing governance matters. As part of the discussion,
Varian Bio and SPKA discussed the issue of outstanding related party loans secured by substantially all of Varian Bio’s assets,
which would be exchanged into the Bridge Notes in contemplation of the Business Combination. These loans were made during 2021 by Keystone
Capital, of which director Daniel Wainstein is a principal, and director Paul Mann, in the amounts of $372,042 and $174,865, respectively.
In late January 2022, SPKA revisited the indemnification escrow, and agreed to remove it upon deciding that it was not typically
required in SPAC transactions of this size.
On February 2, 2022, an all-hands call
was held including SPKA, Varian Bio, and their respective advisers, to discuss open business issues in the merger agreement, the
PIPE capital raise, status of the year-end audits, board approval, and announcement preparation. Further discussions were held
as to how to convert the related party loans into the Bridge Notes, including the terms of the Securities Purchase Agreement,
timeline to repay these loans, factoring in the time to complete the Business Combination, and SPKA retaining the right to nominate
a board member to the Combined Company. Final terms to the Employment Agreements and Restrictive Covenant Agreements were also
discussed.
The Voting Agreement was also resolved to have a two year term and be binding on Varian Bios stockholders, and LifeSci would not
be a party to this agreement.
During early 2022, Keystone Capital and Mastiff
Group, LLC, of which Mr. Wainstein is a principal, loaned an additional $30,000 and $35,030, respectively, to Varian Bio. Each of these
loans, together with a statutory annual interest rate imputed of 4%, were converted into Bridge Notes as described below.
On February 6, 2022, SPKA’s management team
held a telephonic board meeting where SPKA’s management team presented the Varian Bio opportunity was presented to the
Board. The board members received a presentation about Varian Bio including information on Varian Bio’s lead compound, market
opportunity for its lead indication, the management team and board members, and expected timing of clinical trials. After a formal vote
was conducted, the Business Combination was unanimously approved by all board members.
On the morning of February 11, 2022, Mr. Kwan, Ms.
Tao, Mr. Daniel Wainstein, and Mr. Jeffrey Davis held a telephonic conference call to discuss and finalize the remaining two outstanding
business points in the Merger Agreement. The parties also discussed preparation for the joint announcement that terms of a definitive
Merger Agreement had been reached, and reviewed the presentation materials to investors, addressing Varian Bio operations, financial
performance, and the Business Combination, to be incorporated in a Current Report on Form 8-K filing with the SEC. Subsequent
to this call, L&L and D&W continued exchange of drafts of the Merger Agreement and ancillary documents for final review.
The parties executed
the Merger Agreement on the same day.
During
February 2022, Varian Bio sought funding to meet its operational requirements as well as to fund ongoing transaction costs. After
numerous discussions among the parties to determine an appropriate transaction structure for a short-term financing given limited
options, Varian Bio determined that a secured bridge financing was appropriate. In conjunction with the Merger Agreement, on
February 11, 2022, Varian Bio entered into a Securities Purchase Agreement in which Bridge Notes in the aggregate amount of
$3,192,496 were issued in exchange for cash in the aggregate amount of $2,000,000 in cash and the exchange of the outstanding
related party loans, together with statutory interest, from Keystone Capital, Paul Mann and Mastiff Group, LLC, for an aggregate
amount of $660,413. The Bridge Notes mature on August 14, 2022 or earlier upon the close of the Business Combination, and accrue
interest at an annual rate of 15%, and are secured by a first priority lien on the CRT License. The parties discussed that the
Bridge Notes would be repaid upon the closing of the Business Combination.
There were no discussions regarding LifeSci
continuing its role as SPKA’s financial advisor after consummation of the Business Combination, although LifeSci has a right of refusal
to assist in a future private placement or public offering of the Combined Company’s securities for a period of 12 month from closing
of the Business Combination pursuant to their original advisory engagement letter.
On February
14, 2022, the parties issued a joint press release announcing the execution of definitive agreements for the contemplated Business
Combination. On February 17, 2022, SPKA filed a current report on Form 8-K attaching the press release, the Merger Agreement and
the ancillary documents.
SPKA Acquisition Corp.’s Board of
Directors’ Discussion of Valuation and Reasons for the Approval of the Business Combination
In reaching its decision
with respect to the Business Combination, the Board evaluated material provided by Varian Bio that included pre-clinical data regarding
the product candidates, financial materials, public data disclosed by competitors in the space, estimates of population sizes derived
from public databases, and the timing of upcoming catalysts. In addition to the criteria evaluated below, the Board also considered risks
associated with Varian Bio and the Business Combination discussed on page 42. LifeSci assisted
SPKA in conducting diligence on Varian Bio’s product candidate through a preliminary review by LifeSci’s research team. Upon
the completion of a preliminary review of the Varian Bio compound and indication, the LifeSci research team provided a favorable opinion
regarding its market potential, in part due to the historical ownership and development of the assets and interest in their mechanism
of action. SPKA and the Board determined that obtaining a fairness opinion to evaluate the transaction was not necessary pursuant to
its Current Charter, which states the Company shall not consummate a Business
Combination with an entity that is affiliated with any of its officers, directors or sponsors unless it has obtained an opinion from
an independent investment banking firm or another independent entity that commonly renders valuation opinions that such a Business Combination
is fair to the Company from a financial point of view. Here, the management team and the board members of each of SPKA and Varian Bio
have no pre-existing relationship, the transaction was negotiated at arm’s
length between the respective management teams and board members, all of whom are unrelated parties and no conflicts of interest were
present. Based on their review, the key factors supporting SPKA’s board’s decision included the following:
| ● | atypical Protein Kinase C iota (“aPKCi”) is a novel mechanism of action with demonstrated
preclinical activity in a number of oncology indications. Varian Bio is focused on the development of a high-potency,
specific aPKCi inhibitor as a treatment for various oncology indications, in multiple formulations, with an initial focus on basal
cell carcinoma (BCC) and various solid tumors. aPKCi has been implicated as an oncogene in a number of human cancers, including
BCC, cutaneous T-cell lymphoma (CTCL), non-small cell lung cancer (NSCLC), acute myeloid leukemia (AML), and pancreatic cancer,
among others. To date, the active compound in VAR-101/102 has demonstrated dose responsiveness characteristics in murine and human
BCC cell lines, as well as non-small cell lung cancer (NSCLC squamous cell carcinoma) mice models. |
| ● | Varian Bio targets cancers representing significant medical and commercial opportunity. Various
non-clinical studies and pre-clinical data suggest a potentially wide window of physiological activity in BCC via Gli-1, and via
K-RAS-related NSCLC, pancreatic, and colon cancers. Both the topical and oral formulations of VAR-101/102 could offer clinical
utility as a surgical neoadjuvant or adjuvant; a significant medical and commercial opportunity. BCC is the most common cancer
in humans in the US, Europe, and Australia, and the annual estimated cost of treating nonmelanoma skin cancers in the United States
is approximately $4.8 billion, according to the Skin Cancer Foundation. Although the standard of care for BCC typically involves
surgical resection, there is a substantial market for therapeutics – drugs including Vismodegib (Erivedge, Genentech) and
Erismodegib (Odomzo, Novartis/Sun Pharma) are commercially available for the treatment of BCC. |
| ● | Varian Bio pipeline has additional indications of interest. In addition to its topical
aPKCi candidate (VAR-101), Varian Bio is also developing an oral formulation of the same compound, VAR-102, which could provide
additional inflection points in various oncology indications as a systemic therapy, both in single agent and combination therapy
contexts. Varian Bio plans to test VAR-102 in various systemic tumor indications in a “basket” solid tumor Phase 1
trial using a biomarker-driven approach targeting aPKCi / Gli-1 / K-RAS positive tumors. Target indications include NSCLC, CRC,
pancreatic, sarcoma and other solid tumors. Additionally, Varian Bio is seeking additional precision oncology therapeutic candidates
for its pipeline and exploring development collaborations. |
| ● | Multiple value inflection points next 18 months. Varian Bio plans to have pre-IND meetings
with the FDA and finalize optimization of API synthesis; produce initial quantities for permeability studies and initial formulations
for VAR-101 (topical) and VAR-102 (oral) by the first half of 2022. In the second half of 2022 into 2023, Varian Bio plans to complete
pre-clinical IND-enabling studies and GMP-manufacturing for first-in-human studies of VAR-101. In that time Varian Bio will also
prepare IND (or equivalent) for submission in first indication (VAR-101 in BCC) and initiate IND-enabling studies for VAR-102 (advanced
malignancies to include pancreatic, NSCLC, colorectal, others). Varian Bio plans to conduct a proof-of-concept human clinical study
within 24 months of an IND filing. |
| ● | Assets
sourced from highly reputable groups. The Varian Bio portfolio of novel aPKCi inhibitors
were originally discovered by CRUK under the leadership of Prof. Peter Parker, Ph.D., FRS.
Of the Francis Crick Institute, Kings College, and Cancer Research UK, with collaborators
in the UK and the US. Prof. Parker is widely regarded as one of the world’s leading
scientific experts and investigators of the molecular and cell biology of Protein Kinase
C in mammalian biology and cancer. Additional developmental investments have been made into
the assets by a variety of well-known and reputable parties over the years since initial
discovery, including Teva, Ignyta, and Cephalon. In 2019, Varian Bio entered into an exclusive
license agreement with Cancer Research Technology Limited (“CRT”),
an oncology focused technology transfer and development company that is wholly owned by CRUK
to acquire their current aPKCi portfolio. SPKA believes that the fundamental technology underlying
Varian’s asset portfolio is partially validated by the preceding investments made by
strategics and knowledgeable experts in the space. |
| ● | Varian Bio has an experienced management team with a track record of success. Varian Bio’s
founding team and Scientific Advisory Board have extensive product development experience across multiple indications, including:
Jeffrey Davis (Abeona Therapeutics, Access Pharmaceuticals, Bioenvision), Jonathan Lewis, M.D. (Ziopharm, Genentech, Memorial Sloan-Kettering
Cancer Center), Paul Mann (Highbridge Capital, Soros Fund Management), Todd Wider, M.D. (Emendo Biotherapeutics, ARYA Sciences
Acquisition Corp), James Armitage, M.D. (Tesaro, MGI Pharma, Univ of Nebraska Medical Center), Peter Parker, Ph.D., FRS (CRUK KHP
Centre, King’s College London, Francis Crick Institute), and William Matsui, M.D. (Univ of Texas Health LiveStrong Cancer
Center Institute). |
In reaching its decision with respect to the Business
Combination, the Board also conducted a comprehensive review of the overall risks associated with Varian Bio, its lead compound, and
the corresponding impact of these risks on our future stock price, and then the mitigating factors associated with these risks.
| ● | FDA
approval risk. As discussed above, Varian Bio has developed a pipeline of indications
that include a topical formulation as well as an oral formulation. In addition, the assets
being developed by Varian Bio have demonstrated potential in treating not only basal cell
carcinoma but also a number of systemic tumor indications in a “basket” of solid
tumors through its oral formulation. Having a large group of potential indications and formulations
reduces the adverse risk of a single formulation or indication not receiving FDA approval
and its subsequent impact on the future prospects of Varian Bio. |
| | |
| ● | Execution
risk associated with moving Varian Bio’s assets through FDA trials. One of the
inherent risks of any early stage biopharmaceuticals company is risk that difficulties or
complications arise during product development and trials which will have an adverse effect
on the timeline for completing and receiving subsequent FDA approvals. Varian Bio’s
senior management team and board members collectively have extensive experience operating
biopharmaceutical companies at the senior levels and success moving numerous experimental
drugs and indications through the various phases of FDA trials, which gave the Board confidence
that this risk could be successfully mitigated. |
| | |
|
● | Downside
stock price protection. We have observed that recent historical stock price performance
of pre-clinical biotech companies going public through SPAC transactions has correlated with
the valuation set at the time of the transaction. For reasons discussed below in “Summary
of SPKA Financial Analysis”, the Board believes that the proposed valuation for
Varian Bio is reasonable and falls below the valuations of transactions we deemed to be comparable.
For this reason, we believe that we have built in a certain level of downside stock price
protection which will potentially mitigate future downside stock price risk. |
Summary of SPKA Financial Analysis
The following is a
summary of the material financial analyses prepared and reviewed by SPKA in connection with the valuation of Varian Bio. The summary
set forth below does not purport to be a complete description of the financial analyses performed or factors considered by us nor
does the order of the financial analyses described represent the relative importance or weight given to those financial analyses.
We may have deemed various assumptions more or less probable than other assumptions, so the reference ranges resulting from any
particular portion of the analyses summarized below should not be taken to be our view of the actual value of Varian Bio. Some
of the summaries of the financial analyses set forth below include information presented in tabular format. In order to fully understand
the financial analyses, the tables must be read together with the text of each summary, as the tables alone do not constitute a
complete description of the financial analyses performed by us. Considering the data in the tables below without considering all
financial analyses or factors or the full narrative description of such analyses or factors, including the methodologies and assumptions
underlying such analyses or factors, could create a misleading or incomplete view of the processes underlying our financial analyses
and the Board’s recommendation.
In performing our
analyses, we made numerous material assumptions with respect to, among other things, timing of clinical trials, patient enrollment,
timing of receipt of regulatory approvals that may be needed, characterization of the product candidates, the timing of, and amounts
of, any royalty payments, milestone payments or other payments due to third parties by Varian Bio, the entry by Varian Bio into
license or collaboration agreements, market size, commercial efforts, industry performance, general business and economic conditions
and numerous other matters, many of which are beyond the control of SPKA, Varian Bio or any other parties to the Business Combination.
Further, we specifically assumed:
| ● | Varian Bio will be able to complete its preclinical studies of VAR-101 and advance its development into the clinic during 2022
in accordance with its clinical development plan; |
| ● | Varian Bio will be able to complete its preclinical studies of VAR-102 and advance its development into the clinic during 2023
in accordance with its clinical development plan; and |
| ● | The
cash delivered to Varian Bio at the closing of the Business Combination will be sufficient
to finance Varian Bio into approximately 2024, allowing for the achievement of meaningful
clinical catalysts and value creation as a result of the closing of the Business Combination. |
Any estimates contained
in these analyses may not be indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth below. In addition, analyses relating to the value of Varian
Bio may not reflect the prices at which Varian Bio shares could actually be valued. The
following quantitative information is based on market data as it existed on or before February 14, 2022 and may
not reflect current market conditions.
Selected Comparable
Preclinical Biotech SPAC Transactions Analysis
SPKA reviewed
certain financial and operational information of Varian Bio, not including detailed financial projections, and compared it to
certain comparable closed biotech SPAC transactions from 2018 to present, where the target company’s lead asset was in preclinical
development at the time of announcement. These companies were selected based on SPKA’s experience and the professional judgment
of its management team. SPKA identified the following criteria as significant in determining whether a company was considered
to be comparable:
| ● | Stage of drug development: The stage of development and availability/quality of data can
materially affect the value of a particular asset. Preclinical assets generally are farther from commercialization and can have
different risk profiles than later stage assets. |
| ● | Transaction characteristics: The structure and method in which a company goes public via
a SPAC transaction can materially impact the valuation and trading dynamics of a combined entity post-business combination. Analyzing
companies that completed similar transactions can provide insight into determining an appropriate valuation based on market dynamics. |
Not all of the companies
listed below had assets focused on oncology. SPKA deemed the development stage of the asset, regardless of its therapeutic category,
and SPAC transaction mechanics to be most relevant when evaluating the transaction with Varian Bio. Each of the following selected
comparable SPAC transactions were deemed by SPKA to be comparable to the transaction discussed in this document and were relevant to
Varian Bio’s market valuation to warrant inclusion in SPKA’s analysis:
| |
| |
# of Assets at | |
| |
Pre-Money |
Closing Date | |
Target Company | |
Announcement | |
SPAC | |
Valuation
($MM) |
12/23/2021 | |
Pardes Bio | |
| 1 | | |
FS Development Corp. II | |
$ | 325.0 | |
9/3/2021 | |
Renovacor | |
| 2 | | |
Chardan Healthcare Acquisition 2 | |
$ | 65.0 | |
8/12/2021 | |
Surrozen | |
| 2 | | |
Consonance-HFW Acquisition Corporation | |
$ | 200.0 | |
8/11/2021 | |
Tango Therapeutics | |
| 2 | | |
BCTG Acquisition Corp. | |
$ | 550.0 | |
10/29/2019 | |
BiomX | |
| 3 | | |
Chardan Healthcare Acquisition | |
$ | 166.3 | |
| |
| |
| | | |
Mean | |
$ | 261.3 | |
| |
| |
| | | |
Median | |
$ | 200.0 | |
There were not any comparable
transactions considered but ultimately not included in this analysis which satisfied the criteria listed above of being preclinical biotech
companies that completed SPAC mergers from 2018 to present. Based on this analysis of these companies, which SPKA deemed relevant
based on its professional judgment and expertise, SPKA compared the selected equity values of these companies to the proposed pre-money
valuation for Varian Bio of $45,000,000.
The selected equity values
were based on the disclosed pre-money valuations per the company’s press releases corporate presentations, and SEC
filings.
None of the selected companies
has characteristics identical to Varian Bio. Some of the companies have greater resources than does Varian Bio, and their product candidates
may be more advanced than Varian Bio. An analysis of selected closed SPAC transactions is not purely quantitative; rather it involves
complex considerations and judgments concerning differences in financial and operating characteristics of the selected companies and
other factors that could affect the public trading values of the companies reviewed. SPKA believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the selected closed SPAC transactions analysis. Accordingly, SPKA also
made qualitative judgments, based on its experience and the professional judgment of its management team, concerning differences between
the operational, business and/or financial characteristics of Varian Bio and the selected companies to provide a context in which to
consider the results of the quantitative analysis. These qualitative judgements include differentiating between the quality of management
teams, quality of product candidates, addressable market sizes, and other miscellaneous distinctions between Varian Bio and the selected
comparable companies.
Selected Comparable Early-Stage Oncology
Initial Public Offerings Analysis
SPKA reviewed
certain financial information of Varian Bio, not including detailed financial projections, and compared it to 2021-2022 IPO
valuations of certain comparable oncology-focused companies where the lead asset was in either preclinical or Phase I development.
SPKA identified the following criteria as significant in determining whether a company was considered to be comparable:
| ● | Stage
of
drug
development:
The
stage
of
development
and
availability/quality
of
data
can
materially
affect
the
value
of
a
particular
asset.
Early-stage
assets
generally
are
farther
from
commercialization
and
can
have
different
risk
profiles
than
later
stage
assets. |
| ● | Target therapeutic category: Target market is critical
in assessing the value of a drug. Certain therapeutic categories, such as oncology, have much larger addressable markets and accordingly,
commercial prospects. Analyzing companies targeting the same market can provide insight into determining an appropriate valuation
based on the market opportunity. Drug candidates targeting the same indications at similar stages of development implicitly share
a number of important qualities with respect to commercial opportunity, including projected competitive landscape and potential
peak sales. |
Each of the following
selected comparable early-stage, oncology-focused IPOs was deemed by SPKA to be sufficiently comparable and relevant to Varian Bio’s
market valuation to warrant inclusion in SPKA’s analysis. The selected comparable companies
include: Pyxis Oncology, Theseus Pharmaceuticals, Tyra Biosciences, Immuneering, Nuvalent, HCW Biologics, Nuvectis Pharma, Tscan Therapeutics,
Transcode Therapeutics, Century Therapeutics, Lyell Immunopharma, Janux Therapeutics, Werewolf Therapeutics, Biomea Fusion, and Vor Biopharma.
All companies had their respective lead assets in preclinical development at the time
of the IPO other than Nuvectis Pharma, whose lead candidate was in a Phase I trial. The resulting pre-money valuations from this analysis
are summarized below:
IPO Pricing
Date | |
Company | |
# of Assets at IPO | |
Pre-Money Valuation ($M) |
2/4/2022 | |
Nuvectis Pharma | |
| 2 | | |
$ | 47.6 | |
10/7/2021 | |
Pyxis Oncology | |
| 3 | | |
$ | 355.7 | |
10/6/2021 | |
Theseus Pharmaceuticals | |
| 2 | | |
$ | 440.5 | |
9/14/2021 | |
Tyra Biosciences Inc | |
| 5 | | |
$ | 481.8 | |
7/29/2021 | |
Immuneering Corp | |
| 9 | | |
$ | 253.3 | |
7/28/2021 | |
Nuvalent Inc | |
| 4 | | |
$ | 630.2 | |
7/19/2021 | |
HCW Biologics | |
| 2 | | |
$ | 229.2 | |
7/15/2021 | |
Tscan Therapeutics | |
| 6 | | |
$ | 259.1 | |
7/8/2021 | |
Transcode Therapeutics | |
| 4 | | |
$ | 22.9 | |
6/17/2021 | |
Century Therapeutics | |
| 4 | | |
$ | 885.5 | |
6/16/2021 | |
Lyell Immunopharma Inc | |
| 3 | | |
$ | 3,703.0 | |
6/10/2021 | |
Janux Therapeutics | |
| 4 | | |
$ | 484.5 | |
4/29/2021 | |
Werewolf Therapeutics | |
| 3 | | |
$ | 320.6 | |
4/15/2021 | |
Biomea Fusion | |
| 1 | | |
$ | 336.1 | |
2/5/2021 | |
Vor Biopharma | |
| 3 | | |
$ | 464.7 | |
| |
| |
| High | | |
$ | 3,703.0 | |
| |
| |
| Average | | |
$ | 594.3 | |
| |
| |
| Median | | |
$ | 355.7 | |
| |
| |
| Low | | |
$ | 22.9 | |
SPKA
also considered additional analysis regarding these selected comparable IPOs for informational purposes in order to better evaluate the
public market performances of similarly situated companies, and to provide further context to what the market value of Varian Bio’s
oncology programs may be following the closing of the Business Combination. Below is a summary of the market caps of the selected comparable
IPOs as of February 11, 2022:
IPO Pricing Date | |
Company | |
Current
# of Assets | |
Current Lead Asset Phase of Development | |
Market Capitalization ($M) |
2/4/2022 | |
Nuvectis Pharma | |
| 2 | | |
Preclinical | |
$ | 88.3 | |
10/7/2021 | |
Pyxis Oncology | |
| 5 | | |
Preclinical | |
$ | 242.9 | |
10/6/2021 | |
Theseus Pharmaceuticals | |
| 3 | | |
Phase I/II | |
$ | 403.2 | |
9/14/2021 | |
Tyra Biosciences Inc | |
| 5 | | |
Preclinical | |
$ | 498.3 | |
7/29/2021 | |
Immuneering Corp | |
| 9 | | |
Preclinical | |
$ | 250.0 | |
7/28/2021 | |
Nuvalent Inc | |
| 4 | | |
Phase I/II | |
$ | 866.7 | |
7/19/2021 | |
HCW Biologics | |
| 4 | | |
Phase I | |
$ | 84.7 | |
7/15/2021 | |
Tscan Therapeutics | |
| 8 | | |
Preclinical | |
$ | 122.6 | |
7/8/2021 | |
Transcode Therapeutics | |
| 6 | | |
Preclinical | |
$ | 26.7 | |
6/17/2021 | |
Century Therapeutics | |
| 5 | | |
Preclinical | |
$ | 687.1 | |
6/16/2021 | |
Lyell Immunopharma Inc | |
| 3 | | |
Phase I | |
$ | 1,452.4 | |
6/10/2021 | |
Janux Therapeutics | |
| 4 | | |
Preclinical | |
$ | 717.8 | |
4/29/2021 | |
Werewolf Therapeutics | |
| 3 | | |
Preclinical | |
$ | 188.4 | |
4/15/2021 | |
Biomea Fusion | |
| 4 | | |
Phase I | |
$ | 180.4 | |
2/5/2021 | |
Vor Biopharma | |
| 5 | | |
Phase I/IIa | |
$ | 320.7 | |
| |
| |
| | | |
High | |
$ | 1,452.4 | |
| |
| |
| | | |
Average | |
$ | 408.7 | |
| |
| |
| | | |
Median | |
$ | 250.0 | |
| |
| |
| | | |
Low | |
$ | 26.7 | |
Based on the analyses
of these companies, which SPKA deemed relevant based on its professional judgment and expertise, SPKA compared the selected equity
values of these companies to the proposed pre-money valuation for Varian Bio of $45,000,000, and considered the valuation of the
proposed transaction to be attractive.
None of the selected companies
has characteristics identical to Varian Bio. Some of the companies have greater resources than does Varian Bio, and their product candidates
may be more advanced than Varian Bio. An analysis of selected comparable companies is not purely quantitative; rather it involves complex
considerations and judgments concerning differences in financial and operating characteristics of the selected companies and other factors
that could affect the public trading values of the companies reviewed. SPKA believed that it was inappropriate to, and therefore did
not, rely solely on the quantitative results of the selected comparable companies analysis. Accordingly, SPKA also made qualitative judgments,
based on its experience and the professional judgment of its management team, concerning differences between the operational, business
and/or financial characteristics of Varian Bio and the selected companies to provide a context in which to consider the results of the
quantitative analysis. These qualitative judgements include differentiating between the quality of management teams, quality of product
candidates, addressable market sizes, and other miscellaneous distinctions between Varian Bio and the selected comparable companies.
Interests of Certain Persons in the Business
Combination
When you consider the recommendation
of the Board in favor of adoption of the Business Combination Proposal and other Proposals, you should keep in mind that SPKA’s
directors and officers have interests in the Business Combination that are different from, or in addition to, your interests as
a shareholder, including:
| ● | If an initial business combination, such as the Business Combination, is not completed by June
10, 2022 (or up to September 10, 2022 if the time to complete a business combination is extended), SPKA will be required to dissolve
and liquidate. In such event, the 1,272,799 founder shares currently held by the Initial Stockholders, which were acquired prior
to the IPO, will be worthless because such holders have agreed to waive their rights to any liquidation distributions. The founder
shares were purchased for an aggregate purchase price of $25,000. |
| ● | If an initial business combination, such as the Business Combination, is not completed by June
10, 2022 (or up to September 10, 2022 if the time to complete a business combination is extended), the 206,824 Private Units purchased
by the Sponsor for a total purchase price of $$2,068,240, will be worthless. The Units had an aggregate market value of approximately
$[•] based on the closing price of Units on the Nasdaq Stock Market as of [•], 2022. |
| ● | The exercise of SPKA’s directors’ and officers’ discretion in agreeing to changes
or waivers in the terms of the transaction may result in a conflict of interest when determining whether such changes or waivers
are appropriate and in our stockholders’ best interest. |
| ● | If
the Business Combination is completed, Varian Bio will designate four
members of the up to five total members of the Combined Company Board, except for
[•]. |
See “Proposal 1
— The Business Combination Proposal — Interests of Certain Persons in the Business Combination” for additional
information.
Appraisal Rights
There are no appraisal rights
available to SPKA’s stockholders in connection with the Business Combination.
Total Shares of Common Stock Outstanding
Upon Consummation of the Business Combination
It
is anticipated that upon completion of the Business Combination, and
assuming (a) the No Redemption Scenario, (b) Interim Redemption Scenario, and (c) the Maximum Redemption Scenario, (i)
SPKA’s public stockholders would retain an ownership interest of
approximately 45.9%, 34.0% and 15.4%, respectively, in the Combined Company, (ii) the Sponsor, officers, directors and other holders
of founder shares will own approximately 13.3% 16.3%, and 20.8%, respectively, of the Combined Company, (iii) the Representative
will own approximately 0.2% 0.3%,and 0.4%, respectively, of the Combined Company, and (iv) the Varian Bio shareholders will own
approximately 40.6% 49.5%, and 63.4%, respectively, of the Combined Company.
The
following diagram summarize the pro forma ownership of Common Stock upon Closing of the Business Combination, including Common Stock
underlying Units, and shares of Common Stock following the Business Combination, and the approximate amount of cash available to the
Combined Company from the Trust Account, after repayment of the face value of the Bridge Notes (not including an estimated $152,190
of accumulated interest on the Bridge Notes through June 10, 2022, the last day of the current extension term unless extended to
September 10, 2022), and not including any proceeds from the anticipated PIPE Investment under (i) a No Redemption Scenario, (ii) an
Interim Redemption Scenario, assuming 50% redemption, and (iii) a Maximum Redemption Scenario:
Including
Additional |
No
|
|
Interim
|
|
Maximum |
Dilution
Sources |
Redemption
Scenario |
Redemption
Scenario |
Redemption
Scenario |
|
#
of Shares |
% |
|
#
of Shares |
% |
|
#
of Shares |
% |
SPKA
Initial Stockholders |
|
5,091,196 |
45.9% |
|
|
3,091,326 |
34.0% |
|
|
1,091,456 |
15.4% |
Sponsor |
|
1,479,623 |
13.3% |
|
|
1,479,623 |
16.3% |
|
|
1,479,623 |
20.8% |
Representative
Shares |
|
25,456 |
0.2% |
|
|
25,456 |
0.3% |
|
|
25,456 |
0.4% |
Total
SPKA Stockholders |
|
6,596,275 |
59.4% |
|
|
4,596,405 |
50.5% |
|
|
2,596,535 |
36.6% |
Varian
Bio Shareholders |
|
4,500,000 |
40.6% |
|
|
4,500,000 |
49.5% |
|
|
4,500,000 |
63.4% |
Total
Shares Outstanding |
|
11,096,275 |
100.0% |
|
|
9,096,405 |
100.0% |
|
|
7,096,535 |
100.0% |
Net
Cash to Company ($M) |
|
$45.7
|
|
|
|
$25.7
|
|
|
|
$5.7
|
|
(1) |
Under the No Redemption
Scenario, we assume no shares of Common Stock are redeemed. |
(2) |
Under the Interim Redemption Scenario, we assume redemption of 50%
of the maximum possible redemption of shares of Common Stock, or 1,999,870 shares of Common Stock, are redeemed for aggregate redemption
payments of $19,998,700 million using a per-share redemption price of $10.00. |
(3) |
Under the Maximum Redemption
Scenario, we assume redemption of 3,999,740 shares of Common Stock, the maximum possible redemption of shares of Common Stock,
for aggregate redemption payments of $39,997,400 million using a per-share redemption price of $10.00. |
Anticipated Accounting Treatment
The Business
Combination will be accounted for as a “reverse recapitalization” in accordance with U.S. GAAP. A reverse recapitalization
does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of
the financial statements of Varian Bio in many respects. Under this method of accounting, although SPKA will issue shares for outstanding
equity interests of Varian Bio in the Business Combination, SPKA will be treated as the “acquired” company for financial
reporting purposes. Accordingly, the Business Combination will be treated as the equivalent of Varian Bio issuing stock for the
net assets of SPKA, accompanied by a recapitalization. For accounting purposes, Varian Bio will be deemed to be the accounting
acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Varian Bio. The net assets
of SPKA will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business
Combination will be those of Varian Bio.
Redemption Rights
Pursuant to our Certificate
of Incorporation, holders of shares of common stock may elect to have their shares of common stock redeemed for cash at the applicable
redemption price per share equal to the quotient obtained by dividing (i) the aggregate amount on deposit in the Trust Account
as of two business days prior to the consummation of the Business Combination, including interest (net of taxes payable), by (ii) the
total number of then-outstanding shares of common stock. As of [•], 2022, this would have amounted to approximately $[•]
per share.
You will be entitled to
receive cash for any shares of common stock to be redeemed only if you:
|
(i) | (a) | hold shares of common stock, or |
| (b) | hold shares of common stock through public Units and you elect to separate your public Units into
the underlying shares of common stock and Rights prior to exercising your redemption rights with respect to the shares of common
stock; and |
| (ii) | prior to [•] p.m., Eastern Time, on [•], 2022, (a) submit a written request to Continental
that SPKA redeem your shares of common stock for cash and (b) deliver your shares of common stock to Continental, physically
or electronically through DTC. |
Holders of outstanding Units
must separate the underlying shares of common stock and Rights prior to exercising redemption rights with respect to the shares
of common stock. If the Units are registered in a holder’s own name, the holder must deliver the certificate for its Units
to Continental, with written instructions to separate the Units into their individual component parts. This must be completed far
enough in advance to permit the mailing of the certificates back to the holder so that the holder may then exercise his, her or
its redemption rights upon the separation of the shares of common stock and Rights from the Units.
If a holder exercises its
redemption rights, then such holder will be exchanging its shares of common stock for cash and will no longer own securities of
the Combined Company. Such a holder will be entitled to receive cash for its shares of common stock only if it properly demands
redemption and delivers its shares of common stock (either physically or electronically) to Continental in accordance with the
procedures described herein. Please see the section titled “The Meeting — Redemption Rights” for
the procedures to be followed if you wish to redeem your shares of common stock for cash.
Vote Required for Approval
Along with the approval
of the Charter Approval Proposal, the Directors Proposal, the Stock Plan Proposal, and the Nasdaq Proposal, approval of this Business
Combination Proposal is a condition to the consummation of the Business Combination. If this Business Combination Proposal is not
approved, the Business Combination will not take place. Approval of this Business Combination Proposal is also a condition to Proposal
2, Proposals 3A-3D, Proposal 4, and Proposal 5. If the Charter Approval Proposal, the Bylaws, the Directors Proposal, the Stock
Plan Proposal, and the Nasdaq Proposal are not approved, unless the condition is waived, this Business Combination Proposal will
have no effect (even if approved by the requisite vote of our stockholders at the Meeting of any adjournment or postponement thereof)
and the Business Combination will not occur.
This Business Combination
Proposal (and consequently, the Merger Agreement and the transactions contemplated thereby, including the Business Combination)
will be approved and adopted only if holders of at least a majority of the issued and outstanding shares of common stock present
in person by virtual attendance or represented by proxy and entitled to vote at the Meeting vote “FOR” the Business
Combination Proposal.
Pursuant to the Letter Agreement
and the Parent Support Agreement, the Initial Stockholders holding an aggregate of [•] shares (or [•]% of the outstanding
shares) of common stock have agreed to vote their respective shares of common stock (including shares of common stock included
in the Private Units) in favor of each of the Proposals. As a result, only [•] shares of common stock held by the public stockholders
will need to be present in person by virtual attendance or by proxy to satisfy the quorum requirement for the meeting. In addition,
as the vote to approve the Business Combination Proposal is a majority of the votes cast at a meeting at which a quorum is present,
assuming only the minimum number of shares of common stock to constitute a quorum is present, only [•] shares of common stock,
or approximately [•]% of the outstanding shares of the common stock held by the public stockholders must vote in favor of
the Business Combination Proposal for it to be approved.
Board Recommendation
OUR BOARD RECOMMENDS
THAT OUR STOCKHOLDERS VOTE “FOR” THE BUSINESS COMBINATION PROPOSAL 1.
PROPOSAL 2 — THE
CHARTER APPROVAL PROPOSAL
Overview
Our stockholders are being
asked to adopt the Amended Charter in the form attached to this proxy statement/prospectus as Annex B, which,
in the judgment of the SPKA Board, is necessary to adequately address the needs of Combined Company. The following is a summary
of the key amendments effected by the Amended Charter, but this summary is qualified in its entirety by reference to the full text
of the Amended Charter, a copy of which is attached to this proxy statement/prospectus as Annex B:
| ● | change SPKA’s name to “Varian Biopharma, Inc.;” |
| ● | increase the number of shares of common stock the Combined Company is authorized to issue from
10,000,000 shares to [●] shares and authorize the Combined Company to issue up to [●] preferred shares; |
| ● | remove the requirement of an affirmative vote of holders of more than sixty percent (60%) of the
voting power of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together
as a single class, to remove any or all of the directors at any time for cause; |
| ● | add a provision to the Amended Charter prohibiting stockholders from acting by written consent; |
| ● | provide that special meetings of stockholders may only be called by the Combined Company Board,
the chair of the Combined Company Board, or chief executive officer of the Combined Company following receipt of one or more written
demands to call a special meeting of the stockholders from stockholders of record who own, in the aggregate, at least 25% of the
voting power of the outstanding shares of the Combined Company then entitled to vote on the matter or matters to be brought before
the proposed special meeting; and |
| ● | remove the various provisions applicable only to special purpose acquisition companies (such as
the obligation to dissolve and liquidate if a business combination is not consummated within a certain period of time). |
This summary is
qualified by reference to the complete text of the Amended Charter, a copy of which is attached to this proxy statement/prospectus as
Annex B. All stockholders are encouraged to read the Amended Charter in its entirety for a more complete description of its terms.
Reasons for the Amendment Proposal
Each of the proposed amendments
was negotiated as part of the Business Combination. The Board’s reasons for proposing each of these amendments to the Current
Charter is set forth below.
| ● | Amending the Current Charter to change the Combined Company’s name to “Varian Biopharma,
Inc.” SPKA’s name is currently SPKA Acquisition Corp. The Board believes the name of the Combined Company should
more closely align with the name of the post-Business Combination operating business. |
| ● | Amending the Current Charter to increase the number of shares of common stock the Combined
Company is authorized to issue from 10,000,000 shares to [●] shares and authorize the Combined Company to issue
up to [●] preferred shares. The Current Charter authorizes 10,000,000 shares of common stock and no shares
of preferred stock. The Amended Charter provides that the Combined Company will be authorized to issue [●] shares, consisting
of [●] shares of common stock and [●] shares of preferred stock. The Board believes the increase in authorized
shares of common stock is necessary in order for the Combined Company to have sufficient authorized common stock to issue to the
shareholders of Varian Bio pursuant to the Merger Agreement and the transactions contemplated thereby, including the reservation
of shares pursuant to the Incentive Award Plan. The Board also believes that it is important for the Combined Company to have available
for issuance a number of authorized shares of common stock and preferred stock sufficient to support growth and to provide flexibility
for future corporate needs (including, if needed, as part of financing for future growth acquisitions). The shares of Common Stock
to be authorized would be issuable as consideration for the Business Combination and the other transactions contemplated by in
this proxy statement/prospectus, and for any proper corporate purpose, including future acquisitions, capital raising transactions
consisting of equity or convertible debt, stock dividends or issuances under current and any future stock incentive plans. The
shares of preferred stock to be authorized would be issuable for any proper corporate purpose, including future acquisitions and
capital raising transactions. |
| ● | Amending the Current Charter to remove the requirement of an affirmative vote of holders of
more than sixty percent (60%) of the voting power of all then outstanding shares of capital stock entitled to vote generally in
the election of directors, voting together as a single class, to remove any or all of the directors at any time for cause. The
provision in the Current Charter requiring the affirmative vote of holders of more than sixty percent (60%) of the voting power
of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single
class, to remove any or all of the directors at any time for cause was a provision that the Board believed was necessary while
SPKA is a blank check company to protect all stockholders against the potential self-interested actions by one or a few large
stockholders. The Board believes that after the Business Combination there is less potential for certain stockholders to hold a
substantial beneficial ownership of the Combined Company and that this provision is no longer required. |
| ● | Amending the Current Charter to eliminate the ability of stockholders to act by written consent.
The Current Charter contains no provisions restricting stockholder action by written consent. The Amended Charter would
provide that actions of stockholders must be taken at a duly called annual or special meeting of stockholders and may not be effected
by written consent. Eliminating the right of stockholders to act by written consent limits the circumstances under which stockholders
can act on their own initiative to remove directors or alter or amend our organizational documents outside of a duly called special
or annual meeting of the stockholders. The Board believes this is desirable to provide all stockholders of the Combined Company
with notice of actions proposed to be taken or approved by the stockholders and to provide all stockholders of the Combined Company
with the opportunity to participate in the consideration of such actions or other approval items. Further, the Board believes that
limiting stockholders’ ability to act by written consent will reduce the time and effort the Board and management would need
to devote to stockholder proposals, which time and effort could distract the Board and management from other important company
business. |
| ● | Amending the Current Charter to provide that special meetings of stockholders may only be called
by the Board, the chair of the Board, or chief executive officer of the Combined Company, following receipt of one or more written
demands to call a special meeting of the stockholders from stockholders of record who own, in the aggregate, at least 25% of the
voting power of the outstanding shares of the Combined Company then entitled to vote on the matter or matters to be brought before
the proposed special meeting. At present, the Current Charter contains no provisions for the calling of a special meeting
of stockholders. The Amended Charter would provide that special meetings of the stockholders may be called only by or at the direction
of the Combined Company Board, the chair of the Combined Company Board, or the chief executive officer. The amendment is intended
to organize consideration of the Combined Company’s business by directing requests for stockholder meetings to the Board,
and preventing minority stockholders’ attempts to circumvent the Board to attempt to remove directors, amend organizational
documents or take other actions without the Board’s consent or to call a stockholders meeting to otherwise advance minority
stockholders’ agenda. We believe this achieves a reasonable balance between enhancing stockholder rights and adequately protecting
the long-term interests of the Combined Company and its stockholders. |
| ● | Amending the Current Charter to remove the various provisions applicable only to special purpose
acquisition companies (such as the obligation to dissolve and liquidate if a business combination is not consummated within a certain
period of time). The Current Charter would be amended and replaced in its entirety with the Amended Charter. This includes
approval of all other changes in the Amended Charter and related clean up changes, as well as the removal of provisions of the
Current Charter that will no longer be relevant, in connection with replacing the Current Charter with the Amended Charter, including
the elimination of certain provisions related to SPKA’s status as a blank check company, which is desirable because these
provisions will serve no purpose following the Business Combination. For example, these proposed amendments remove the requirement
to dissolve the Combined Company if the initial business combination is not completed within a certain period of time and will
allow the Combined Company to continue as a corporate entity with perpetual existence following consummation of the Business Combination.
Perpetual existence is the customary period of existence for corporations and the Board believes it is the most appropriate period
for the Combined Company following the Business Combination. In addition, certain other provisions in the Current Charter require
that proceeds from SPKA’s initial public offering be held in the trust account until a business combination or liquidation
has occurred. These provisions cease to apply once the Business Combination is consummated. |
Vote Required for Approval
Assuming that a quorum is
present at the Meeting, the affirmative vote of holders of a majority of the issued and outstanding shares of common stock on this
Proposal 2 is required to approve the Charter Approval Proposal. Accordingly, a stockholder’s failure to vote online during
the Meeting or by proxy, a broker non-vote or an abstention will be considered a vote “AGAINST” Proposal 2.
This Proposal is conditioned
on the approval of the Business Combination Proposal, the Directors Proposal, the Stock Plan Proposal, and the Nasdaq Proposal.
If either of the Business Combination Proposal, the Directors Proposal, the Stock Plan Proposal, or the Nasdaq Proposal is not
approved, Proposal 2 will have no effect even if approved by our stockholders. Because stockholder approval of this Proposal
2 is a condition to completion of the Business Combination under the Merger Agreement, if this Proposal 2 is not approved by our
stockholders, the Business Combination will not occur unless we and Varian Bio waive the applicable closing conditions.
Board Recommendation
THE BOARD RECOMMENDS
A VOTE “FOR” ADOPTION OF THE CHARTER APPROVAL PROPOSAL UNDER PROPOSAL 2.
PROPOSALS
3A-3D - THE GOVERNANCE PROPOSALS
Overview
Our stockholders are also
being asked to vote on four separate Proposals with respect to certain governance provisions in the Amended Charter, which are
separately being presented in order to give SPKA stockholders the opportunity to present their separate views on important corporate
governance procedures and which will be voted upon on a non-binding advisory basis. Accordingly, regardless of the outcome of the
non-binding advisory vote on these Proposals, SPKA and Varian Bio intend that the Amended Charter in the form attached to this
proxy statement/prospectus as Annex B will take effect at the Closing of the Business Combination, assuming approval of
the Charter Approval Proposal (Proposal 2). In the judgment of the Board, these provisions are necessary to adequately address
the needs of the Combined Company.
The
following summary of the material changes to the Current Charter which will be effected by the Amended Charter is qualified in
its entirety by reference to the full text of the Amended Charter:
|
(a) |
increase
the number of shares of common stock the Combined Company is authorized to issue from 10,000,000 shares to [●] shares and authorize
the Combined Company to issue up to [●] preferred shares (Proposal No. 3A); |
|
|
|
|
(b) |
remove
the requirement of an affirmative vote of holders of more than sixty percent (60%) of the voting power of all then outstanding shares
of capital stock entitled to vote generally in the election of directors, voting together as a single class, to remove any or all
of the directors at any time for cause (Proposal No. 3B); |
|
|
|
|
(c) |
eliminate
the ability of stockholders to act by written consent (Proposal No. 3C);
and |
|
|
|
|
(d) |
provide
that special meetings of stockholders may only be called by the Combined Company Board, the chair of the Combined Company Board,
or chief executive officer of the Combined Company following receipt of one or more written demands to call a special meeting of
the stockholders from stockholders of record who own, in the aggregate, at least 25% of the voting power of the outstanding shares
of the Combined Company then entitled to vote on the matter or matters to be brought before the proposed special meeting (Proposal
No. 3D). |
Proposals
No. 3A through 3D are collectively are referred to herein as “The Governance
Proposals.”
The
subsection below entitled “— Reasons for the Governance Proposals” summarizes the principal, material
changes proposed to be made between the Current Charter and the Amended Charter and the Board’s reasons for proposing each
change. This summary is qualified by reference to the complete text of the Amended Charter, a copy of which is attached to this
proxy statement/prospectus as Annex B. All stockholders are encouraged to read the Amended Charter in its entirety
for a more complete description of its terms.
Reasons for
the Governance Proposals
Each
of the proposed amendments was negotiated as part of the Business Combination. The Board’ reasons for proposing each of these
amendments to the Current Charter is set forth below.
Proposal No. 3A:
Increase in Authorized Shares — Amending the Current Charter to increase the number of shares of common stock
the Combined Company is authorized to issue from 10,000,000 shares to [●] shares and authorize the Combined Company to
issue up to [●] of shares of preferred stock.
The
Board believes the increase in authorized shares of common stock is necessary in order for the Combined Company to have sufficient
authorized common stock to issue to the shareholders of Varian Bio pursuant to the Merger Agreement and the Business Combination,
including the reservation of shares pursuant to the Incentive Award Plan. The Board also believes that it is important for the
Combined Company to have available for issuance a number of authorized shares of common stock and preferred stock sufficient to
support growth and to provide flexibility for future corporate needs (including, if needed, as part of financing for future growth
acquisitions). The shares of Common Stock to be authorized would be issuable as consideration for the Business Combination and
for any proper corporate purpose, including future acquisitions, capital raising transactions consisting of equity or convertible
debt, stock dividends or issuances under current and any future stock incentive plans. The shares of Combined Company preferred
stock to be authorized would be issuable for any proper corporate purpose, including future acquisitions and capital raising transactions.
Proposal No.
3B: Required Vote to Amend the Charter — Amending the Current
Charter to remove the requirement of an affirmative vote of holders of more than sixty percent (60%) of the voting power of all then
outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class, to remove
any or all of the directors at any time for cause.
The
provision in the Current Charter requiring the affirmative vote of holders of more than sixty percent (60%) of the voting power
of all then outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single
class, to remove any or all of the directors at any time for cause was a provision that the Board believed was necessary while
SPKA is a blank check company to protect all stockholders against the potential self-interested actions by one or a few large
stockholders. The Board believes that after the Business Combination there is less potential for certain stockholders to hold a
substantial beneficial ownership of the Combined Company and that this provision is no longer required.
Proposal No.
3C: Stockholder Action by Written Consent — Amending the Current
Charter to eliminate the ability of the stockholders to act by written consent.
The
Current Charter contains no provisions restricting stockholder action by written consent. The Amended Charter would provide that
actions of stockholders must be taken at a duly called annual or special meeting of stockholders. Eliminating the right of stockholders
to act by written consent limits the circumstances under which stockholders can act on their own initiative to remove directors
or alter or amend our organizational documents outside of a duly called special or annual meeting of the stockholders. The Board
believes this is desirable to provide all the Combined Company stockholders with notice of actions proposed to be taken or approved
by the stockholders and to provide all the Combined Company stockholders with the opportunity to participate in the consideration
of such actions or other approval items. Further, the Board believes that limiting stockholders’ ability to act by written
consent will reduce the time and effort the board of directors and management would need to devote to stockholder proposals, which
time and effort could distract the board of directors and management from other important company business.
Proposal No.
3D: Special Meetings — Amending the Current Charter to provide
special meetings of stockholders may only be called by the Combined Company Board, the chair of the Combined Company Board,
or chief executive officer of the Combined Company following receipt of one or more written demands to call a special meeting of the
stockholders from stockholders of record who own, in the aggregate, at least 25% of the voting power of the outstanding shares of the
Combined Company then entitled to vote on the matter or matters to be brought before the proposed special meeting.
At
present, the Current Charter contains no provisions for the calling of a special meeting of stockholders. The Amended Charter would
provide that special meetings of the stockholders may be called only by or at the direction of the Board, the chair of the Board,
or the chief executive officer of the Combined Company following receipt of one or more written demands to call a special meeting
of the stockholders from stockholders of record who own, in the aggregate, at least 25% of the voting power of the outstanding
shares of the Combined Company then entitled to vote on the matter or matters to be brought before the proposed special meeting.
The amendment is intended to organize consideration of the Combined Company’s business by directing requests for stockholder
meetings to the Combined Company Board, and preventing minority stockholders’ attempts to circumvent the Combined Company
Board to attempt to remove directors, amend organizational documents or take other actions without the Combined Company Board’s
consent or to call a stockholders meeting to otherwise advance minority stockholders’ agenda. We believe this achieves a
reasonable balance between enhancing stockholder rights and adequately protecting the long-term interests of the Combined
Company and its stockholders.
Vote Required for Approval
The approval of each of
the non-binding, advisory Governance Proposals will require the affirmative vote of the holders of at least a majority of the issued
and outstanding shares of common stock present in person by teleconference or represented by proxy and entitled to vote at the
Meeting. The Business Combination is not conditioned upon the approval of the Governance Proposals.
As discussed above, a vote
to approve each of the Governance Proposals is an advisory vote, and therefore, is not binding on SPKA, Varian Bio or their respective
boards of directors. Accordingly, regardless of the outcome of the non-binding advisory vote, SPKA and Varian Bio intend that the
Amended Charter, in the form attached to this proxy statement/prospectus as Annex B and containing the provisions noted
above, will take effect at the Closing of the Business Combination, assuming approval of the Charter Amendment Proposal (Proposal
2).
Board Recommendation
THE BOARD RECOMMENDS
A VOTE “FOR” ADOPTION OF EACH OF THE GOVERNANCE PROPOSALS.
PROPOSAL 4 - THE DIRECTORS
PROPOSAL
Election of Directors
Pursuant to the Merger Agreement,
SPKA has agreed to take all necessary action, including causing the directors of SPKA to resign, so that effective at the Closing, the
entire Board will consist of up to five individuals. The Combined Company intends to have
a majority of independent directors in accordance with the requirements of Nasdaq.
At the Meeting, it is proposed
that up to five directors will be elected to be the directors of the Combined Company upon
consummation of the Business Combination, the majority of which shall be independent. At each
succeeding annual meeting of stockholders, directors will be elected for a full year term to succeed the previous directors. Subject
to any limitations imposed by applicable law and subject to the special rights of the holders of any series of preferred stock to elect
directors, any vacancy occurring in the Combined Company for any reason, and any newly created directorship resulting from any increase
in the authorized number of directors, will, unless (a) the Combined Company Board determines by resolution that any such vacancies or
newly created directorships will be filled by the stockholders or (b) as otherwise provided by law, be filled only by the affirmative
vote of a majority of the directors then in office, even if less than a quorum, or by a sole remaining director, and not by the stockholders.
It is proposed that the
Combined Company Board consist of the following directors: Paul Mann, Jeffrey Davis, Todd Wider and [•],
who is an independent director nominated by Varian Bio, and [•] who will be an independent director nominated by the
Sponsor. Information regarding each nominee is set forth in the section
titled “Directors and Executive Officers of the Combined Company after the Business Combination.”
Under Delaware law and our
Bylaws, the election of directors requires a plurality vote of the common stock present in person (which would include presence
at a virtual meeting) or represented by proxy and entitled to vote at the Meeting. “Plurality” means that the individuals
who receive the largest number of votes cast “FOR” are elected as directors. Consequently, any shares not voted “FOR”
a particular nominee (whether as a result of a direction to withhold authority or a broker non-vote) will not be counted in the
nominee’s favor.
Unless authority is withheld
or the shares are subject to a broker non-vote, the proxies solicited by the Board will be voted “FOR” the election
of these nominees. In case any of the nominees becomes unavailable for election to the Board, an event that is not anticipated,
the persons named as proxies, or their substitutes, will have full discretion and authority to vote or refrain from voting for
any other candidate in accordance with their judgment.
If the Business Combination
Proposal is not approved, the Directors Proposal will not be presented at the meeting. Following consummation of the Business Combination,
the election of directors of the Combined Company will be governed by the Amended Charter and bylaws and the laws of the State
of Delaware.
Required Vote With Respect to the Directors
Proposal
Election of each director
will require the affirmative vote by a plurality of the shares of the common stock present by virtual attendance or represented
by proxy and entitled to vote at the Meeting.
If the Business Combination
Proposal is not approved, the Directors Proposal will not be presented at the Stockholders Meeting. The Directors Proposal will
only become effective if the Business Combination is completed. Election of each of the director nominees is a condition to Closing
under the Merger Agreement. If each of the directors is not elected, SPKA is not required to close the Business Combination.
Recommendation of the Board with Respect
to the Directors Proposal
THE BOARD RECOMMENDS
THAT THE STOCKHOLDERS VOTE “FOR” EACH OF THE NOMINEES SET FORTH IN THE DIRECTORS PROPOSAL.
PROPOSAL 5 — THE
STOCK PLAN PROPOSAL
We are asking our stockholders
to approve and adopt the Varian Biopharma, Inc. 2022 Incentive Award Plan (the “Incentive
Award Plan”) and the material terms thereunder.
The Incentive Award Plan
is described in more detail below. A copy of the Incentive Award Plan is included in this proxy statement/prospectus as Annex C.
The Incentive Award Plan
The purpose of the Incentive
Award Plan is to enhance our ability to attract, retain and motivate persons who make (or are expected to make) important contributions
by providing these individuals with equity ownership opportunities and/or equity-linked compensatory opportunities.
Summary of the Incentive Award Plan
This section summarizes
certain principal features of the Incentive Award Plan. The summary is qualified in its entirety by reference to the complete text
of the Incentive Award Plan to be included as Annex C to this Proxy Statement. The following features of the Incentive
Award Plan reflect equity incentive plan “best practices” intended to protect the interests of our stockholders:
| ● | Limit on Shares Available for Awards.
Under the Incentive Award Plan, the aggregate number of shares of Common Stock that may be issued is [●] shares. |
| ● | Individual
Limits on Shares Issued. The aggregate number
of shares of the Common Stock that may be issued in a calendar year under the Incentive Award
Plan to an individual director, employee or officer if any, will determined by the compensation
committee of the Combined Company Board (“Compensation Committee”) in
consultation with the Chief Executive Officer. |
| ● | No Evergreen Provision.
The Incentive Award Plan does not contain an “evergreen” provision. |
| ● | No Liberal Share “Recycling.”
The Incentive Award Plan provides that any shares (i) surrendered to pay the exercise price of an option, (ii) withheld
by the Combined Company or tendered to satisfy tax withholding obligations with respect to any award, (iii) covered by a stock
settled stock appreciation right not issued in connection with settlement upon exercise, or (iv) repurchased by the Combined
Company using option proceeds will not be added back to the Incentive Award Plan. |
| ● | No
Granting of Discounted Stock Options or Stock Appreciation Rights.
Stock options and stock appreciation rights (“SARs”)
must have an exercise price equal to or greater than the fair market value of our Common
Stock on the date of grant (unless such award is granted in substitution for a stock option
or SAR previously granted by an entity that is acquired by or merged with us). |
| ● | No Repricing of Stock Options or SARs.
The Incentive Award Plan prohibits the repricing of stock options and SARs (including a prohibition on the repurchase of “underwater”
stock options or stock appreciation rights for cash or other securities) without stockholder approval. |
| ● | No Liberal Change-in-Control.
The Incentive Award Plan prohibits any award agreement from having a change-in-control provision that has the effect of accelerating
the exercisability of any award or the lapse of restrictions relating to any award upon only the announcement or stockholder approval
(rather than the consummation of) a change-in-control transaction. |
| ● | No Dividends or Dividend Equivalents Paid on Unvested Awards.
The Incentive Award Plan prohibits the payment of dividends or dividend equivalents on awards until those awards are earned and
vested. In addition, the Incentive Award Plan prohibits the granting of dividend equivalents with respect to stock options, SARs
or an award the value of which is based solely on an increase in the value of the Combined Company’s shares after the grant
of the award. |
| ● | Awards Subject to Forfeiture or Clawback. Awards
under the Incentive Award Plan will be subject to any Combined Company recovery or clawback policy, as well as any other forfeiture
and penalty conditions determined by the Compensation Committee. |
| ● | Independent Committee Administration.
The Incentive Award Plan will be administered by the Compensation Committee of the Combined Company Board, which will be comprised
entirely of independent directors. |
The
Compensation Committee expects that the number of shares available, if approved by our stockholders, will satisfy equity compensation
needs for several years based on historical grant practices.
Determination of Number
of Shares for the Incentive Award Plan
In
setting the number of shares authorized under the Incentive Award Plan for which stockholder approval is being sought, the Compensation
Committee and the Combined Company Board considered, among other factors, the historical amounts of equity awards granted by the
Combined Company and the potential future grants over the next several years.
New Plan Benefits
The
number and types of new awards that will be granted under the Incentive Award Plan in the future are not determinable at this time,
as the Compensation Committee will make these determinations in its discretion, subject to the terms of the Incentive Award Plan.
Description of Incentive
Award Plan
Administration.
The Compensation Committee will administer the Incentive Award Plan and will have full power and authority to determine when and
to whom awards will be granted, and the type, amount and other terms and conditions of each award, consistent with the provisions
of the Incentive Award Plan. Subject to the provisions of the Incentive Award Plan, the Compensation Committee may amend the terms
of, or accelerate the exercisability of, an outstanding award. The Compensation Committee will have authority to interpret the
Incentive Award Plan and establish rules and regulations for the administration of the Incentive Award Plan.
The
Compensation Committee may delegate its powers under the Incentive Award Plan to the Chief Executive Officer and/or one or more
executive officers, subject to the requirements of applicable law and exchange requirements. However, such delegated officers will
not be permitted to grant awards to any members of the Combined Company Board or executive officers who are subject to Section 16
of the Exchange Act.
Eligibility.
Any employee, officer, director, consultant or independent contractor providing services to the Combined Company or an affiliate,
or any person to whom an offer of employment or engagement has been made, and who is selected by the Compensation Committee to
participate, is eligible to receive an award under the Incentive Award Plan. The number of persons eligible to participate as of
[●], 2022 (the record date for the meeting), had the Incentive Award Plan been in effect, is estimated to be approximately
[●] employees, directors and consultants as a class.
Shares
Available for Awards. The aggregate
number of shares that may be issued under all stock-based awards made under the Incentive Award Plan will be [●] shares.
If awards issued under the Incentive Award Plan expire or otherwise terminate without being exercised or settled, the shares of
Common Stock not acquired pursuant to such awards again become available for issuance under the Incentive Award Plan. However,
under the share counting provisions of the Incentive Award Plan, the following classifications of shares will not again be available
for issuance: (i) shares unissued due to a “net exercise” of a stock option, (ii) any shares withheld or
shares tendered to satisfy tax withholding obligations under any award, (iii) shares covered by a SAR that is not settled
in shares upon exercise and (iv) shares repurchased using stock option exercise proceeds.
The
Compensation Committee can adjust the number of shares and share limits described above in the case of a stock dividend, recapitalization,
stock split, reverse stock split, reorganization, merger, consolidation, split-off, repurchase or exchange of shares, or other
similar corporate transaction where such an adjustment is necessary to prevent dilution or enlargement of the benefits available
under the Incentive Award Plan. Any adjustment determination made by the Compensation Committee shall be final, binding and conclusive.
Type
of Awards and Terms and Conditions.
The Incentive Award Plan provides that the Compensation Committee may grant awards to eligible participants in any of the following
forms, subject to such terms, conditions and provisions as the Compensation Committee may determine to be necessary or desirable:
|
● |
stock
options, including both incentive stock options (“ISOs”)
and non-qualified stock options (together with ISOs, “options”); |
| ● | stock
appreciation rights (“SARs”); |
| ● | dividend
equivalent
rights;
and |
| ● | other
stock-based
awards. |
The
Compensation Committee will have the right to make the timing of the grant and/or the issuance, ability to retain, vesting, exercise
and/or settlement of awards subject to completion of a minimum period of service, achievement of one or more performance goals
or both as deemed appropriate by the Compensation Committee; provided, that a maximum of five percent of the aggregate number
of shares available for issuance under the Incentive Award Plan may be issued with the terms providing for a right of exercise
or a lapse on any vesting condition earlier than a date that is at least one year following the date of grant (or, in the case
of vesting based upon performance-based objectives, exercise and vesting restrictions cannot lapse earlier than the one-year anniversary,
measured from the commencement of the period over which performance is evaluated).
| 1 | Options
and
SARs.
The
holder
of
an
option
is
entitled
to
purchase
a
number
of
shares
of
our
Common
Stock
at
a
specified
exercise
price
during
a
specified
time
period,
all
as
determined
by
the
Compensation
Committee.
The
holder
of
a
SAR
is
entitled
to
receive
the
excess
of
the
fair
market
value
(calculated
as
of
the
exercise
date)
of
a
specified
number
of
shares
of
our
Common
Stock
over
the
grant
price
of
the
SAR.
Except
for
the
exercise
price
of
the
option,
we
would
receive
no
consideration
for
options
or
SARs
granted
under
the
Incentive
Award
Plan,
other
than
the
services
rendered
by
the
holder
in
his
or
her
capacity
as
an
employee,
officer,
director,
consultant
or
independent
contractor
of
the
Combined
Company. |
Exercise
Price. The exercise price per share of an option or SAR will in no event be less than 100% of the fair market value per share
of our Common Stock underlying the award on the date of grant, unless such award is granted in substitution for an option or SAR
previously granted by a merged or acquired entity. Without the approval of stockholders, we will not amend or replace previously
granted options or SARs in a transaction that constitutes a “repricing” as defined in the Incentive Award Plan.
Vesting.
The Compensation Committee has the discretion to determine when and under what circumstances an option or SAR will vest, subject
to minimum vesting provisions described above.
Exercise.
The Compensation Committee has the discretion to determine the method or methods by which an option or SAR may be exercised,
which methods may include a net exercise. The Compensation Committee is not authorized under the Incentive Award Plan to accept
a promissory note as consideration.
Expiration.
Options and SARs will expire at such time as the Compensation Committee determines; provided, however, that no option or SAR
may be exercised more than ten years from the date of grant. Furthermore, notwithstanding the foregoing, in the case of an
ISO granted to a 10% stockholder, the option may not be exercised more than five years from the date of grant.
|
2. |
Restricted
Stock and Restricted Stock Units. The holder of restricted stock will own shares of our Common Stock subject to restrictions
imposed by the Compensation Committee for a specified time period determined by the Compensation Committee. The holder of restricted
stock units will have the right, subject to restrictions imposed by the Compensation Committee, to receive shares of our
Common Stock at some future date determined by the Compensation Committee. The grant, issuance, retention, vesting and/or settlement
of restricted stock and restricted stock units will occur at such times and in such installments as are determined by the
Compensation Committee, subject to the minimum vesting provisions described above. |
|
3. |
Dividend
Equivalents. The holder of a dividend equivalent will be entitled to receive payments (in cash or shares of our Common Stock)
equivalent to the amount of cash dividends paid by the Combined Company to stockholders with respect to the number of shares determined
by the Compensation Committee. Dividend equivalents will be subject to other terms and conditions determined by the Compensation
Committee, but the Compensation Committee may not (i) grant dividend equivalents in connection with options or SARs or (ii) pay
a dividend equivalent with respect to a share underlying an award prior to the date on which all conditions or restrictions on
such share have been satisfied or lapsed. |
|
4. |
Other
Stock-Based Awards. The Compensation Committee is also authorized to grant other types of awards that are denominated or payable
in, valued in whole or in part by reference to, or otherwise based on or related to shares of our Common Stock, subject to terms
and conditions determined by the Compensation Committee and the limitations in the Incentive Award Plan. No such stock-based awards
will contain a purchase right or an option-like exercise feature. |
Termination
and Amendment. Assuming stockholders
approve this Proposal 5, the Incentive Award Plan has a term of ten years expiring on [●], 2032, unless terminated
earlier by the Combined Company Board. The Combined Company Board may from time to time amend, suspend or terminate the Incentive
Award Plan. No amendment or modification of the Incentive Award Plan may be made that would adversely affect any outstanding award
without the consent of the participant or the current holder of the award (except in the case of a corporate transaction as described
below). Amendments to the Incentive Award Plan must be approved by the stockholders, if required under the listing requirements
of the Nasdaq Capital Market or any other securities exchange applicable to the Combined Company, or if the amendment would (i) increase
the number of shares authorized under the Incentive Award Plan, (ii) permit a repricing of options or SARs, (iii) permit
the award of options or SARs with an exercise price less than 100% of the fair market value of a share on the date of grant, (iv) increase
the maximum term of options or SARs, or (v) increase the annual per-person share limits under the Incentive Award Plan.
Effect
of Corporate Transaction. Awards
under the Incentive Award Plan are generally subject to special provisions upon the occurrence of any reorganization, merger,
consolidation, split-up, spin-off, combination, plan of arrangement, take-over bid or tender offer, repurchase or exchange of
shares, or any other similar corporate transaction or event involving the Combined Company. In the event of such a corporate transaction,
the Compensation Committee or the Combined Company Board may provide for any of the following to be effective upon the occurrence
of the event (or effective immediately prior to the consummation of such event, provided the event is consummated):
| ● | termination
of
any
award,
whether
vested
or
not,
in
exchange
for
an
amount
of
cash
and/or
other
property
equal
to
the
amount
that
would
have
been
attained
upon
exercise
of
the
award
or
the
realization
of
the
participant’s
rights
under
the
award.
Awards
may
be
terminated
without
payment
if
the
Compensation
Committee
or
Combined
Company
Board
determines
that
no
amount
is
realizable
under
the
award
as
of
the
time
of
the
transaction; |
| ● | replacement
of
any
award
with
other
rights
or
property
selected
by
the
Compensation
Committee
or
the
Combined
Company
Board,
in
its
sole
discretion; |
| ● | the
assumption
of
any
award
by
the
successor
or
survivor
entity
(or
its
parent
or
subsidiary)
or
the
arrangement
for
the
substitution
for
similar
awards
covering
the
stock
of
such
successor
entity
with
appropriate
adjustments
as
to
the
number
and
kind
of
shares
and
prices; |
| ● | require
that
any
award
shall
become
exercisable
or
payable
or
fully
vested,
notwithstanding
anything
to
the
contrary
in
the
applicable
award
agreement;
or |
| ● | require
that
the
award
cannot
vest,
be
exercised
or
become
payable
until
after
a
future
date,
which
may
be
the
effective
date
of
the
corporate
transaction. |
Limited
Transferability of Awards. Generally,
no award or other right or interest of a participant under the Incentive Award Plan (other than fully vested and unrestricted
shares issued pursuant to an award) shall be transferable by a participant other than by will or by the laws of descent and distribution,
and no right or award may be pledged, alienated, attached or otherwise encumbered, and any purported pledge, alienation,
attachment or encumbrance shall be void and unenforceable against the Combined Company or
any affiliates. However, the Compensation Committee may allow transfer of an award to family members for no value, and such transfer
shall comply with the General Instructions to Form S-8 under the Securities Act of 1933, as amended. The Compensation Committee
may establish procedures to allow a named beneficiary to exercise the rights of the participant and receive any property distributable
with respect to any award upon the participant’s death.
Federal
Income Tax Consequences
Grant
of Options and SARs. The grant of
a stock option or SAR is not expected to result in any taxable income to the recipient.
Exercise
of Options and SARs. Upon exercising
a non-qualified stock option, the optionee must recognize ordinary income equal to the excess of the fair market value of the
shares of the Common Stock acquired on the date of exercise over the exercise price, and we generally will be entitled at that
time to an income tax deduction for the same amount. The holder of an ISO generally will have no taxable income upon exercising
the option (except that an alternative minimum tax liability may arise), and we will not be entitled to an income tax deduction.
Upon exercising a SAR, the amount of any cash received and the fair market value on the exercise date of any shares of our Common
Stock received are taxable to the recipient as ordinary income and generally are deductible by us.
Disposition
of Shares Acquired Upon Exercise of Options and SARs.
The tax consequence upon a disposition of shares acquired through the exercise of an option or SAR will depend on how long the
shares have been held and whether the shares were acquired by exercising an ISO or by exercising a non-qualified stock option
or SAR. Generally, there will be no tax consequence to the Combined Company in connection with the disposition of shares acquired
under an option or SAR, except that the Combined Company may be entitled to an income tax deduction in the case of the disposition
of shares acquired under an ISO, if the disposition occurs before the applicable ISO holding periods set forth in the Code have
been satisfied.
Awards
Other than Options and SARs. If an
award is payable in shares of Common Stock that are subject to substantial risk of forfeiture, unless a special election is made
by the holder of the award under the Code, the holder must recognize ordinary income equal to the excess of: (i) the fair
market value of the shares received (determined as of the first time the shares become transferable or not subject to substantial
risk of forfeiture, whichever occurs earlier) over (ii) the
amount (if any) paid for the shares by the holder of the award. We will generally be entitled at that time to an income tax deduction
for the same amount. As to other awards granted under the Incentive Award Plan that are payable either in cash or shares of our
Common Stock not subject to substantial risk of forfeiture, the holder of the award must recognize ordinary income equal to: (a) the
amount of cash received or, as applicable, (b) the excess of (i) the fair market value of the shares received (determined
as of the date such shares are received) over (ii) the amount (if any) paid for the shares by the holder of the award.
Income
Tax Deduction. Subject
to the usual rules concerning reasonable compensation, including our obligation to withhold or otherwise collect certain income and payroll
taxes, we generally will be entitled to a corresponding income tax deduction at the time a participant recognizes ordinary income from
awards made under the Incentive Award Plan. However, Section 162(m) of the Code prohibits publicly held corporations from deducting
more than $1 million per year in compensation paid to certain named executive officers. The Tax Cuts and Jobs Act (the “Act”),
which was signed into law at the end of 2017, made significant changes to the deduction limit under Section 162(m), which are effective
for taxable years beginning on and after January 1, 2018. The Act eliminated the exception to the deduction limit for qualified
performance-based compensation and broadens the application of the deduction limit to certain current and former executive officers who
previously were exempt from such limit. Therefore, compensation paid to a covered executive under the Incentive Award Plan in excess
of $1 million generally will not be deductible.
Special
Rules for Executive Officers Subject to Section 16 of the Exchange Act.
Special rules may apply to individuals subject to Section 16 of the Exchange Act. In particular, unless a special election
is made pursuant to the Internal Revenue Code, shares received through the exercise or settlement of an award may be treated as
restricted as to transferability and subject to a substantial risk of forfeiture for a period of up to six months after the
date of exercise. Accordingly, the amount of any ordinary income recognized, and the amount of our income tax deduction will be
determined as of the end of that period.
Section 409A
of the Internal Revenue Code. The
Compensation Committee intends to administer and interpret the Incentive Award Plan and all award agreements in a manner consistent
to satisfy the requirements of Section 409A of the Internal Revenue Code to avoid any adverse tax results thereunder to a
holder of an award.
Required
Vote
This
Stock Plan Proposal will be approved and adopted only if holders of at least a majority of the issued and outstanding shares of
common stock present in person by virtual attendance or represented by proxy and entitled to vote at the Meeting vote “FOR”
the Stock Plan Proposal. This Stock Plan Proposal is conditioned upon the approval and completion of the Business Combination
Proposal, the Charter Approval Proposal, and the Nasdaq Proposal. If any of the Business Combination Proposal, the Charter Approval
Proposal, or the Nasdaq Proposal are not approved, unless the condition is waived, this Proposal will have no effect even if approved
by our stockholders.
Board
Recommendation
OUR
BOARD RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE STOCK PLAN UNDER PROPOSAL 5.
PROPOSAL
6 —THE NASDAQ PROPOSAL
Overview
We
are proposing the Nasdaq Proposal in order to comply with Nasdaq Listing Rules 5635(a), (b), and (d). Under Nasdaq Listing Rule 5635(a),
stockholder approval is required prior to the issuance of securities in connection with the acquisition of another company if such securities
are not issued in a public offering and (A) have, or will have upon issuance, voting power equal to or in excess of 20% of the voting
power outstanding before the issuance of common stock (or securities convertible into or exercisable for common stock); or (B) the
number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock outstanding
before the issuance of the stock or securities. Under Nasdaq Listing Rule 5635(b), stockholder approval is required prior to the
issuance of securities when the issuance or potential issuance will result in a change of control. Under Nasdaq Listing Rule 5635(d),
stockholder approval is required for a transaction other than a public offering involving the sale, issuance or potential issuance by
an issuer of common stock (or securities convertible into or exercisable for common stock) at a price that is less than the lower of
(i) the closing price immediately preceding the signing of the binding agreement or (ii) the average closing price of the common
stock for the five trading days immediately preceding the signing of the binding agreement, if the number of shares of common stock (or
securities convertible into or exercisable for common stock) to be issued equals to 20% or more of the common stock, or 20% or more of
the voting power, outstanding before the issuance.
Pursuant
to the Merger Agreement, based on Varian Bio’s current capitalization, we anticipate that we will issue to the Varian Bio shareholders
as consideration in the Business Combination 4,500,000 shares of common stock. See the section entitled “Proposal 1:
The Business Combination Proposal — The Merger Agreement — Merger Consideration.” Because the number
of shares of common stock we anticipate issuing as consideration in the Business Combination (1) will constitute more than 20% of
our outstanding common stock and more than 20% of outstanding voting power prior to such issuance and (2) will result in a change
of control of SPKA, we are required to obtain stockholder approval of such issuance pursuant to Nasdaq Listing Rules 5635(a) and (b).
In
connection with the Business Combination, there will be a PIPE Investment of $[•] million. As such, on or about the date
of the Merger Agreement, SPKA entered into subscription agreements with the PIPE Investors for the sale of [•] shares of
common stock upon the completion of the Business Combination. Because the shares of our common stock issued in connection with
the PIPE Investment (1) was at a price that is less than the lower of (i) the closing price immediately preceding the
signing of the Merger Agreement or (ii) the average closing price of the common stock for the five trading days immediately
preceding the signing of the Merger Agreement, and (2) will constitute more than 20% of our outstanding common stock and
more than 20% of outstanding voting power prior to such issuance, we are required to obtain stockholder approval of such issuance
pursuant to Nasdaq Listing Rule 5635(d).
Effect
of Proposal on Current Stockholders
If
the Nasdaq Proposal is adopted, SPKA would issue shares representing more than 20% of the outstanding shares of our common stock
in connection with the Business Combination and the PIPE Investment. The issuance of such shares would result in significant dilution
to the SPKA stockholders and would afford such stockholders a smaller percentage interest in the voting power, liquidation value
and aggregate book value of SPKA. If the Nasdaq Proposal is adopted, assuming that [•] shares of common stock are issued
to the Varian Bio shareholders as consideration in the Business Combination, we anticipate that the Varian Bio shareholders will
hold [•]% of our outstanding shares of common stock, the PIPE Investors will hold [•]% of our outstanding common stock,
the current SPKA public stockholders will hold [•]% of our outstanding common stock and the Sponsor will hold [•]% of
our outstanding common stock immediately following completion of the Business Combination. This percentage assumes that no shares
of our common stock are redeemed in connection with the Business Combination, does not take into account any warrants or options
to purchase our common stock that will be outstanding following the Business Combination or any equity awards that may be issued
under our proposed Incentive Award Plan following the Business Combination.
If
the Nasdaq Proposal is not approved and we consummate the Business Combination on its current terms, SPKA would be in violation
of Nasdaq Listing Rule 5635(a) and (b) and potentially Nasdaq Listing Rule 5635(d), which could result in the delisting
of our securities from the Nasdaq Capital Market. If Nasdaq delists our securities from trading on its exchange, we could face
significant material adverse consequences, including:
| ● | a
limited
availability
of
market
quotations
for
our
securities; |
| ● | reduced
liquidity
with
respect
to
our
securities; |
| ● | determination
that
our
shares
are
a
“penny
stock,”
which
will
require
brokers
trading
in
our
securities
to
adhere
to
more
stringent
rules,
possibly
resulting
in
a
reduced
level
of
trading
activity
in
the
secondary
trading
market
for
our
securities; |
| ● | a
limited
amount
of
news
and
analyst
coverage
for
the
post-transaction
company;
and |
| ● | a
decreased
ability
to
issue
additional
securities
or
obtain
additional
financing
in
the
future. |
It
is a condition to the obligations of SPKA and Varian Bio to close the Business Combination that our common stock remain listed
on the Nasdaq Capital Market. As a result, if the Nasdaq Proposal is not adopted, the Business Combination may not be completed
unless this condition is waived.
Vote
Required for Approval
Assuming
that a quorum is present at the Meeting, the affirmative vote of holders of at least a majority of the issued and outstanding
shares of common stock present in person by virtual attendance or represented by proxy and entitled to vote at the Meeting vote
“FOR” the Nasdaq Proposal.
This
Proposal is conditioned on the approval of the Business Combination Proposal, the Charter Approval Proposal, and the Stock Plan
Proposal. If either of the Business Combination Proposal, the Charter Approval Proposal, or the Stock Plan Proposal is not approved,
unless the condition is waived, Proposal 6 will have no effect even if approved by our stockholders. Because stockholder approval
of this Proposal 6 is a condition to completion of the Business Combination under the Merger Agreement, if this Proposal 6 is
not approved by our stockholders, the Business Combination will not occur unless we and Varian Bio waive the applicable closing
condition.
Board
Recommendation
OUR
BOARD RECOMMENDS THAT OUR STOCKHOLDERS VOTE “FOR” THE NASDAQ PROPOSAL UNDER PROPOSAL 6.
PROPOSAL
7 — THE ADJOURNMENT PROPOSAL
The
Adjournment Proposal, if adopted, will approve the chairman’s adjournment of the Meeting to a later date to permit further
solicitation of proxies. The Adjournment Proposal will only be presented to our stockholders in the event, based on the tabulated
votes, there are not sufficient votes received at the time of the Meeting to approve the other Proposals.
Consequences
if the Adjournment Proposal is Not Approved
If
the Adjournment Proposal is not approved by our stockholders, the chairman will not adjourn the Meeting to a later date in the
event, based on the tabulated votes, there are not sufficient votes received at the time of the Meeting to approve the Business
Combination Proposal, the Charter Approval Proposal, the Directors Proposal, the Stock Plan Proposal, or the Nasdaq Proposal.
Required
Vote
This
Adjournment Proposal will be approved and adopted only if holders of at least a majority of the issued and outstanding shares
of common stock present in person by virtual attendance or represented by proxy and entitled to vote at the Meeting vote “FOR”
the Adjournment Proposal. The Adjournment Proposal is not conditioned on the approval of any other Proposal set forth in this
proxy statement.
Board
Recommendation
THE
BOARD RECOMMENDS A VOTE “FOR” ADOPTION OF THE ADJOURNMENT PROPOSAL UNDER PROPOSAL 7.
MATERIAL
U.S. FEDERAL INCOME TAX CONSEQUENCES
The
following is a general discussion of the material U.S. federal income tax consequences (i) of the exercise of redemption rights
by U.S. Holders and Non-U.S. Holders (defined below) of SPKA common stock, and (ii) of the Business Combination to U.S. Holders
of Varian Bio Common Stock.
This
discussion is based on provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the Treasury Regulations
promulgated thereunder (whether final, temporary, or proposed), administrative rulings of the IRS, and judicial decisions, all as in
effect on the date hereof, and all of which are subject to differing interpretations or change, possibly with retroactive effect. This
discussion does not purport to be a complete analysis or listing of all potential U.S. federal income tax consequences that may apply
to a holder as a result of the Business Combination. In addition, this discussion does not address all aspects of U.S. federal income
taxation that may be relevant to particular holders nor does it take into account the individual facts and circumstances of any particular
holder that may affect the U.S. federal income tax consequences to such holder, and accordingly, is not intended to be, and should not
be construed as, tax advice. This discussion does not address the U.S. federal Medicare tax imposed on certain net investment income
or any aspects of U.S. federal taxation other than those pertaining to the income tax, nor does it address any tax consequences arising
under any U.S. state and local, or non-U.S. tax laws. This discussion also does not address the potential effects, whether adverse or
beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis. Holders should consult
their own tax advisors regarding such tax consequences in light of their particular circumstances.
No
ruling has been requested or will be obtained from the IRS regarding the U.S. federal income tax consequences of the Business
Combination or any other related matter; thus, there can be no assurance that the IRS will not challenge the U.S. federal income
tax treatment described below or that, if challenged, such treatment will be sustained by a court.
This
summary is limited to considerations relevant to holders that hold SPKA common stock or Varian Bio Common Stock as “capital
assets” within the meaning of section 1221 of the Code (generally, property held for investment). This discussion does not
address all aspects of U.S. federal income taxation that may be important to holders in light of their individual circumstances,
including holders subject to special treatment under the U.S. tax laws, such as, for example:
| ● | banks
or
other
financial
institutions,
underwriters,
or
insurance
companies; |
| ● | traders
in
securities
who
elect
to
apply
a
mark-to-market
method
of
accounting; |
| ● | real
estate
investment
trusts
and
regulated
investment
companies; |
| ● | tax-exempt
organizations,
qualified
retirement
plans,
individual
retirement
accounts,
or
other
tax-deferred
accounts; |
| ● | expatriates
or
former
long-term
residents
of
the
United
States; |
| ● | corporations
organized
under
non-U.S.
law
that
are
classified
as
U.S.
domestic
corporations
for
U.S.
federal
income
tax
purposes; |
| ● | subchapter
S
corporations,
partnerships
or
other
pass-through
entities
or
investors
in
such
entities; |
| ● | dealers
or
traders
in
securities,
commodities
or
currencies; |
| ● | persons
subject
to
the
alternative
minimum
tax; |
| ● | U.S.
persons
whose
“functional
currency”
is
not
the
U.S.
dollar; |
| ● | persons
who
received
shares
of
SPKA
common
stock
or
Varian
Bio
Common
Stock
through
the
issuance
of
restricted
stock
under
an
equity
incentive
plan
or
through
a
tax-qualified
retirement
plan
or
otherwise
as
compensation; |
| ● | persons
who
own
(directly
or
through
attribution)
5%
or
more
(by
vote
or
value)
of
the
outstanding
shares
of
SPKA
common
stock
or
Varian
Bio
Common
Stock
(excluding
treasury
shares); |
| ● | holders
holding
SPKA
common
stock
or
Varian
Bio
Common
Stock
as
a
position
in
a
“straddle,”
as
part
of
a
“synthetic
security”
or
“hedge,”
as
part
of
a
“conversion
transaction,”
or
other
integrated
investment
or
risk
reduction
transaction; |
| ● | controlled
foreign
corporations,
passive
foreign
investment
companies,
or
foreign
corporations
with
respect
to
which
there
are
one
or
more
United
States
shareholders
within
the
meaning
of
Treasury
Regulation
Section
1.367(b)-3(b)(1)(ii);
or |
| ● | the
Sponsor
or
its
affiliates. |
As
used in this proxy statement/prospectus, the term “U.S. Holder” means a beneficial owner of SPKA common stock or Varian
Bio Common Stock that is, for U.S. federal income tax purposes:
| ● | an
individual
who
is
a
citizen
or
resident
of
the
United
States; |
| ● | a
corporation
(or
other
entity
that
is
classified
as
a
corporation
for
U.S.
federal
income
tax
purposes)
that
is
created
or
organized
in
or
under
the
laws
of
the
United
States
or
any
State
thereof
or
the
District
of
Columbia; |
| ● | an
estate
the
income
of
which
is
subject
to
U.S.
federal
income
tax
regardless
of
its
source;
or |
| ● | a
trust
(i)
if
a
court
within
the
United
States
is
able
to
exercise
primary
supervision
over
the
administration
of
the
trust
and
one
or
more
U.S.
persons
have
the
authority
to
control
all
substantial
decisions
of
the
trust,
or
(ii)
that
has
a
valid
election
in
effect
under
applicable
Treasury
Regulations
to
be
treated
as
a
U.S.
person
for
U.S.
federal
income
tax
purposes. |
A
“Non-U.S. Holder” means a beneficial owner of SPKA common stock or Varian Bio Common Stock that is neither a U.S.
Holder nor a partnership (or an entity or arrangement treated as a partnership) for U.S. federal income tax purposes.
If
a partnership, including for this purpose any entity or arrangement that is treated as a partnership for U.S. federal income tax
purposes, holds SPKA common stock or Varian Bio Common Stock, the U.S. federal income tax treatment of a partner in such partnership
will generally depend on the status of the partner and the activities of the partnership. A holder that is a partnership and the
partners in such partnership should consult their own tax advisors with regard to the U.S. federal income tax consequences of
the Business Combination.
THIS
SUMMARY DOES NOT PURPORT TO BE A COMPREHENSIVE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF
THE BUSINESS COMBINATION. IN ADDITION, THE U.S. FEDERAL INCOME TAX TREATMENT OF THE BENEFICIAL OWNERS OF SPKA COMMON STOCK OR
VARIAN BIO COMMON STOCK MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN AND DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT
AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE.
BENEFICIAL OWNERS OF SPKA COMMON STOCK AND VARIAN BIO COMMON STOCK SHOULD CONSULT WITH THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR
TAX CONSEQUENCES TO THEM OF THE BUSINESS COMBINATION, INCLUDING THE APPLICABILITY AND EFFECTS OF U.S. FEDERAL, STATE, LOCAL, AND
OTHER TAX LAWS.
Certain
Material U.S. Federal Income Tax Consequences of Exercising Redemption Rights
U.S.
Federal Income Tax Consequences to U.S. Holders
In
the event that a U.S. Holder elects to redeem its SPKA common stock for cash, the treatment of the transaction for U.S. federal
income tax purposes will depend on whether the redemption qualifies as a sale or exchange of the SPKA common stock under Section
302 of the Code or is treated as a corporate distribution under Section 301 of the Code with respect to the U.S. Holder. If the
redemption qualifies as a sale or exchange of the SPKA common stock, the U.S. Holder will be treated as recognizing capital gain
or loss equal to the difference between the amount realized on the redemption and such U.S. Holder’s adjusted tax basis
in the SPKA common stock surrendered in such redemption transaction. Any such capital gain or loss generally will be long-term
capital gain or loss if the U.S. Holder’s holding period for the SPKA common stock redeemed exceeds one year. It is unclear,
however, whether the redemption rights with respect to the SPKA common stock may suspend the running of the applicable holding
period for this purpose. Long term capital gain realized by a non-corporate U.S. Holder is currently taxed at a reduced rate.
The deductibility of capital losses is subject to limitations.
If
the redemption does not qualify as a sale or exchange of SPKA common stock, the U.S. Holder will be treated as receiving a corporate
distribution. Such distributions generally will constitute dividends for U.S. federal income tax purposes to the extent paid from
SPKA’s current or accumulated earnings and profits, as determined under U.S. federal income tax principles. Distributions
in excess of current and accumulated earnings and profits will constitute a return of capital that will be applied against and
reduce (but not below zero) the U.S. Holder’s adjusted tax basis in the SPKA common stock. Any remaining excess will be
treated as gain realized on the sale or other disposition of the common stock. Dividends paid to a U.S. Holder that is a taxable
corporation generally will qualify for the dividends received deduction if the requisite holding period is satisfied. With certain
exceptions (including, but not limited to, dividends treated as investment income for purposes of investment interest deduction
limitations) and provided certain holding period requirements are met, dividends paid to a non-corporate U.S. Holder generally
will constitute “qualified dividends” that will be subject to tax at the maximum tax rate accorded to long-term capital
gains. However, it is unclear whether the redemption rights with respect to the SPKA common stock may prevent a U.S. Holder from
satisfying the applicable holding period requirements with respect to the dividends received deduction or the preferential tax
rate on qualified dividend income, as the case may be.
Whether
a redemption qualifies for sale or exchange treatment will depend largely on the total number of shares of SPKA common stock treated
as held by the U.S. Holder (including any SPKA common stock constructively owned by the U.S. Holder, as discussed below, including
any SPKA Common Stock constructively owned by the U.S. Holder as a result of owning rights) relative to all of the shares of SPKA
common stock outstanding both before and after the redemption. The redemption of SPKA common stock generally will be treated as
a sale or exchange of the SPKA common stock (rather than as a corporate distribution) if the redemption (i) is “substantially
disproportionate” with respect to the U.S. Holder, (ii) results in a “complete termination” of the U.S. Holder’s
interest in SPKA or (iii) is “not essentially equivalent to a dividend” with respect to the U.S. Holder. These tests
are explained more fully below.
In
determining whether any of the foregoing tests are satisfied, a U.S. Holder takes into account not only SPKA common stock actually
owned by the U.S. Holder, but also shares of SPKA common stock that are constructively owned by it. A U.S. Holder may constructively
own, in addition to stock owned directly, stock owned by certain related individuals and entities in which the U.S. Holder has
an interest or that have an interest in such U.S. Holder, as well as any stock the U.S. Holder has a right to acquire by exercise
of an option, which would generally include SPKA common stock which could be acquired pursuant to the exercise of SPKA Rights.
In order to meet the substantially disproportionate test, (i) the percentage of our outstanding voting stock actually and constructively
owned by the U.S. Holder immediately following the redemption of SPKA common stock must be less than 80% of the percentage of
our outstanding voting stock actually and constructively owned by the U.S. Holder immediately before the redemption, (ii) the
U.S. Holder’s percentage ownership (including constructive ownership) of our outstanding stock (both voting and nonvoting)
immediately after the redemption must be less than 80% of such percentage ownership (including constructive ownership) immediately
before the redemption; and (iii) the U.S. Holder must own (including constructive ownership), immediately after the redemption,
less than 50% of the total combined voting power of all classes of our stock entitled to vote. There will be a complete termination
of a U.S. Holder’s interest if either (i) all of the shares of the SPKA common stock actually and constructively owned by
the U.S. Holder are redeemed or (ii) all of the shares of the SPKA common stock actually owned by the U.S. Holder
are redeemed and the U.S. Holder is eligible to waive, and effectively waives in accordance with specific rules, the attribution
of stock owned by certain family members and the U.S. Holder does not constructively own any other SPKA common stock. The redemption
of the SPKA common stock will not be essentially equivalent to a dividend if a U.S. Holder’s redemption results in a “meaningful
reduction” of the U.S. Holder’s proportionate interest in SPKA. Whether the redemption will result in a meaningful
reduction in a U.S. Holder’s proportionate interest in SPKA will depend on the particular facts and circumstances. However,
the IRS has indicated in a published ruling that even a small reduction in the proportionate interest of a small minority stockholder
in a publicly held corporation who exercises no control over corporate affairs may constitute such a “meaningful reduction.”
A U.S. Holder should consult with its own tax advisors as to the tax consequences of a redemption.
If
none of the foregoing tests is satisfied, then the redemption will be treated as a corporate distribution. After the application
of those rules regarding corporate distributions, any remaining tax basis of the U.S. Holder in the redeemed SPKA common stock
will be added to the U.S. Holder’s adjusted tax basis in its remaining SPKA common stock, or, if it has none, to the U.S.
Holder’s adjusted tax basis in its SPKA Rights or possibly in other SPKA common stock constructively owned by it.
U.S.
Federal Income Tax Consequences to Non-U.S. Holders
The
characterization for U.S. federal income tax purposes of the redemption of a Non-U.S. Holder’s SPKA common stock as a sale
or exchange under Section 302 of the Code or as a corporate distribution under Section 301 of the Code generally will correspond
to the U.S. federal income tax characterization of such a redemption of a U.S. Holder’s SPKA common stock, as described
above, and the corresponding consequences will be as described below.
Redemption
Treated as Sale or Exchange
Any
gain realized by a Non-U.S. Holder on the redemption of SPKA common stock that is treated as a sale or exchange under Section
302 of the Code generally will not be subject to U.S. federal income tax unless:
|
● |
the
gain is effectively connected with a trade or business of the Non-U.S. Holder in the United States (and, if required by an applicable
income tax treaty, is attributable to a United States permanent establishment or fixed base of the Non-U.S. Holder); |
|
● |
the
Non-U.S. Holder is an individual who is present in the United States for a period or periods aggregating 183 days or more in the
taxable year of the disposition, and certain other conditions are met; or |
|
● |
we
are or have been a “United States real property holding corporation” for U.S. federal income tax purposes at any time
during the shorter of the five-year period ending on the date of disposition or the Non-U.S. Holder’s holding period for
such SPKA common stock redeemed, and either (A) shares of SPKA common stock are not considered to be regularly traded on an established
securities market or (B) such Non-U.S. Holder has owned or is deemed to have owned, at any time during the shorter of the five-year
period preceding such disposition and such Non-U.S. Holder’s holding period more than 5% of the outstanding shares of SPKA
common stock. There can be no assurance that shares of SPKA common stock will be treated as regularly traded on an established
securities market for this purpose. |
A
non-corporate Non-U.S. Holder described in the first bullet point immediately above will be subject to tax on the net gain derived
from the sale under regular graduated U.S. federal income tax rates. An individual Non-U.S. Holder described in the second bullet
point immediately above will be subject to a flat 30% tax on the gain derived from the sale, which may be offset by certain United
States source capital losses, even though the individual is not considered a resident of the United States, provided that the
individual has timely filed U.S. federal income tax returns with respect to such losses. If a Non-U.S. Holder that is a corporation
falls under the first bullet point immediately above, it will be subject to tax on its net gain in the same manner as if it were
a United States person as defined under the Code and, in addition, may be subject to the branch profits tax equal to 30% (or such
lower rate as may be specified by an applicable income tax treaty) of its effectively connected earnings and profits, subject
to adjustments.
If
the last bullet point immediately above applies to a Non-U.S. Holder, gain recognized by such Non-U.S. Holder on the redemption
of SPKA common stock generally will be subject to tax at generally applicable U.S. federal income tax rates. In addition, we may
be required to withhold U.S. income tax at a rate of 15% of the amount realized upon such redemption. We would generally be classified
as a “U.S. real property holding corporation” if the fair market value of our “United States real property interests”
equals or exceeds 50% of the sum of the fair market value of our worldwide real property interests and our other assets used or
held for use in a trade or business, as determined for U.S. federal income tax purposes. However, we believe that we are not and
have not been at any time since our formation a U.S. real property holding corporation and we do not expect to be a U.S. real
property holding corporation immediately after the Business Combination is completed.
Redemption
Treated as Corporate Distribution
With
respect to any redemption treated as a corporate distribution under Section 301 of the Code, provided such dividends are not effectively
connected with the Non-U.S. Holder’s conduct of a trade or business within the United States, SPKA will be required to withhold
U.S. tax from the gross amount of the dividend at a rate of 30%, unless such Non-U.S. Holder is eligible for a reduced rate of
withholding tax under an applicable income tax treaty and provides proper certification of its eligibility for such reduced rate
(usually on an IRS Form W-8BEN or W-8BEN-E). Any distribution not constituting a dividend will be treated first as reducing (but
not below zero) the Non-U.S. Holder’s adjusted tax basis in its shares of the SPKA common stock and, to the extent such
distribution exceeds the Non-U.S. Holder’s adjusted tax basis, as gain realized from the sale or other disposition of the
common stock, which will be treated as described above.
This
withholding tax does not apply to dividends paid to a Non-U.S. Holder who provides a Form W-8ECI, certifying that the dividends
are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States. Instead, the
effectively connected dividends will be subject to regular U.S. income tax as if the Non-U.S. Holder were a U.S. resident, subject
to an applicable income tax treaty providing otherwise. A Non-U.S. corporation receiving effectively connected dividends may also
be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).
Tax Consequences
of the Business Combination to U.S. Holders of Varian Bio Common Stock
The parties intend for
the Business Combination to be treated as a “reorganization” for U.S. federal income tax purposes within the meaning
of Section 368(a) of the Code. The obligations of Varian Bio and SPKA to complete the Business Combination are not conditioned on
the receipt of opinions from Dorsey & Whitney LLP or Loeb & Loeb LLP to the effect that the Business Combination should qualify
as a “reorganization” within the meaning of Section 368(a) of the Code for U.S. federal income tax purposes. Neither
Dorsey & Whitney LLP nor Loeb & Loeb LLP have been requested or intend to deliver any such opinion.
Neither Varian Bio nor SPKA
has requested, and neither intends to request, a ruling from the IRS as to the U.S. federal income tax consequences of the Business Combination.
Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain, a position contrary to any of
those set forth below. If the Business Combination failed to qualify as a “reorganization” under Section 368(a) of the
Code, U.S. Holders who receive shares of Common Stock in exchange for shares of Varian Bio Common Stock would be treated as if they sold
their shares of Varian Bio Common Stock in a fully taxable transaction. Accordingly, each U.S. Holder is urged to consult its own tax
advisor with respect to the particular tax consequence of the Business Combination to such holder.
Assuming the Business Combination
qualifies as a “reorganization,” the tax consequences for U.S. Holders who receive shares of Common Stock in exchange for
shares of Varian Bio Common Stock pursuant to the Business Combination are as follows.
U.S. Holders who receive shares
of Common Stock in exchange for shares of Varian Bio Common Stock pursuant to the Business Combination will not recognize gain or loss
on the exchange of Varian Bio Common Stock for shares of Common Stock, will generally have an adjusted tax basis in the shares of Common
Stock immediately following the Business Combination equal to such U.S. Holder’s adjusted tax basis in the shares of Varian Bio
Common Stock surrendered in exchange therefor, and will generally have a holding period in the shares of Common Stock which includes such
holder’s holding period in the shares of Varian Bio Common Stock surrendered in exchange therefor.
The
shares of Common Stock received in the Business Combination by a U.S. Holder that acquired different blocks of shares of Varian
Bio Common Stock at different times or at different prices will generally be allocated pro rata to each block of shares of Varian
Bio Common Stock of such U.S. Holder, and the tax basis and holding period of such shares of Common Stock will be determined using
a block-for-block approach and will depend on the tax basis and holding period of each block of shares of Varian Bio Common Stock
exchanged for such shares of Common Stock.
Neither
Varian Bio nor SPKA has requested, and neither intends to request, a ruling from the IRS as to the U.S. federal income tax consequences
of the Business Combination. Consequently, no assurance can be given that the IRS will not assert, or that a court would not sustain,
a position contrary to any of those set forth above. If the Business Combination failed to qualify as a “reorganization”
under Section 368(a) of the Code, U.S. Holders who receive shares of Common Stock in exchange for shares of Varian Bio Common
Stock would be treated as if they sold their shares of Varian Bio Common Stock in a fully taxable transaction. Accordingly, each
U.S. Holder is urged to consult its own tax advisor with respect to the particular tax consequence of the Business Combination
to such holder.
Dissenting
U.S. Holders of Varian Bio Common Stock
A
U.S. Holder who exercises dissenters rights and, as a result, receives cash in exchange for such holder’s shares of Varian
Bio Common Stock generally will recognize capital gain or loss equal to the difference between the amount of cash received by
such U.S. Holder and such U.S. Holder’s tax basis in the shares of Varian Bio Common Stock exchanged therefor. Any gain
or loss generally would be capital gain or loss, which would be long-term capital gain or loss if such shares of Varian Bio Common
Stock are held for more than one year. Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual,
estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation.
Deductions for capital losses are subject to significant limitations under the Code.
Information
Reporting and Backup Withholding
We
generally must report annually to the IRS and to each holder the amount of cash dividends and certain other distributions we pay
to such holder on such holder’s SPKA common stock and the amount of tax, if any, withheld with respect to those distributions.
In the case of a Non-U.S. Holder, copies of the information returns reporting those distributions and withholding also may be
made available to the tax authorities in the country in which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement. Information reporting is also generally required with respect to proceeds from the sales and other
dispositions of SPKA common stock or SPKA Rights to or through the U.S. office (and in certain cases, the foreign office) of a
broker. In addition, certain information concerning a U.S. Holder’s adjusted tax basis in its SPKA common stock and SPKA
Rights and adjustments to that tax basis and whether any gain or loss with respect to such securities is long-term or short-term
also may be required to be reported to the IRS.
Moreover,
backup withholding of U.S. federal income tax at a rate of 24% generally will apply to cash distributions made on SPKA common
stock and SPKA Rights to, and the proceeds from sales and other dispositions of such securities by, a U.S. Holder (other than
an exempt recipient) who:
| ● | fails
to provide an accurate taxpayer identification number; |
| ● | is
notified by the IRS that backup withholding is required; or |
| ● | in
certain circumstances, fails to comply with applicable certification requirements. |
A
Non-U.S. Holder generally may eliminate the requirement for information reporting (other than with respect to distributions, as
described above) and backup withholding by providing certification of its foreign status, under penalties of perjury, on a duly
executed applicable IRS Form W-8 or by otherwise establishing an exemption.
Backup
withholding is not an additional tax. Rather, the amount of any backup withholding will be allowed as a credit against a U.S.
Holder’s or a Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder to a refund, provided
that certain required information is timely furnished to the IRS. Holders are urged to consult their own tax advisors regarding
the application of backup withholding and the availability of and procedures for obtaining an exemption from backup withholding
in their particular circumstances.
Foreign
Account Tax Compliance Act
Under sections 1471 to 1474 of
the Code and the Treasury Regulations and administrative guidance promulgated thereunder (commonly referred to as the “Foreign
Account Tax Compliance Act” or “FATCA”) a 30% withholding tax generally applies with respect to certain dividends
in respect of and, subject to the proposed Treasury Regulations described below, gross proceeds from a sale or disposition of, securities
(including SPKA common stock and SPKA Rights, hereinafter collectively “SPKA securities”) which are held by or through
certain foreign financial institutions (including investment funds), unless any such institution (a) enters into, and complies with, an
agreement with the IRS to report, on an annual basis, information with respect to interests in, and accounts maintained by, the institution
that are owned by certain U.S. persons and by certain non-U.S. entities that are wholly or partially owned by U.S. persons and to
withhold on certain payments, or (b) if required under an intergovernmental agreement between the United States and an applicable foreign
country, reports such information to its local tax authority, which will exchange such information with the U.S. authorities. An intergovernmental
agreement between the United States and the applicable foreign country may modify these requirements. Accordingly, the entity through
which SPKA securities are held will affect the determination of whether such withholding is required. Similarly, dividends in respect
of, and (subject to the proposed Treasury Regulations discussed below) gross proceeds from the sale or other disposition of, SPKA securities
held by an investor that is a non-financial non-U.S. entity that does not qualify under certain exceptions will generally be subject to
withholding at a rate of 30%, unless such entity either (i) certifies to the applicable withholding agent that such entity does not have
any “substantial United States owners” or (ii) provides certain information regarding the entity’s “substantial
United States owners”, which will in turn be provided to the U.S. Department of Treasury.
Under
the applicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of dividends
in respect of SPKA common stock. While withholding under FATCA generally would also apply to payments of gross proceeds from the
sale or other disposition of securities (including SPKA securities), proposed Treasury Regulations eliminate FATCA withholding
on payments of gross proceeds entirely. Taxpayers generally may rely on these proposed Treasury Regulations until final Treasury
Regulations are issued. All holders should consult their own tax advisors regarding the possible implications of FATCA on their
investment in SPKA securities.
SPKA’S
BUSINESS
Overview
SPKA
was incorporated in Delaware on December 31, 2020 and was formed for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or other similar Business Combination with one or more businesses
or entities. SPKA has until June 10, 2022, as long as SPKA has filed a proxy statement, registration statement or similar filing
for an initial business combination by March 10, 2022, (or up to September 10, 2022 if the time to complete a business combination
is extended), to consummate a Business Combination. If SPKA is unable to complete its initial business combination within such
period (as extended as described herein), it will (i) cease all operations except for the purpose of winding up and (ii) as promptly
as reasonably possible but not more than ten business days thereafter, redeem 100% of the outstanding shares of common stock,
at a per-share of common stock price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
any interest not previously released to SPKA (net of taxes payable), divided by the number of then outstanding shares of common
stock, which redemption will completely extinguish public stockholders’ rights as holders of shares of common stock (including
the right to receive further liquidation distributions, if any), subject to applicable law. Public stockholders will also forfeit
the Rights included in the Units. As promptly as reasonably possible following such redemption, subject to the approval of the
remaining stockholders and the Board, SPKA will dissolve and liquidate, subject to its obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
Trust
Account
Following
the closing of the IPO on June 10, 2021 and the underwriters’ partial exercise of over-allotment option on July 20, 2021,
$50,911,960 from the net proceeds of the sale of the Public Units in the IPO and the sale of the Private Units was placed in a trust
account maintained by Continental Stock Transfer & Trust Company, acting as trustee (the “Trust Account”). The
funds held in the Trust Account is and will be invested only in United States “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions
under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations, so that
SPKA is not deemed to be an investment company under the Investment Company Act. except with respect to interest earned on the funds
held in the Trust Account that may be released to SPKA to pay its income or other tax obligations, the proceeds will not be released
from the Trust Account until the earlier of the completion of a Business Combination or the redemption of 100% of the outstanding shares
of common stock if SPKA has not completed a Business Combination in the required time period. The proceeds held in the Trust Account
may be used as consideration to pay the sellers of a target business with which SPKA completes a Business Combination. Any amounts not
paid as consideration to the sellers of the target business may be used to finance operations of the target business.
Business
Combination Activities
On
February 11, 2022, we entered into the Merger Agreement. As a result of the transaction, Varian Bio will become our wholly owned
subsidiary, and we will change our name to “Varian Biopharma, Inc.” In the event that the Business Combination is
not consummated by June 10, 2022, as long as SPKA has filed a proxy statement, registration statement or similar filing for an
initial business combination by March 10, 2022, (or up to September 10, 2022 if the time to complete a business combination is
extended), our corporate existence will cease and we will distribute the proceeds held in the Trust Account to our public stockholders.
Redemption
Rights
Our
stockholders (except the Initial Stockholders and the Representative) will be entitled to redeem their shares of common stock
for a pro rata share of the Trust Account (currently anticipated to be no less than approximately $[10.00] per share of common
stock for stockholders) net of taxes payable. The Initial Stockholders and the Representative do not have redemption rights with
respect to any shares of common stock owned by them, directly or indirectly.
Automatic
Dissolution and Subsequent Liquidation of Trust Account if No Business Combination
If
SPKA does not complete a business combination within 9 months from the consummation of the IPO (unless such time period has been
extended as described herein), it will trigger the automatic winding up, dissolution and liquidation pursuant to the terms of
our Certificate of Incorporation. As a result, this has the same effect as if SPKA had formally gone through a voluntary liquidation
procedure under Delaware law. Accordingly, no vote would be required from SPKA’s stockholders to commence such a voluntary
winding up, dissolution and liquidation. If SPKA is unable to consummate its initial business combination within such time period,
it will, as promptly as possible but not more than ten business days thereafter, redeem 100% of SPKA’s outstanding Public
Shares for a pro rata portion of the funds held in the Trust Account, including a pro rata portion of any interest earned on the
funds held in the Trust Account and not necessary to pay its taxes, and then seek to liquidate and dissolve. Public stockholders
will also forfeit any Rights included in the Public Units if the Public Shares are redeemed.
The
proceeds deposited in the Trust Account could, however, become subject to claims of our creditors that are in preference to the
claims of our public stockholders. Although SPKA will seek to have all vendors, service providers (excluding our independent registered
public accounting firm), prospective target businesses and other entities with which we do business execute agreements with us
waiving any right, title, interest or claim of any kind in or to any monies held in the Trust Account for the benefit of our public
stockholders, there is no guarantee that they will execute such agreements or even if they execute such agreements that they would
be prevented from bringing claims against the Trust Account including, but not limited to, fraudulent inducement, breach of fiduciary
responsibility or other similar claims, as well as claims challenging the enforceability of the waiver, in each case in order
to gain an advantage with respect to a claim against our assets, including the funds held in the Trust Account. If any third party
refuses to execute an agreement waiving such claims to the monies held in the Trust Account, SPKA will perform an analysis of
the alternatives available to it and will only enter into an agreement with a third-party that has not executed a waiver if management
believes that such third-party’s engagement would be significantly more beneficial to us than any alternative. Examples
of possible instances where we may engage a third party that refuses to execute a waiver include the engagement of a third-party
consultant whose particular expertise or skills are believed by management to be significantly superior to those of other consultants
that would agree to execute a waiver or in cases where management is unable to find a service provider willing to execute a waiver.
Chardan
has not executed agreements with us waiving such claims to the monies held in the Trust Account. In addition, there is no guarantee
that entities will agree to waive any claims they may have in the future as a result of, or arising out of, any negotiations,
contracts or agreements with us and will not seek recourse against the Trust Account for any reason. The Sponsor has agreed that
it will be liable to ensure that the proceeds in the Trust Account are not reduced below $10.00 per share of common stock by the
claims of target businesses or claims of vendors or other entities that are owed money by SPKA for services rendered or contracted
for or products sold to SPKA, but SPKA cannot assure that it will be able to satisfy its indemnification obligations if it is
required to do so. SPKA has not asked the Sponsor to reserve for such indemnification obligations, nor has SPKA independently
verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believes that the Sponsor’s only
assets are securities of SPKA. Therefore, SPKA believes it is unlikely that the Sponsor will be able to satisfy its indemnification
obligations if it is required to do so.
In
the event that the proceeds in the Trust Account are reduced below $10.00 per share of common stock less taxes payable, and our
Sponsor asserts that it is unable to satisfy its indemnification obligations or that it has no indemnification obligations related
to a particular claim, our independent directors would determine whether to take legal action against our Sponsor to enforce its
indemnification obligations. While SPKA currently expects that its independent directors would take legal action on its behalf
against Sponsor to enforce its indemnification obligations to SPKA, it is possible that SPKA’s independent directors in
exercising their business judgment may choose not to do so in any particular instance. Accordingly, SPKA cannot assure you that
due to claims of creditors the actual value of the per-share redemption price will not be less than $10.00 per Unit.
If
SPKA files a bankruptcy petition or an involuntary bankruptcy petition is filed against it that is not dismissed, the proceeds held in
the Trust Account could be subject to applicable bankruptcy law, and may be included in its bankruptcy estate and subject to the claims
of third parties with priority over the claims of SPKA’s public stockholders. To the extent any bankruptcy claims deplete the Trust
Account, SPKA cannot assure you it will be able to return $10.00 per share of common stock to public stockholders. Additionally, if SPKA
files a bankruptcy petition or an involuntary bankruptcy petition is filed against SPKA that is not dismissed, any distributions received
by stockholders could be viewed under applicable debtor/creditor and/or bankruptcy laws as either a “preferential transfer”
or a “fraudulent conveyance.” As a result, a bankruptcy court could seek to recover some or all amounts received by our public
stockholders. Furthermore, our Board may be viewed as having breached its fiduciary duty to our creditors and/or may have acted in bad
faith, and thereby exposing itself and SPKA to claims of punitive damages, by paying public stockholders from the Trust Account prior
to addressing the claims of creditors. SPKA cannot assure you that claims will not be brought against SPKA for these reasons.
Each
of the Sponsor and the Representative has agreed to waive its rights to participate in any liquidation of the Trust Account or
other assets with respect to the Private Units they hold.
Facilities
We
maintain our principal executive offices at Room 368, 302 Buwei, 211 Fute North Road, China (Shanghai) Pilot Free Trade Zone,
200131. Our Sponsor is providing this space at no cost. We consider our current office space adequate for our current operations.
Varian Bio’s principal
executive offices are located in Naples, Florida and it is expected that upon the Closing of the Business Combination, the Combined Company’s
principal executive offices will be located in Naples, Florida. It is not currently intended that any further operations of the Combined
Company or any third party organizations will be conducted in China.
Employees
SPKA
has three executive officers. These individuals are not obligated to devote any specific number of hours to its matters and intend
to devote only as much time as they deem necessary to its affairs. SPKA presently
expects its executive officers to devote such amount of time as they reasonably believe is necessary to our business (which could
range from only a few hours a week while SPKA is trying to locate a potential target
business to significantly more time as it moves into serious negotiations with a target business for a business combination).
SPKA does not intend to have any full-time employees prior to the consummation
of a business combination.
Offering
Costs
Offering costs were
consisting principally of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are
related to the IPO and were charged to stockholders’ equity upon the completion of the IPO. The Company allocates offering
costs between public shares and public rights based on the relative fair values of public shares and public rights.
Recent Accounting Standards
In August 2020, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt —
Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic
815-40) (“ASU 2020-06”) to simplify certain financial instruments. ASU 2020-06 eliminates the current models that require
separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception
guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional
disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06
amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is for fiscal years beginning after December 15, 2021, and should be applied on a full or modified retrospective basis. Early
adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal
years. The Company adopted ASU 2020-06 effective January 1, 2021. The adoption of ASU 2020-06 did not have a material impact on the Company’s
financial statement.
Our management does not believe
that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying
financial statements.
JOBS Act
The JOBS Act
contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify
as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements
based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised
accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which
adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable
to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are
in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we
may not be required to, among other things, (i) provide an independent registered public accounting firm’s attestation report on
our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply
with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the independent registered
public accounting firm’s report providing additional information about the audit and the financial statements (auditor discussion
and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation
and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period
of five years following the completion of the IPO or until we are no longer an “emerging
growth company,” whichever is earlier.
INFORMATION
ABOUT VARIAN BIO
Unless the context otherwise requires,
all references in this section to the “Company,” “we,” “us,” or “our” refer to Varian
Biopharmaceuticals, Inc. and its subsidiaries prior to the consummation of the Business Combination.
Overview
Who We Are
Varian
Bio is a pre-clinical stage oncology company focused on acquiring and developing novel anti-cancer agents in the United States, the United
Kingdom, and internationally. Protein kinase inhibitors are a class of anti-cancer therapeutics that has made a significant impact on
the treatment of cancers. Among the kinase targets for further development are the Protein Kinase C (“PKC”) family,
which are key components of many signaling pathways that drive the formation of cancer. Recently, numerous publications in the scientific
literature have identified one member of the PKC family, atypical Protein Kinase C iota (“aPKCi”), as important in
a number of oncogenic signaling pathways. Varian Bio is developing aPKCi inhibitory compounds that target key signaling pathways that
are validated in scientific literature, and therefore have the potential to address significant unmet medical needs.
Varian
Bio is developing small molecule aPKCi inhibitory compounds developed by Cancer Research UK (“CRUK”) and its collaborators,
subject to the CRT License from Cancer Research Technology Limited (“CRT”), an oncology focused technology
transfer and development company that is wholly owned by CRUK, a charity registered in England and Scotland, and based in London, United
Kingdom. Pursuant to the license agreement, CRT has granted an exclusive, world-wide license to research, develop, use, keep, make, have
made, import, sell and otherwise exploit its family of aPKC kinases, including over sixty issued and additional pending patents worldwide
and associated know-how. Numerous scientific publications have identified aPKCi as an oncogene, whose presence and activation has been
implicated in the development and growth of multiple forms of human cancer including basal cell carcinoma (“BCC”),
cutaneous T-cell lymphoma (“CTCL”), pancreatic, non-small cell lung cancel (“NSCLC”), acute myeloid
leukemia (“AML”) and several others.
Varian Bio is developing two
oncology product candidates:
| ● | VAR-101:
Our lead product candidate, VAR-101, is a topical (cutaneous) formulation of a small molecule
aPKCi inhibitor for the treatment of BCC. The active pharmaceutical ingredient in VAR-101
has demonstrated dose dependent anti-tumor activity in murine and human BCC cell lines, in
studies performed at CRUK and with its collaborators. Varian Bio intends to develop VAR-101
in a topical formulation for BCC as a surgical neoadjuvant or adjuvant therapy. We are currently
scaling up manufacturing of the active pharmaceutical ingredient through contract manufacturers,
have developed prototype VAR-101 topical formulations, and are planning IND-enabling studies
that we anticipate initiating in the second half of 2022. |
| ● | VAR-102:
Our second product candidate, VAR-102, is an oral formulation of a small molecule aPKCi inhibitor
for the treatment of solid tumors. The active pharmaceutical ingredient in the oral VAR-102
is the same as the active pharmaceutical ingredient in VAR-101. In the scientific literature,
the presence and activation of aPKCi has been implicated in the growth of multiple human
cancers including NSCLC, pancreatic, and ovarian cancer. The active pharmaceutical ingredient
in VAR-102 has demonstrated dose dependent anti-tumor activity in a mouse model of NSCLC
(squamous cell lung carcinoma), in studies performed at CRUK and with its collaborators.
We are currently scaling up manufacturing of the active pharmaceutical ingredient in VAR-102
and anticipate additional formulation development efforts and IND-enabling studies to commence
later in 2022 and early 2023. |
Varian
Bio is engaged with consultants, contract development and manufacturing (“CDMO”) companies, and contract research
laboratories (“CRO”) for the manufacturing of the active pharmaceutical ingredient (“API”) in VAR-101/102,
development of the topical formulation for VAR-101, and the initiation of non-clinical studies and planning of the Investigational New
Drug (“IND”) enabling studies (or international equivalent) for VAR-101.
Protein Kinase Inhibitors and Protein Kinase C (PKC)
Protein kinases are enzymes that
are involved in various cellular functions including metabolism, cell cycle regulation, survival and differentiation. Dysregulation of
protein kinases is implicated in the initiation of cancer formation, or carcinogenesis. Protein kinase inhibition in cancer therapy has
led to a paradigm shift in how cancer is treated, and over 35 protein kinase inhibitors have been approved by the US FDA over the past
two decades. The Company believes that protein kinase inhibitors are one of the most medically and commercially successful classes of
oncology drugs over the last twenty years.
The protein kinase C (“PKC”)
family of serine/threonine kinases has been the subject of intense study in the field of cancer. PKCi is required for the transformed
growth of human cancer cells and the PKCi gene is the target of tumor- specific gene amplification in multiple forms of human cancer.
aPKCi, one of many forms in the PKC family, participates in multiple aspects of the transformed phenotype of human cancer cells
including transformed growth, invasion and survival.
Basal
Cell Carcinoma (BCC)
Basal Cell Carcinoma (“BCC”)
originates in the basal part of the epidermis in sun-exposed skin surfaces. BCC
is the most common form cancer in humans, and the most common form of skin cancer, estimated to occur in more than 4
million Americans annually. While rarely fatal, multiple BCCs (synchronous and metachronous) can occur in a single individual
and can be destructive and disfiguring, especially when treatment is inadequate or delayed. BCC occurs on the head and
neck (including face) in the majority of cases.
The main goals of BCC treatment
are (i) to completely remove the tumor to prevent recurrence, (ii) to correct any functional impairment resulting from the tumor, and
(iii) to give the best cosmetic result to the patient while preserving function and decreasing or eliminating disfigurement (especially
because most BCCs are on the face).
A
novel approach to treating advanced BCC are Hedgehog (“Hh”) pathway inhibitors. BCCs require high levels of Hh signaling
for survival and growth (Figure 1 is a schematic diagram of the Hh pathway). Vismodegib (Erivedge®), a first-in-class Hedgehog (Hh)
systemic pathway smoothened (“SMO”) inhibitor, was approved for patients with BCC that has recurred following surgery
or who are not candidates for surgery or radiation. A multicenter, international, single-arm trial pivotal study in 33 patients with
mBCC, the independently assessed objective response rate ORR was 30% (95% CI, 16 to 48). In 63 patients with locally advanced (la) BCC,
the ORR was 43% (95% CI, 31 to 56), with complete responses observed in 13 patients (21%). However, the median duration of response was
7.6 months in both cohorts. We believe that targeting aPKCi further downstream of SMO in the Hh pathway could result in an improved therapeutic
index and overcome resistance observed with approved SMO inhibitors.
Figure 1: Schematic diagram
of the Hedgehog Pathway
Our Lead Product Candidate – VAR-101
VAR-101 is a topical (skin)
formulation of our lead aPKCi inhibitor, selected from a portfolio of aPKCi inhibitors developed by and licensed from CRUK. As a result
of studies performed by our licensor CRUK and its collaborators, the selected lead small molecule aPKCi inhibitor (CRT-0422839) was chosen
for its potency, selectivity and toxicity profile. The active compound CRT-0422839 has demonstrated dose responsive activity in mouse
and human BCC cell lines. In addition, testing by CRUK and its collaborators in four animal species did not reveal overt toxicity. Varian
Bio is developing VAR-101 as a topical gel formulation of the lead aPKCi inhibitor (CRT-0422839). Concurrent with topical formulation
work ongoing, we are optimizing the chemical synthesis of CRT-0422839 to provide for manufacture scale-up and production of GLP and GMP
material for testing, initiating and planning future IND-enabling non-clinical studies, and preparing for the first-in-human clinical
trial of VAR-101 in patients with BCC. We believe VAR-101 could provide therapeutic benefit for BCC patients in the neoadjuvant/adjuvant
setting by potentially reducing the size, or elimination, of BCC lesions, thereby reducing or eliminating the need for ablative surgery
and subsequent reconstructive surgery.
Current BCC Treatment Options
The
current mainstay of treating BCC is largely surgery, including excision, electrodesiccation and curettage (“EDC”),
cryosurgery, and Mohs micrographic surgery. Such methods are typically reserved for localized BCC and offer high 5-year cure rates, generally
over 95%, but can be very disfiguring and costly. Despite basal cell carcinoma BCC being curative in the vast majority of cases, some
patients are at high risk of recurrence and, in a few patients, lesions can progress to a point unsuitable for local therapy and prognosis
is quite poor. Further, the recurrence rate after resection is higher for BCCs with aggressive histology and for BCCs located in the
head and neck region. Thus, new treatment options for BCC patients who present with clinical features defining high-risk of relapse include
infiltrative growth margins, size, tumor location, histological subtype, recurrent-refractory tumors and previous history of radiotherapy
are required.
Current standard of care for higher
risk/more aggressive BCC is Mohs micrographic surgery—with over 1 million Mohs performed annually, many requiring even more costly
plastic surgical reconstruction thereafter. In fact, BCC costs the US over $5 billion in annual costs and is the fifth most costly cancer
for Medicare. This figure does not take into account the additional economic burden of lost work and multiple surgeries and recovery
periods. VAR-101, a potential topical treatment for BCC, could potentially decrease or even
eliminate the need for Mohs surgery and subsequent reconstructive surgery, thereby potentially
producing significant savings in healthcare dollars spent on treating BCC.
Our Second Product Candidate – VAR-102
Varian
Bio’s second product candidate is VAR-102, an oral formulation of our lead aPKCi inhibitor (CRT-0422839). The active compound
in VAR-102 is the same as the active compound in the VAR-101. The active compound CRT-0422839 has demonstrated dose dependent
anti-tumor activity in non-small cell lung cancer xenografts (squamous cell carcinoma) in nude mice, in studies performed by our
licensor CRUK and its collaborators. Additionally, CRUK and its collaborators have evaluated the active compound CRT-0422839, the
active pharmaceutical ingredient in VAR-101 and VAR-102 in development, in four animal species, via oral and intravenous routes of
administration. Initial test results showed that CRT-0422839 was well tolerated across four animal models at plasma levels in excess
of levels used in the anti-tumor studies in mice.
Varian
Bio is currently optimizing the chemical synthesis of CRT-0422839 to provide for manufacture scale-up and production of GLP and GMP material
for testing. Varian Bio plans to initiate development of the oral formulation of our aPKCi inhibitor in the second half of 2022, depending
upon financial resources. Varian Bio expects that some of the chemistry, manufacturing and control (“CMC”) work in
process for our active pharmaceutical ingredient CRT-0422939 and VAR-101 will be applicable to the development efforts and future regulatory
submissions for VAR-102.
Scientific Rational for VAR-102 in Solid Tumors
The
scientific literature supports that PKCi is required for the transformed growth of human cancer cells and is a target of
tumor-specific gene amplification in multiple forms of human cancer. As reflected in the Figure 2 below (ref A.P. Fields, R.P.
Regala, Pharmacological Research 55 (2007) 487-497), PKCi resides in major signaling pathways in human cancer.
Figure 2: Schematic representation
of major oncogenic PKCi signaling pathways
The PKCi gene, PRKC1, is one
of the most frequently amplified genes in human cancers. PRKC1 copy number gains are observed in approximately 80% of human primary lung
squamous cell carcinomas, approximately 70% of serous epithelial ovarian cancers and many other major forms of cancer including pancreatic,
colorectal and cervical cancers (ref: Peter Parker et. Al., / Biochemical Pharmacology 88 (2014) 1-11). Varian Bio believes that
a PKCi inhibitor such as our CRT-0422893 in an oral, systemically delivered formulation could potentially show activity across multiple
signaling pathways, and therefore have clinical utility in treating a variety of solid tumor types.
As is also well characterized
in the scientific literature, GLI1 is a transcription factor at the terminal end of the Hh signaling pathway. In certain cancers, activation
of GLI1 has been linked to the promotion of cancer properties such as proliferation, metastasis, chemotherapeutic resistance and others,
and there has been observed correlation between GLI1 expression and disease severity. Recent publications have identified that elevation
of GLI1 can occur at the end of the canonical Hh pathway, as is shown in Figure 1, but elevated GLI1 levels are often the result of non-canonical
signaling pathways (see Figure 3 below, ref Avery, Zhang and Boohaker 2021: GLI1 A Therapeutic Target for Cancer, Front. Oncol. 11;673154).
Figure 3: Schematic representation
of GLI1 activation from both canonical Hh and non-canonical signaling pathways
In studies performed by CRUK
and its collaborators in a murine BCC cell line, treatment with CRT-0422839 reduced expression levels of Gli1 mRNA at two different concentrations
and time points. Figure 4 below shows results of treatment with CRT-0422839 (as well as other aPKCi inhibitors licensed by Varian Bio
from CRUK) at concentrations of 1 micromolar and 10 micromolar, after six hours and 24 hours. This study was performed to document the
inhibition of BCC growth and the Hh pathway signaling. Varian Bio believes targeting PKCi could effectively inhibit the oncogenesis driven
by GLI1 activation, from both the canonical Hh signal pathway and other potential signaling pathways.
Figure 4: Reduced expression of GLI1 mRNA at two
different concentrations
and time points (CRT-0422839 are the two right
columns at 1 um and 10 um, as labeled).
License Agreement
Varian Bio is developing aPKCi
inhibitory compounds subject to a license agreement from Cancer Research Technology Limited (“CRT”), an oncology focused
technology transfer and development company that is wholly owned by CRUK, a charity registered in England and Scotland, and based
in London, United Kingdom. Pursuant to the license agreement, CRT granted an exclusive, worldwide license to research, develop, use,
keep, make, have made, import, sell and otherwise exploit its family of aPKC kinases (both topical and non-topical formulations), including
over sixty issued patents and additional pending patent applications, in major market jurisdictions such as the United States, Europe
and Japan, including composition of matter patents that expire in March 2035 and method of use patent applications that, if granted,
expire in March 2040, all in the absence of patent term adjustment or extension, and associated know-how. CRT retains a non-exclusive
license for non-commercial academic research use. The Company intends to file additional patent applications over time as new formulations
of its active compounds are developed, as manufacturing methods are optimized and validated, and as additional studies progress and data
are generated.
Under the CRT License, Varian
Bio has paid CRT an aggregate of $30,000. We also agreed to make annual payments and/or milestone payments until or upon the achievement
of specified regulatory and commercial milestones on the order of $33 million for a topical product and on the order of $14 million for
a non-topical product, as well as a mid to low single-digit percentage royalty on net sales of licensed products by us, our affiliates
and sublicensees. These royalty obligations continue on a licensed product-by-licensed product and country-by-country basis until the
licensed product is no longer within the scope of a valid claim of a licensed patent, the expiry to 10 years from the first commercial
sale, or the expiry of any regulatory or patent exclusivity period, whichever is latest. In addition, if Varian Bio sublicense rights
under the CRT Agreement, Varian Bio is required to pay a mid to low double-digit percentage of the sublicense revenue to CRT. Additionally,
if Varian Bio chooses to file, prosecute or maintain any patents included in the licensed patent rights under the CRT Agreement, Varian
Bio will be required to bear the full cost and expenses of preparing, filing, prosecuting and maintaining any such patents.
Our
Team
We
have assembled a leadership team and a network of consultants and scientific advisors with significant experience in discovering
and managing the development of a broad range of therapies, and in both private and public company operations.
Jeffrey
B. Davis, our Chief Executive Officer and a member of our board of directors, has over two decades of experience in the biotechnology
and specialty pharmaceuticals industry, in both public and private companies. Mr. Davis served as CFO of HemaSure Inc., CEO of
Access Pharmaceuticals and PlasmaTech Biopharmaceuticals, Inc., and COO of Abeona Therapeutics, Inc. (NASDAQ: ABEO). In these
roles, he has significant experience in public and private financings, development and implementation of corporate strategies,
and business development transactions, in the oncology and gene therapy sectors. Prior to these roles, Mr. Davis was an investment
banker with various Deutsche Bank banking organizations, both in the U.S. and Europe. Mr. Davis also served in senior marketing
and product management positions at AT&T Bell Laboratories, where he was also a member of the technical staff, and at Philips
Medical Systems North America. Mr. Davis holds a B.S. in biomedical engineering from Boston University and an M.B.A. degree from
the Wharton School, University of Pennsylvania.
Jonathan
Lewis, M.D., Ph.D., our Chief Medical Officer, has more than fifteen years of experience in the healthcare and drug development
industry, and previously served as Chief Executive Officer and Director of ZIOPHARM, Inc. (NASDAQ: ZIOP) and Chief Medical Officer
at Antigenics, Inc. Previously, Dr. Lewis served as Professor of Surgery and Medicine at Memorial Sloan-Kettering Cancer Center.
He has been actively involved in leading translational and clinical research in cancer and is widely recognized by patient advocacy
groups. He has received numerous honors and awards in medicine and science, including the ASCO young investigator award, the Yale
University Ohse award, and the Royal College of Surgeons Trubshaw Medal. Dr. Lewis was awarded
an MB.B.Ch. from University of the Witwatersrand School of Medicine, and
his Ph.D. in Molecular Biology from Witwatersrand and Yale School of Medicine.
He completed his Surgical Residency at Charlotte Maxeke Johannesburg Academic Hospital and
at Yale-New Haven Hospital.
In addition to Mr. Davis, our board of directors
includes the following:
Paul
Mann has served as chairman of the board of directors since June 2020. Paul Mann has over 20 years of experience in the financial
and biotechnology industries. Mr. Mann has served as founder, chairman of the board and CEO and CFO of ASP Isotopes, a specialty materials
company since September 2021, as the chairman of the board of Healthtech Solutions, an emerging healthcare company since June 2020, as
a board member of Abeona Therapeutics, a biotechnology company since June 2020, and as a consultant and analyst for DSAM Partners, a
global hedge fund since April 2020 where he analyzed investments in the healthcare sector. Prior to that he served as CFO at PolarityTE,
Inc., a biotechnology and regenerative biomaterials company, from June 2018 until April 2020. Before that Mr. Mann was the Healthcare
Portfolio Manager at Highbridge Capital Management, a hedge fund, from August 2016 until June 2018, where he was a portfolio manager
responsible for healthcare investments, and has held positions with Soros Fund Management, UBS Investment Group, Morgan Stanley and Deutsche
Bank. Mr. Mann began his career as a scientist at Procter and Gamble and is named as an inventor on patents for skincare compounds and
technologies. Mr. Mann has an MA (Cantab) and an MEng from Cambridge University where he studied Natural Sciences and Chemical Engineering.
Mr. Mann is a CFA charter holder.
Todd
Wider, M.D., has served on our board of directors since July 2020. Dr. Wider is the
Executive Chairman and Chief Medical Officer of Emendo Biotherapeutics, which focuses on highly specific and differentiated gene editing,
since June 2018. Dr. Wider also serves on the board of directors of ARYA Sciences Acquisition
Corp IV and V (Nasdaq: ARYD, ARYE) since 2021, a special purpose acquisition company (“SPAC”),
and Abeona Therapeutics Inc. (Nasdaq: ABEO), a clinical-stage biopharmaceutical company, since
2015. Dr. Wider also served as a director of the following SPACs: ARYA Sciences Acquisition
Corp. from October 2018 to June 2020, ARYA Sciences Acquisition Corp II from July 2020 to October 2020 and ARYA Sciences Acquisition
Corp III from August 2020 to June 2021. Dr. Wider is an active, honorary member of the medical staff of Mount Sinai Hospital in New York,
where he worked for over 20 years, and is a plastic and reconstructive surgeon who focused on cancer surgery. Dr. Wider received an MD
from Columbia College of Physicians and Surgeons and an AB, with high honors and Phi Beta Kappa, from Princeton University. He did his
residency in general surgery and plastic and reconstructive surgery at Columbia Presbyterian Medical Center, and postdoctoral fellowships
in complex reconstructive surgery at Memorial Sloan Kettering Cancer Center, where he was Chief Microsurgery Fellow, and in craniofacial
surgery at the University of Miami. We believe that Dr. Wider is qualified to serve on the board
of the Combined Company because of his experience in the biotherapeutics industry and as a surgeon treating patients with basal cell
carcinoma, in addition to his experience as a director of several public companies.
We
believe that our team’s expertise in the biotechnology industry, together with our experience discovering and developing
multiple drug candidates, positions us well to advance a new generation of anti-cancer medicines around our portfolio of licensed
aPKCi inhibitors.
Competition
As
a biopharmaceutical company, we face competition from a wide array of companies in the pharmaceutical and biotechnology industries.
These include both small companies and large companies with much greater financial and technical resources and far longer operating
histories than our own. We may also compete with the intellectual property, technology, and product development efforts of academic,
governmental, and private research institutions. Our competitors may have significantly greater financial resources, established
presence in the market, expertise in research and development, manufacturing, preclinical and clinical testing, obtaining regulatory
approvals and reimbursement, and marketing approved products than we do. These competitors also compete with us in recruiting
and retaining qualified scientific, sales, marketing, and management personnel, establishing clinical trial sites and patient
registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller
or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
large and established companies.
The
key competitive factors affecting the success of any product candidates that we develop, if approved, are likely to be their efficacy,
safety, convenience, price, and the availability of reimbursement from government and other third-party payors. Our commercial
opportunity for any of our product candidates could be reduced or eliminated if our competitors develop and commercialize products
that are more effective, have fewer or less severe side effects, are more convenient, or are less expensive than any products
that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we
may obtain approval for ours and may commercialize products more quickly than we are able to.
Additional
mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in our competitors.
Competition may increase further because of advances made in the commercial applicability of technologies and greater availability
of capital for investment in these fields. Our success will be based in part on our ability to build and actively manage a portfolio
of drugs that addresses unmet medical needs and creates value in patient therapy.
We
anticipate that the landscape of potential treatments and therapies for anti-cancer agents will continue to evolve with time.
Intellectual
Property
Our
success depends in part on our ability to obtain and maintain intellectual property protection for our technology, defend and
enforce our intellectual property rights, preserve the confidentiality of our trade secrets, and operate without infringing, misappropriating
or otherwise violating valid and enforceable intellectual property rights of others. We seek to protect the investments made into
the development of our technology by relying on a combination of patents, trademarks, copyrights, trade secrets, including know-how,
and license agreements. We also seek to protect our proprietary technology, in part, by requiring our employees, consultants,
contractors and other third parties to execute confidentiality agreements and invention assignment agreements. We also intend
to seek protection of the manufacturing process used to produce our products.
The patent positions of
development stage biotechnology companies like Varian Bio are generally uncertain and involve complex legal, scientific and factual questions.
In addition, the coverage claimed in a patent application can be significantly reduced before the patent is issued, and patent scope
can be reinterpreted by the courts after issuance. Moreover, many jurisdictions permit third parties to challenge issued patents in administrative
proceedings, which may result in further narrowing or even cancellation of patent claims. We cannot predict whether the patent applications
we are currently pursuing will issue as patents in any particular jurisdiction or whether the claims of any patents, if issued, will
provide sufficient protection from competitors.
Through Varian Bio’s license
with CRT, Varian Bio has the exclusive, worldwide license to exploit CRT’s family of aPKC kinases, which includes over sixty issued
patents and additional pending patent applications in major markets such as the United States, Europe and Japan. These include composition
of matter patents that expire in March 2035 and method of use patent applications that, if granted, expire in March 2040, all in the
absence of patent term adjustment or extension. We also rely on trade secrets, know-how, continuing technological innovation and
potential in-licensing opportunities to develop and maintain our proprietary position. Additionally, we expect to benefit, where appropriate,
from statutory frameworks in the United States, Europe and other countries that provide a period of regulatory data exclusivity to compensate
for the time required for regulatory approval.
Patent
Term and Validity
The exclusivity terms of CRT’s
patents depend upon the laws of the countries in which they are obtained. In most countries in which CRT has filed, the patent term is
20 years from the earliest date of filing of a non-provisional patent application. The term of a U.S. patent may be extended to
compensate for the time required to obtain regulatory approval to sell a drug (referred to as a patent term extension) and/or
by delays encountered during patent prosecution that are caused by the USPTO (referred to as patent term adjustment). For example,
the Drug Price Competition and Patent Term Restoration Act of 1984, referred to as the Hatch-Waxman Act, permits a patent term extension
for FDA-approved new chemical entity drugs of up to five years beyond the expiration of the patent. The length of the patent term
extension is related to the length of time the drug is under regulatory review and diligence during the review process. Patent term extensions
in the United States cannot extend the term of a patent beyond a total of 14 years from the date of product approval, only one patent
covering an approved drug or its method of use may be extended, and only those claims covering the approved drug, a method for using
it, or a method for manufacturing it may be extended. A similar kind of patent extension, referred to as a Supplementary Protection Certificate,
is available in Europe. Legal frameworks are also available in certain other jurisdictions to extend the term of a patent. We currently
intend to seek patent term extensions on any of our issued patents in any jurisdiction where we have a qualifying patent and the extension
is available; however, there is no guarantee that the applicable regulatory authorities, including the FDA in the United States, will
agree with our assessment of whether such extensions should be granted, and even if granted, the length of such extensions. Further,
even if our patent is extended, the patent, including the extended portion of the patent, may be held invalid or unenforceable by a court
of final jurisdiction in the United States or a foreign country.
With
respect to our licensed intellectual property, we cannot be sure that patents will be granted with respect to any of CRT’s
pending patent applications or with respect to any patent applications filed by CRT or us in the future, nor can we be sure that
any patents that have been granted, or may be granted to CRT or us in the future, will be commercially useful in protecting our
platforms and drug candidates and the methods used to manufacture them.
Any of CRT’s issued patents,
including patents that we may rely on to protect our market for approved products, may be held invalid or unenforceable by a court of
final jurisdiction. Changes in either the patent laws or in interpretations of patent laws in the United States and other jurisdictions
may diminish our and CRT’s ability to protect CRT’s inventions and enforce our intellectual property rights. Accordingly,
we cannot predict the breadth or enforceability of claims that may be granted on CRT’s patents or on third-party patents. The
pharmaceutical and biotechnology industries are characterized by extensive litigation regarding patents and other intellectual property
rights. Our ability to obtain and maintain our proprietary position will depend on our success in enforcing patent claims that are
granted or may be granted.
Commercialization
Given
the stage of development of our lead asset, we have not yet invested in a commercial infrastructure or distribution capabilities.
While we currently plan to establish our own commercial organization in the United States and potentially in other selected markets,
we continue to consider and evaluate in each market the potential advantages and enhancements of our commercial capabilities that
may be realized as a result of a collaboration between us and a pharmaceutical or other company.
Manufacturing
We
do not currently own or operate manufacturing facilities for the production of preclinical or clinical product candidates, nor
do we have plans to develop or operate our own manufacturing operations in the near future. We currently rely upon third-party contract
manufacturing organizations, or CMOs, to produce our product candidates for both preclinical and clinical use. We believe that
any materials required for the manufacture of our product candidates could be obtained from more than one source.
Government
Regulation and Product Approval
Government
authorities in the United States, at the federal, state and local level, as well as in other countries, extensively regulate,
among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage,
record-keeping, promotion, advertising, distribution, marketing, post-approval monitoring and reporting and export and import
of drug products such as those we are developing.
U.S.
Drug Development Process
In
the United States, the FDA regulates drugs and biologics under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing
regulations. We, along with our vendors, collaboration partners, clinical research organizations, or CROs, clinical trial investigators,
and contract manufacturing organizations, or CMOs, will be required to navigate the various preclinical, clinical, manufacturing
and commercial approval requirements of the governing regulatory agencies of the countries in which we wish to conduct studies
or seek approval of our product candidates. The process of obtaining regulatory approvals and the subsequent compliance with appropriate
federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process or
after approval may subject an applicant to administrative or judicial sanctions. These sanctions could include the FDA’s
refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution,
disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on
us.
The
process required by the FDA before a drug or biologic may be marketed in the United States generally involves the following:
| ● | completion
of
preclinical
laboratory
tests,
animal
studies
and
formulation
studies
in
accordance
with
the
FDA’s
good
laboratory
practice,
or
GLP,
requirements
and
other
applicable
regulations; |
| ● | submission
to
the
FDA
of
an
investigational
new
drug,
or
IND,
application
which
must
become
effective
before
human
clinical
trials
may
begin
and
must
be
updated
annually
and
when
certain
changes
are
made; |
| ● | approval
by
an
independent
institutional
review
board,
or
IRB,
or
ethics
committee
at
each
clinical
site
before
each
trial
may
be
initiated; |
| ● | performance
of
adequate
and
well-controlled human
clinical
trials
in
accordance
with
good
clinical
practice,
or
GCP,
requirements,
to
establish
the
safety
and
efficacy
of
the
product
candidate
for
its
proposed
intended
use; |
| ● | submission
to
the
FDA
of
a
biologics
license
application,
or
BLA,
or
a
new
drug
application,
or
NDA,
after
completion
of
all
pivotal
trials; |
| ● | payment
of
user
fees
for
FDA
review
of
the
BLA
or
NDA; |
| ● | satisfactory
completion
of
an
FDA
advisory
committee
review,
if
applicable; |
| ● | satisfactory
completion
of
one
or
more
FDA
pre-approval inspections
of
the
manufacturing
facility
or
facilities
at
which
the
drug
will
be
produced
to
assess
compliance
with
current
good
manufacturing
practice,
or
cGMP,
requirements
to
assure
that
the
facilities,
methods
and
controls
are
adequate
to
preserve
the
drug’s
identity,
strength,
quality
and
purity; |
| ● | satisfactory
completion
of
any
FDA
audits
of
the
clinical
trial
sites
that
generated
the
data
in
support
of
the
NDA
or
BLA
to
assess
compliance
with
GCPs;
and |
| ● | FDA
review
and
approval
of
the
NDA
or
BLA
to
permit
commercial
marketing
of
the
product
for
particular
indications
for
use
in
the
United
States. |
Before
testing any drug or biologic in humans, the product candidate must undergo rigorous preclinical testing. Preclinical studies include
laboratory evaluations of chemistry, formulation and stability, as well as in vitro and animal studies to assess safety and in
some cases to establish the rationale for therapeutic use. The conduct of preclinical studies is subject to federal and state
regulations and requirements, including GLP requirements for safety and toxicology studies. In the United States, the results
of the preclinical studies, together with manufacturing information and analytical data must be submitted to the FDA as part of
an IND application.
An
IND application is a request for authorization from the FDA to administer an IND product to humans. The central focus of an IND
application is on the general investigational plan and the protocol(s) for clinical studies. The IND application also includes
results of animal and in vitro studies assessing the toxicology, pharmacokinetics, pharmacology, and pharmacodynamic
characteristics of the product candidate; chemistry, manufacturing, and controls information; and any available human data or
literature to support the use of the investigational product. An IND must become effective before human clinical trials may begin.
Once submitted, the IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time
period, raises safety concerns or questions about the proposed clinical trial. In such a case, the IND may be placed on clinical
hold and the IND sponsor and the FDA must resolve any outstanding concerns or questions before the clinical trial can begin. Some
long-term preclinical testing may continue after the IND application is submitted. Submission of an IND therefore may or
may not result in FDA authorization to begin a clinical trial.
The
clinical stage of development involves the administration of the investigational product to human subjects under the supervision
of qualified investigators in accordance with GCPs, which include the requirement that all research subjects provide their informed
consent for their participation in any clinical study. Clinical trials are conducted under protocols detailing, among other things,
the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A
separate submission to the existing IND must be made for each successive clinical trial conducted during product development and
for any subsequent protocol amendments. Furthermore, an independent IRB for each site proposing to conduct the clinical trial
must review and approve the plan for any clinical trial and its informed consent form that must be provided to each clinical trial
subject before the clinical trial begins at that site and must monitor the study until completed.
The
FDA, the IRB or the sponsor may suspend or discontinue a clinical trial at any time on various grounds, including a finding that
the subjects are being exposed to an unacceptable health risk. Further, an IRB can suspend or terminate approval of a clinical
trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
drug has been associated with unexpected serious harm to patients. Some studies also include oversight by an independent group
of qualified experts organized by the clinical study sponsor, known as a data safety monitoring board, which provides authorization
for the study to move forward at designated check points based on review of study data, and may halt the clinical trial if it
determines that there is an unacceptable safety risk for subjects or other grounds, such as no demonstration of efficacy. There
are also requirements governing the reporting of ongoing clinical studies and clinical study results to public registries. In
the United States, information about applicable clinical trials, including clinical trials results, must be submitted within specific
timeframes for publication on the www.clinicaltrials.gov website.
A
sponsor who wishes to conduct a clinical trial outside of the United States may, but need not, obtain FDA authorization to conduct
the clinical trial under an IND. The FDA will accept a well-designed and well-conducted foreign clinical study not conducted
under an IND if the study was conducted in accordance with GCP requirements, and the FDA is able to validate the data through
an onsite inspection if deemed necessary.
Human
clinical trials to evaluate therapeutic indications to support BLAs or NDAs for marketing approval are typically conducted in
three sequential phases that may overlap or be combined:
| ● | Phase
1:
The
product
candidate
is
initially
introduced
into
a
limited
population
of
healthy
human
subjects,
or
in
some
cases,
patients
with
the
target
disease
or condition.
These
studies
are
designed
to
test
the
safety,
dosage
tolerance,
absorption,
metabolism
and
distribution
of
the
investigational
product
in
humans,
evaluate
the
side
effects
associated
with
increasing
doses,
and,
if
possible,
to
gain
early
evidence
of
effectiveness. |
| ● | Phase
2:
The
product
candidate
is
administered
to
a
limited
patient
population
with
a
specified
disease
or
condition
to
evaluate
the preliminary
efficacy,
optimal
dosages
and
dosing
schedule
and
to
identify
possible
adverse
side
effects
and
safety
risks.
Multiple
Phase
2
clinical
trials
may
be
conducted
to
obtain
information
prior
to
beginning
larger
and
more
expensive
Phase
3
clinical
trials. |
| ● | Phase
3:
The
product
candidate
is
administered
to
an
expanded
patient
population
to
further
evaluate
dosage,
to
provide
substantial
evidence
of
clinical
efficacy
and
to
further
test
for
safety,
generally
at
multiple
geographically
dispersed
clinical
trial
sites.
These
clinical
trials
are
intended
to
establish
the
overall
risk/benefit
ratio
of
the
investigational
product
and
to
provide
an
adequate
basis
for
product
approval.
Generally,
two
adequate
and
well-controlled Phase
3
clinical
trials
are
required
by
the
FDA
for
approval
of
an
NDA. |
Post-approval trials,
sometimes referred to as Phase 4 trials, may be conducted after initial marketing approval. These trials are used to gain additional
experience from the treatment of patients in the intended therapeutic indication and are commonly intended to generate additional
safety data regarding use of the product in a clinical setting. In certain instances, the FDA may mandate the performance of Phase
4 clinical trials as a condition of approval of an NDA or BLA. Failure to exhibit due diligence with regard to conducting required
Phase 4 trials could result in withdrawal of approval for products.
During
the development of a new product candidate, sponsors are given opportunities to meet with the FDA at certain points. These points
may be prior to submission of an IND, at the end of Phase 2, and before submitting an NDA or BLA. Meetings at other times
may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date,
for the FDA to provide advice, and for the sponsor and the FDA to reach agreement on the next phase of development. Sponsors typically
use the meetings at the end of the Phase 2 trial to discuss Phase 2 clinical results and present plans for the pivotal Phase 3
clinical trials that they believe will support approval of the new drug.
Concurrent
with clinical trials, companies usually complete additional animal studies and must also develop additional information about
the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing the product candidate
in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing
quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity,
strength, quality and purity of the final drug product. In addition, appropriate packaging must be selected and tested, and stability
studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf
life and to identify appropriate storage conditions for the product candidate.
While
the IND is active, the sponsor must submit progress reports to the FDA at least annually summarizing the results of the clinical
trials and nonclinical studies performed since the last progress report, and must also submit written IND safety reports to the
FDA and investigators fifteen days after the trial sponsor determines the information qualifies for reporting for serious and
unexpected suspected adverse events, findings from other studies suggesting a significant risk to humans exposed to the same or
similar drugs, findings from animal or in vitro testing suggesting a significant risk to humans, and any clinically
important increased incidence of a serious suspected adverse reaction compared to that listed in the protocol or investigator
brochure. The sponsor must also notify the FDA of any unexpected fatal or life-threatening suspected adverse reaction as
soon as possible and in no case later than seven calendar days after the sponsor’s initial receipt of the information.
Expanded
Access
Expanded
access, sometimes called “compassionate use,” is the use of investigational products outside of clinical trials to
treat patients with serious or immediately life-threatening diseases or conditions when there are no comparable or satisfactory
alternative treatment options. FDA regulations allow access to investigational products under an IND by the company or the treating
physician for treatment purposes on a case-by-case basis for: individual patients (single-patient IND applications for
treatment in emergency settings and non-emergency settings); intermediate-size patient populations; and larger populations
for use of the investigational product under a treatment protocol or treatment IND application.
There
is no requirement for a company to provide expanded access to its investigational product. However, if a company decides to make
its investigational product available for expanded access, FDA reviews each request for expanded access and determines if treatment
may proceed. Expanded access may be appropriate when all of the following criteria apply: (i) the patient has a serious or immediately
life-threatening disease or condition, and there is no comparable or satisfactory alternative therapy to diagnose, monitor,
or treat the disease or condition; (ii) the potential benefit justifies the potential risks of the treatment and the potential
risks are not unreasonable in the context of the disease or condition to be treated; and (iii) providing the investigational product
for the requested use will not interfere with the initiation, conduct, or completion of clinical investigations that could support
marketing approval of the expanded access use or otherwise compromise the potential development of the expanded access use.
In
addition, on May 30, 2018, the Right to Try Act was signed into law. The law, among other things, provides an additional
mechanism for patients with a life-threatening condition who have exhausted approved treatments and are unable to participate
in clinical trials to access certain investigational products that have completed a Phase 1 clinical trial, are the subject of
an active IND, and are undergoing investigation for FDA approval. Unlike the expanded access framework described above, the Right
to Try Act does not require the FDA to review or approve requests for use of the investigational product. There is no obligation
for a company to make its investigational products available to eligible patients under the Right to Try Act.
Under
the FDCA, sponsors of one or more investigational products for the treatment of a serious disease or condition must make publicly
available their policy for evaluating and responding to requests for expanded access for individual patients. Sponsors are required
to make such policies publicly available upon the earlier of initiation of a Phase 2 or Phase 3 study, or 15 days after the investigational
drug or biologic receives designation as a breakthrough therapy, fast track product, or regenerative medicine advanced therapy.
There is no obligation for a sponsor to make its investigational products available to eligible patients as a result of the Right
to Try Act.
U.S.
Review and Approval Process
Assuming
successful completion of all required testing in accordance with all applicable regulatory requirements, the results of product
development, preclinical and other nonclinical studies and clinical trials, along with descriptions of the manufacturing process,
analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant information are submitted to the
FDA as part of an NDA or BLA requesting approval to market the product for one or more indications. Data may come from company-sponsored clinical
trials intended to test the safety and efficacy of a product’s use or from a number of alternative sources, including studies
initiated by investigators. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish
the safety and efficacy of the investigational drug, or the safety, purity and potency of the investigational biologic, to the
satisfaction of the FDA. FDA approval of an NDA or BLA must be obtained before a drug or biologic may be marketed in the United
States.
The
submission of an NDA is subject to the payment of substantial user fees under the Prescription Drug User Fee Act, or PDUFA, as
amended; a waiver or reduction of such fees may be obtained under certain limited circumstances, including a waiver of the application
fee for the first application filed by a small business. Additionally, no user fees are assessed on BLAs or NDAs for products
designated as orphan drugs, unless the product also includes a non-orphan indication.
In
the United States, the FDA conducts a preliminary review of all NDAs and BLAs within the first 60 days after submission, before
accepting them for filing, to determine whether they are sufficiently complete to permit substantive review The FDA may request
additional information rather than accept an NDA or BLA for filing. In this event, the application must be resubmitted with the
additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. Once the submission
is accepted for filing, the FDA reviews the application to determine, among other things, whether a product is safe and effective
for its intended use and whether its manufacturing is cGMP-compliant to assure and preserve the product’s identity, strength, quality and purity. Under
the PDUFA guidelines that are currently in effect, the FDA has a goal of ten months from the date of filing of a standard NDA
for a new molecular entity to review and act on the submission and six months from the filing date of an original NDA filed for
priority review. The FDA does not always meet its PDUFA goal dates for standard or priority NDAs and the review process is often
extended by FDA requests for additional information or clarification.
The
FDA may refer an application for a novel drug or biologic to an advisory committee. An advisory committee is a panel of independent
experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether
the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee,
but it considers such recommendations carefully when making decisions.
Before
approving an NDA or BLA, the FDA will typically inspect the facility or facilities where the product is manufactured. The FDA
will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP
requirements and adequate to assure consistent production of the product within required specifications. Additionally, before
approval, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and other requirements and the
integrity of the clinical data submitted to the FDA.
After
the FDA evaluates an application and all related information, including the advisory committee recommendation, if any, and inspection
reports regarding the manufacturing facilities and clinical trial sites, the FDA may issue an approval letter, or, in some cases,
a Complete Response Letter. An approval letter authorizes commercial marketing of the drug with prescribing information for specific
indications. A Complete Response Letter indicates that the review cycle of the application is complete, and the application will
not be approved in its present form. A Complete Response Letter usually describes the specific deficiencies in the application
identified by the FDA. The Complete Response Letter may require additional clinical data, additional pivotal Phase 3 clinical
trial(s) and/or other significant and time-consuming requirements related to clinical trials, preclinical studies or manufacturing.
If a Complete Response Letter is issued, the sponsor must resubmit the application addressing all of the deficiencies identified
in the letter, or withdraw the application. Even if such data and information are submitted, the FDA may decide that the NDA does
not satisfy the regulatory criteria for approval. If and when those conditions have been met to the FDA’s satisfaction,
the FDA will typically issue an approval letter.
If
regulatory approval of a product is granted, such approval will be granted for particular indications and may entail limitations
or restrictions on the indicated uses for which such product may be marketed. For example, the FDA may approve the application
with a Risk Evaluation and Mitigation Strategy, or REMS, to ensure the benefits of the product outweigh its risks. A REMS is a
safety strategy to manage a known or potential serious risk associated with a medicine and to enable patients to have continued
access to such medicines by managing their safe use, and could include medication guides, physician communication plans, or elements
to assure safe use, such as restricted distribution methods, patient registries, and other risk minimization tools. The FDA also
may condition approval on, among other things, changes to proposed labeling or the development of adequate controls and specifications.
Once approved, the FDA may withdraw the product approval if compliance with post-marketing requirements is not maintained
or if problems occur after the product reaches the marketplace. The FDA may also require one or more Phase 4 post-market trials
and surveillance to further assess and monitor the product’s safety and effectiveness after commercialization, and may limit
further marketing of the product based on the results of these post-marketing trials. In addition, new government requirements,
including those resulting from new legislation, may be established, or the FDA’s policies may change, which could impact
the timeline for regulatory approval or otherwise impact ongoing development programs.
Expedited
Development and Review Programs
The
FDA maintains several programs intended to facilitate and expedite development and review of new drugs and biologics to address
unmet medical needs in the treatment of serious or life-threatening diseases or conditions. These programs include fast track
designation, breakthrough therapy designation, priority review and accelerated approval.
New
drugs and biologics are eligible for Fast Track designation if they are intended to treat a serious or life-threatening disease
or condition and demonstrate the potential to address unmet medical needs for the disease or condition. Fast track designation
applies to the combination of the product candidate and the specific indication for which it is being studied. Fast track designation
provides increased opportunities for sponsor interactions with the FDA during preclinical and clinical development and the FDA
may consider for review sections of the NDA or BLA on a rolling basis before the complete application is submitted upon satisfaction
of certain conditions.
In
addition, a new product candidate may be eligible for breakthrough therapy designation if the product candidate is intended to
treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the product, alone
or in combination with one or more other products, may demonstrate substantial improvement over existing therapies on one or more
clinically significant endpoints, such as substantial treatment effects observed early in clinical development. The designation
includes all of the fast track program features, as well as more intensive FDA interaction and guidance beginning as early as
Phase 1, and FDA organizational commitment to expedite development, including involvement of senior managers and experienced
review staff in a cross-disciplinary review, where appropriate.
Any
product submitted to the FDA for approval, including a product with a fast track or breakthrough therapy designation, may also
be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated
approval. A product is eligible for priority review if it is intended to treat a serious or life-threatening disease or condition,
and if approved, would provide a significant improvement in safety or effectiveness compared to marketed products. The FDA will
attempt to direct additional resources to the evaluation of an application for a new product designated for priority review in
an effort to facilitate the review. The FDA endeavors to review original NDAs or BLAs with priority review designations within
six months of the filing date as compared to ten months for review of NDAs and BLAs under standard review.
In
addition, a product may be eligible for accelerated approval. Drugs and biologics intended to treat a serious or life-threatening disease
or condition that generally provides a meaningful therapeutic advantage to patients over available therapies and demonstrates
an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be
measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity
or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability
or lack of alternative treatments. As a condition of approval, the FDA generally requires that a sponsor of a product receiving
accelerated approval perform adequate and well-controlled post-marketing clinical trials to verify the predicted clinical
benefit. Products receiving accelerated approval may be subject to expedited withdrawal procedures if the sponsor fails to conduct
the required clinical trials in a diligent manner, or if such trials fail to verify the predicted clinical benefit. In addition,
the FDA currently requires pre-approval of promotional materials as a condition for accelerated approval, which could adversely
impact the timing of the commercial launch of the product.
Fast
track designation, breakthrough therapy designation, priority review and accelerated approval do not change the standards for
approval but may expedite the development or approval process. Even if a product qualifies for one or more of these programs,
the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for
FDA review or approval will not be shortened.
Pediatric
Information
Under
the Pediatric Research Equity Act, or PREA, an NDA or BLA, or supplement to an application, must contain data to assess the safety
and efficacy of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration
for each pediatric subpopulation for which the product is safe and effective. The FDA may grant deferrals for submission of pediatric
data or full or partial waivers. The Food and Drug Administration Safety and Innovation Act, or FDASIA, amended the FDCA to require
that a sponsor who is planning to submit a marketing application for a drug or biologic that includes a new active ingredient,
new indication, new dosage form, new dosing regimen or new route of administration submit an initial Pediatric Study Plan, or
PSP, within 60 days of an end-of-Phase 2 meeting or, if there is no such meeting, as early as practicable before the initiation
of the Phase 3 or Phase 2/3 study. The initial PSP must include an outline of the pediatric study or studies that the sponsor
plans to conduct, including study objectives and design, age groups, relevant endpoints and statistical approach, or a justification
for not including such detailed information, and any request for a deferral of pediatric assessments or a full or partial waiver
of the requirement to provide data from pediatric studies along with supporting information. The FDA and the sponsor must reach
an agreement on the PSP. A sponsor can submit amendments to an agreed-upon initial PSP at any time if changes to the pediatric
plan need to be considered based on data collected from preclinical studies, early phase clinical trials and/or other clinical
development programs.
Post-approval
Requirements
Any
products manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA,
including, among other things, requirements relating to record-keeping, reporting of adverse experiences, periodic reporting,
product sampling and distribution, and advertising and promotion of the product. After approval, most changes to the approved
product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are
continuing, annual program fees for any marketed products.
Product
manufacturers and their subcontractors involved in the manufacture and distribution of approved products are required to register
their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with cGMP, which impose certain procedural and documentation requirements upon drug manufacturers.
Changes to the manufacturing process are strictly regulated, and, depending on the significance of the change, may require prior
FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and
impose reporting requirements upon us and any third-party manufacturers that we may decide to use. Accordingly, manufacturers
must continue to expend time, money and effort in the area of production and quality control to maintain compliance with cGMP
and other aspects of regulatory compliance. Failure to comply with statutory and regulatory requirements can subject a manufacturer
to possible legal or regulatory action, such as warning letters, suspension of manufacturing, product seizures, injunctions, civil
penalties or criminal prosecution. There is also a continuing, annual program fee for any marketed product.
The
FDA may withdraw approval if compliance with regulatory requirements and standards is not maintained or if problems occur after
the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events of unanticipated
severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions
to the approved labeling to add new safety information, imposition of post-market studies or clinical studies to assess new
safety risks, or imposition of distribution restrictions or other restrictions under a REMS program. Other potential consequences
include, among other things:
| ● | restrictions
on
the
marketing
or
manufacturing
of
the
product,
complete
withdrawal
of
the
product
from
the
market
or
product
recalls; |
| ● | fines,
warning
letters,
or
untitled
letters; |
| ● | holds
on
clinical
trials; |
| ● | refusal
of
the
FDA
to
approve
pending
applications
or
supplements
to
approved
NDAs,
or
suspension
or
revocation
of
product
approvals; |
| ● | product
recall,
seizure
or
detention,
or
refusal
to
permit
the
import
or
export
of
products; |
| ● | consent
decrees,
corporate
integrity
agreements,
debarment
or
exclusion
from
federal
healthcare
programs; |
| ● | mandated
modification
of
promotional
materials
and
labeling
and
the
issuance
of
corrective
information; |
| ● | the
issuance
of
safety
alerts,
Dear
Healthcare
Provider
letters,
press
releases
and
other
communications
containing
warnings
or
other
safety
information
about
the
product;
or |
| ● | injunctions
or
the
imposition
of
civil
or
criminal
penalties. |
The
FDA closely regulates the marketing, labeling, advertising and promotion of drug and biologic products. A company can make only
those claims relating to safety and efficacy, purity and potency that are approved by the FDA and in accordance with the provisions
of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses
of approved products. Failure to comply with these requirements can result in, among other things, adverse publicity, warning
letters, corrective advertising and potential civil and criminal penalties. Physicians may prescribe, in their independent professional
medical judgment, legally available products for uses that are not described in the product’s labeling and that differ from
those tested and approved by the FDA. Physicians may believe that such off-label uses are the best treatment for many patients
in varied circumstances. The FDA does not regulate the behavior of physicians in their choice of treatments. The FDA does, however,
restrict marketers’ communications on the subject of off-label use of their products. The federal government has levied
large civil and criminal fines against companies for alleged improper promotion of off-label use and has enjoined companies
from engaging in off-label promotion. The FDA and other regulatory agencies have also required that companies enter into
consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed. However, companies
may share truthful and not misleading information that is otherwise consistent with a product’s FDA-approved labelling.
United
States Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of FDA approval of our future product candidates, some of our United States patents may
be eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly
referred to as the Hatch-Waxman Amendments, as discussed in the Intellectual Property section above. Regulatory exclusivity
provisions authorized under the FDCA can delay the submission or the approval of certain marketing applications. The FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain approval
of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously approved any other new drug
containing the same active moiety, which is the molecule or ion responsible for the action of the drug substance. During the exclusivity
period, the FDA may not approve or even accept for review an abbreviated new drug application, or ANDA, or an NDA submitted under
Section 505(b)(2), or 505(b)(2) NDA, submitted by another company for another drug based on the same active moiety, regardless
of whether the drug is intended for the same indication as the original innovative drug or for another indication, where the applicant
does not own or have a legal right of reference to all the data required for approval. However, an application may be submitted
after four years if it contains a certification of patent invalidity or non-infringement to one of the patents listed with
the FDA by the innovator NDA holder.
The
FDCA also provides three years of marketing exclusivity for an NDA or supplement to an existing NDA if new clinical investigations,
other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential to
the approval of the application, for example new indications, dosages or strengths of an existing drug. This three-year exclusivity
covers only the modification for which the drug received approval on the basis of the new clinical investigations and does not
prohibit the FDA from approving ANDAs or 505(b) NDAs for drugs containing the original active agent for the other conditions of
use. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA. However, an applicant
submitting a full NDA would be required to conduct or obtain a right of reference to any preclinical studies and adequate and
well-controlled clinical trials necessary to demonstrate safety and effectiveness.
Pediatric
exclusivity is another type of marketing exclusivity available in the United States. Pediatric exclusivity provides for an additional
six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children
in response to a written request from the FDA. The issuance of a written request does not require the sponsor to undertake the
described clinical trials. In addition, orphan drug exclusivity, as described above, may offer a seven-year period of marketing
exclusivity, except in certain circumstances.
Other
Healthcare Laws
Pharmaceutical
and biologics companies are subject to additional healthcare regulation and enforcement by the federal government and by authorities
in the states and foreign jurisdictions in which they conduct their business. Such laws include, without limitation, U.S. federal
and state anti-kickback, fraud and abuse, false claims, pricing reporting, data privacy and security, and physician payment transparency
laws, state pharmaceutical marketing laws and regulations as well as similar foreign laws in the jurisdictions outside the United
States. Violation of any of such laws or any other governmental regulations that apply may result in significant penalties, including,
without limitation, administrative civil and criminal penalties, damages, disgorgement fines, additional reporting requirements
and oversight obligations, contractual damages, the curtailment or restructuring of operations, exclusion from participation in
governmental healthcare programs and/or imprisonment.
Coverage
and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of any product candidate for which we may seek regulatory approval.
Sales in the United States will depend, in part, on the availability of sufficient coverage and adequate reimbursement from third-party payors,
which include government health programs such as Medicare, Medicaid, TRICARE and the Veterans Administration, as well as managed
care organizations and private health insurers. Prices at which we or our customers seek reimbursement for our product candidates
can be subject to challenge, reduction or denial by third-party payors.
The
process for determining whether a third-party payor will provide coverage for a product is typically separate from the process
for setting the reimbursement rate that the payor will pay for the product. In the United States, there is no uniform policy among
payors for coverage or reimbursement. Decisions regarding whether to cover any of a product, the extent of coverage and amount
of reimbursement to be provided are made on a plan-by-plan basis. Third-party payors often rely upon Medicare coverage
policy and payment limitations in setting their own coverage and reimbursement policies, but also have their own methods and approval
processes. Therefore, coverage and reimbursement for products can differ significantly from payor to payor. As a result, the coverage
determination process is often a time-consuming and costly process that can require manufacturers to provide scientific and
clinical support for the use of a product to each payor separately, with no assurance that coverage and adequate reimbursement
will be applied consistently or obtained in the first instance.
Third-party payors
are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. Adoption of price controls and cost-containment measures, and adoption
of more restrictive policies in jurisdictions with existing controls and measures, could further limit sales of any product that
receives approval. Third-party payors may not consider our product candidates to be medically necessary or cost-effective compared
to other available therapies, or the rebate percentages required to secure favorable coverage may not yield an adequate margin
over cost or may not enable us to maintain price levels sufficient to realize an appropriate return on our investment in drug
development. Additionally, decreases in third-party reimbursement for any product or a decision by a third-party payor
not to cover a product could reduce physician usage and patient demand for the product.
U.S.
Healthcare Reform
In
the United States, there has been, and continues to be, several legislative and regulatory changes and proposed changes regarding
the healthcare system that could prevent or delay marketing approval of product candidates, restrict or regulate post-approval activities,
and affect the profitable sale of product candidates.
Among
policy makers and payors in the United States, there is significant interest in promoting changes in healthcare systems with the
stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical
industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In
March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively,
the ACA) was passed, which substantially changed the way healthcare is financed by both governmental and private insurers, and
significantly affected the pharmaceutical industry. The ACA increased the minimum level of Medicaid rebates payable by manufacturers
of brand name drugs from 15.1% to 23.1%; required collection of rebates for drugs paid by Medicaid managed care organizations;
required manufacturers to participate in a coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts
off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under Medicare Part D; imposed a non-deductible annual fee on pharmaceutical
manufacturers or importers who sell certain “branded prescription drugs” to specified federal government programs,
implemented a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for
drugs that are inhaled, infused, instilled, implanted, or injected; expanded eligibility criteria for Medicaid programs; created
a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness
research, along with funding for such research; and established a Center for Medicare Innovation at the CMS to test innovative
payment and service delivery models to lower Medicare and Medicaid spending, potentially including prescription drug spending.
There
remain judicial and political challenges to certain aspects of the ACA. For example, the Tax Cuts and Jobs Act of 2017 (Tax Act)
includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the
ACA on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred
to as the “individual mandate.” On December 14, 2018, a U.S. District Court Judge in the Northern District of
Texas ruled that the individual mandate is a critical and inseverable feature of the ACA, and therefore, because it was repealed
as part of the Tax Act, the remaining provisions of the ACA are invalid as well. On December 18, 2019, the U.S. Court of
Appeals for the 5th Circuit affirmed the District Court’s decision that the individual mandate was unconstitutional
but remanded the case back to the District Court to determine whether the remaining provisions of the ACA are invalid as well.
Following an appeal made by certain defendants, on June 17, 2021, the U.S. Supreme Court dismissed the plaintiffs’
challenge to the ACA without specifically ruling on the constitutionality of the ACA. Prior to the Supreme Court’s decision,
President Biden issued an Executive Order to initiate a special enrollment period from February 15, 2021 through August 15,
2021 for purposes of obtaining health insurance coverage through the ACA marketplace. The Executive Order also instructed certain
governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among
others, reexamining Medicaid demonstration projects and waiver programs that include work requirements, and policies that create
unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. It is unclear how other healthcare
reform measures of the Biden administrations or other efforts, if any, to challenge repeal or replace the ACA, will impact our
business.
In
addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes included aggregate
reductions to Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent
legislative amendments to the statute, including the Bipartisan Budget Act of 2018, will remain in effect through 2029 unless
additional Congressional action is taken. The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into
law on March 27, 2020 and suspended these reductions from May 1, 2020 through December 31, 2020 due to the COVID-19 pandemic,
and extended the sequester by one year, through 2030. In addition, on January 2, 2013, the American Taxpayer Relief Act of
2012 was signed into law, which, among other things, reduced Medicare payments to several providers, including hospitals, and
increased the statute of limitations period for the government to recover overpayments to providers from three to five years.
Moreover,
there has recently been heightened governmental scrutiny over the manner in which manufacturers set prices for their marketed
products, which has resulted in several Congressional inquiries and proposed and enacted federal and state legislation designed
to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for pharmaceutical products.
At
a federal level, President Biden signed an Executive Order on July 9, 2021 affirming the administration’s policy to
(i) support legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare
to negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-cost generic
drugs and biosimilars; and (ii) support the enactment of a public health insurance option. Among other things, the Executive Order
also directs HHS to provide a report on actions to combat excessive pricing of prescription drugs, enhance the domestic drug supply
chain, reduce the price that the Federal government pays for drugs, and address price gouging in the industry; and directs the
FDA to work with states and Indian Tribes that propose to develop section 804 Importation Programs in accordance with the Medicare
Prescription Drug, Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations. FDA released such
implementing regulations on September 24, 2020, which went into effect on November 30, 2020, providing guidance for
states to build and submit importation plans for drugs from Canada. On September 25, 2020, CMS stated drugs imported by states
under this rule will not be eligible for federal rebates under Section 1927 of the Social Security Act and manufacturers would
not report these drugs for “best price” or Average Manufacturer Price purposes. Since these drugs are not considered
covered outpatient drugs, CMS further stated it will not publish a National Average Drug Acquisition Cost for these drugs. If
implemented, importation of drugs from Canada may materially and adversely affect the price we receive for any of our product candidates. Further, on November 20, 2020 CMS issued an Interim Final
Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B reimbursement rates would have been be calculated
for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic Cooperation
and Development countries with a similar gross domestic product per capita. However, on December 27, 2021 CMS announced a final
rule to rescind the Most Favored Nations rule. Additionally, on November 30, 2020, HHS published a regulation removing anti-kickback
safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or
through pharmacy benefit managers, unless the price reduction is required by law. The rule also creates a new anti-kickback safe
harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between
pharmacy benefit managers and manufacturers. Implementation of these anti-kickback safe harbor changes have been delayed until
at least January 1, 2023. Both the Biden administration and Congress have indicated that they will continue to seek new legislative
measures to control drug costs.
Individual
states in the United States have also become increasingly active in implementing regulations designed to control pharmaceutical
product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing
cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk
purchasing. In addition, regional healthcare authorities and individual hospitals are increasingly using bidding procedures to
determine which drugs and suppliers will be included in their healthcare programs. Furthermore, there has been increased interest
by third party payors and governmental authorities in reference pricing systems and publication of discounts and list prices.
Scientific
Advisory Board
We
have assembled, and will continue to develop, a Scientific Advisory Board (SAB) composed of advisors with expertise in the fields
of biotechnology, medicine, pharmaceuticals, and oncology. The SAB provides strategic guidance and direction for our development
programs, and will play a key role in guiding and prioritizing future research efforts. Our scientific advisory board is currently
composed of:
| ● | Jonathan
Lewis,
M.D.,
Ph.D.,
Chairman
of
the
SAB,
has
more
than
fifteen
years
of
experience
in
the
healthcare
and
drug
development
industry,
and
having
previously
served
as
Chief
Executive
Officer
and
Director
of
ZIOPHARM,
Inc.
(NASDAQ:
ZIOP)
and
Chief
Medical
Officer
at
Antigenics,
Inc.
Previously,
Dr.
Lewis
served
as
Professor
of
Surgery
and
Medicine
at
Memorial
Sloan-Kettering
Cancer
Center.
He
has
been
actively
involved
in
leading
translational
and
clinical
research
in
cancer
and
is
widely
recognized
by
patient
advocacy
groups.
He
has
received
numerous
honors
and
awards
in
medicine
and
science,
including
the
ASCO
young
investigator
award,
the
Yale
University
Ohse
award,
and
the
Royal
College
of
Surgeons
Trubshaw
Medal.
Dr.
Lewis
was
awarded
an
MB.B.Ch.
from University
of
the
Witwatersrand School
of
Medicine,
and
his
Ph.D.
in
Molecular
Biology
from
Witwatersrand
and Yale
School
of
Medicine.
He
completed
his
Surgical
Residency
at Charlotte
Maxeke
Johannesburg
Academic
Hospital and
at Yale-New
Haven
Hospital. |
| ● | Peter
Parker,
D.Phil.
was
trained
in
Biochemistry
(BA)
at
Oxford
and
then
as
a
post-graduate
under
Professor
Sir
Philip
Randle
in
Clinical
Biochemistry
(D.Phil)
at
Oxford.
He
subsequently
gained
an
MRC
Post-Doctoral
Fellowship
to
work
with
Professor
Sir
Philip
Cohen
in
Dundee
and
following
this
started
working
in
the
area
of
oncology
as
an
Imperial
Cancer
Research
Fund
Fellow
with
Professor
Mike
Waterfield
in
London,
subsequently
moving
as
one
of
the
founding
members
to
the
Ludwig
Institute
at
UCL.
He
was
subsequently
appointed
Principal
Scientist
at
ICRF
in
1990
and
has
held
a
joint
appointment
with
King’s
College
London
since
2006.
Peter
Parker
has
been
recognized
by
the
research
community
for
his
contributions
having
been
elected
to
the
European
Molecular
Biology
Organisation
in
1997,
to
the
Academy
of
Medical
Sciences
in
2000,
he
was
awarded
the
Morton
Prize
in
2004,
elected
to
the
Royal
Society
in
2006
and
elected
to
the
European
Academy
of
Cancer
Sciences
in
2011.
Peter
is
a
Principal
Investigator
at
the
Francis
Crick
Institute
and
Head
of
the
Division
of
Cancer
Studies
at
King’s
College
London. |
| ● | James
O.
Armitage,
M.D.,
is
the
Joe
Shapiro
Chair
for
the
Study
of
Oncology
and
Clinical
Research
at
the
University
of
Nebraska
Medical
Center
(UNMC)
in
Omaha.
Dr.
Armitage
played
a
critical
role
in
advancing
the
field
of
bone
marrow
transplantation,
launching
one
of
the
most
successful
transplant
programs
in
the
world
for
the
treatment
of
blood
cancers
at
UNMC.
There,
he
held
many
leadership
roles
including
Vice
Chairman
of
the
Department
of
Medicine,
the
Henry
J.
Lehnhoff
Chairman
in
the
Department
of
Internal
Medicine,
and
Dean
of
the
College
of
Medicine.
Recently,
Dr.
Armitage
was
a
director
on
the
board
of
Tesaro
as
well
as
a
member
of
numerous
professional
organizations,
and
formerly
served
as
President
of
ASCO
and
as
President
of
the
American
Society
for
Blood
and
Marrow
Transplantation
(ASBMT).
He
has
authored
or
co-authored
numerous
articles,
book
chapters
and
abstracts,
and
currently
serves
on
the
editorial
boards
of
several
peer-reviewed
journals. |
| ● | William
Matsui,
M.D.
is
a
board-certified
medical
oncologist
in
UT
Health
Austin’s Livestrong
Cancer
Institutes.
He
specializes
in
the
diagnosis
and
treatment
of
patients
with
cancers
that
involve
the
blood,
bone
marrow,
and
lymph
nodes
(lymphoma).
Additionally,
Dr.
Matsui
is
a
professor
in
the
Dell
Medical
School
Department
of
Oncology
and
a
courtesy
professor
in
the
Dell
Medical
School
Department
of
Internal
Medicine.
Dr.
Matsui
is
also
a
member
of
the
American
Society
for
Clinical
Investigation,
the
American
Society
of
Clinical
Oncology,
the
American
Association
of
Cancer
Research,
the
International
Society
for
Stem
Cell
Research,
the
American
Society
for
Blood
and
Marrow
Transplantation,
and
the
American
Society
of
Hematology. |
| ● | Todd
Wider, M.D., is the Executive Chairman and Chief Medical Officer of Emendo Biotherapeutics,
which focuses on highly specific and differentiated gene editing, since June 2018. Dr. Wider
also serves on the board of directors of ARYA Sciences Acquisition Corp IV and V (Nasdaq:
ARYD, ARYE) since 2021, a SPAC, and Abeona Therapeutics Inc. (Nasdaq: ABEO), a clinical-stage
biopharmaceutical company, since 2015. Dr. Wider also served as a director of the following
SPACs: ARYA Sciences Acquisition Corp. from October 2018 to June 2020, ARYA Sciences Acquisition
Corp II from July 2020 to October 2020 and ARYA Sciences Acquisition Corp III from August
2020 to June 2021. Dr. Wider is an active, honorary member of the medical staff of Mount
Sinai Hospital in New York, where he worked for over 20 years, and is a plastic and reconstructive
surgeon who focused on cancer surgery. Dr. Wider received an MD from Columbia College of
Physicians and Surgeons and an AB, with high honors and Phi Beta Kappa, from Princeton University.
He did his residency in general surgery and plastic and reconstructive surgery at Columbia
Presbyterian Medical Center, and postdoctoral fellowships in complex reconstructive surgery
at Memorial Sloan Kettering Cancer Center, where he was Chief Microsurgery Fellow, and in
craniofacial surgery at the University of Miami. We believe that Dr. Wider is qualified to
serve on the board of the Combined Company because of his experience in the biotherapeutics
industry and as a surgeon treating patients with basal cell carcinoma, in addition to his
experience as a director of several public companies. |
Employees
As
of March 1, 2022, we had two (2) full-time employees and six (6) consultants. None of our employees are represented
by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Facilities
Varian
Bio is currently outsourcing chemistry, manufacturing, and pre-clinical testing work to third party organizations, and intends
to continue to outsource development, pre-clinical testing and initial Phase 1 clinical trial activity to qualified contract research
organizations (CROs) and contract manufacturing organizations (CMOs), as appropriate.
Legal
Proceedings
We
are not subject to any legal proceedings.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF VARIAN BIO
You
should read the following discussion and analysis of Varian Bio’s financial condition and results of operations together with the
“Selected Historical Financial Data” section of this proxy statement/prospectus and our financial statements and the
related notes appearing at the end of this proxy statement/prospectus. Some of the information contained in this discussion and analysis
or set forth elsewhere in this proxy statement/prospectus, including information with respect to Varian Bio’s plans and strategy
for its business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many
factors, including those factors set forth in the “Risk Factors” section of this proxy statement/prospectus, our actual
results could differ materially from the results described in or implied by the forward-looking statements contained in the following
discussion and analysis.
Overview
Varian Bio is a development stage
biopharmaceutical company, focused on acquiring and developing anti-cancer agents in the United States, the European Union and internationally.
Varian Bio is developing VAR-101/102, a high-potency, specific, atypical Protein Kinase C iota (“aPKCi”) inhibitor
in two formulations. Recently, numerous scientific publications have identified aPKCi as an oncogene, whose presence and activation has
been implicated in the development and growth of multiple forms of human cancer including basal cell carcinoma (“BCC”),
cutaneous T-cell lymphoma (“CTCL”), pancreatic, non-small cell lung cancel
(“NSCLC”), acute myeloid leukemia (“AML”)
and others. The active pharmaceutical ingredient in VAR-101/102, an aPKCi inhibitor, has demonstrated dose dependent anti-tumor
activity in murine and human BCC cell lines, as well as other cancer models. Varian Bio intends to develop VAR-101 in a topical formulation
for BCC which has the potential to offer optimal clinical utility in BCC as a surgical neoadjuvant or adjuvant therapy. VAR-102, an oral
formulation of the active aPKCi inhibitor, lends itself to broader applications in multiple tumor types. Varian Bio believes that VAR-101
and VAR-102 could represent significant medical and commercial opportunities. Additionally, Varian Bio plans to continue to seek to in-license
or acquire additional anti-cancer agents for pre-clinical and clinical development.
Varian Bio is seeking to complete
a merger with SPKA, which would result in SPKA acquiring 100% of Varian Bio’s issued and outstanding securities. Together with
SPKA’s cash resources, additional funding for Varian Bio’s operations would be provided through a PIPE Investment
to be completed concurrently with the Merger. In the event a merger is not consummated,
Varian Bio may be required to obtain additional funding whether through future collaboration agreements, private or public offerings,
debt or a combination thereof and such additional funding may not be available on terms Varian Bio finds acceptable or favorable. There
is inherent uncertainty associated with these fundraising activities and they are not considered probable. If Varian Bio is unable to
obtain sufficient capital to continue to advance our programs, Varian Bio would be forced to delay, reduce or eliminate our research
and development programs and any future commercialization efforts. Accordingly, substantial doubt is deemed to exist about Varian Bio’s
ability to continue as a going concern within 12 months following the date our audited financial statements for December 31,
2021 were issued.
Since
inception in 2019, Varian Bio has devoted substantially all our efforts and financial resources to organizing and staffing our
company, business planning, raising capital, discovering product candidates and preparing and filing related patent applications
and conducting research and development activities for our product candidates. Varian Bio does not have any products approved
for sale and we have not generated any revenue from product sales. Varian Bio may never be able to develop or commercialize a
marketable product.
Varian
Bio’s lead product candidate, VAR-101/102, is being evaluated and our other potential product candidates and our research
initiatives are in preclinical or earlier stages of development. Varian Bio’s ability to generate revenue from product sales
sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization or partnership
of one or more of our product candidates. Varian Bio has not yet successfully completed any clinical trials, nor have we obtained
any regulatory approvals, manufactured a commercial-scale drug, or conducted sales and marketing activities.
Varian Bio expects to continue
to incur net losses for the foreseeable future, and we expect our research and development expenses, and general and administrative expenses
to continue to increase. Varian Bio has incurred operating losses since inception. Varian Bio’s net loss was $593,709 for the year
ended December 31, 2020 and $1,476,991 for the year ended December 31, 2021. Varian Bio expects that our expenses
and capital requirements will increase substantially in connection with our ongoing development activities, particularly if and as Varian
Bio:
|
● |
continue
our research and preclinical development of our product candidates; |
|
|
|
|
● |
expand
the scope of our development into clinical studies for our product candidates; |
|
|
|
|
● |
further
develop the manufacturing process for our product candidates; |
|
|
|
|
● |
change
or add additional manufacturers or suppliers; |
|
|
|
|
● |
seek
regulatory and marketing approvals for our product candidates that successfully complete clinical studies; |
|
|
|
|
● |
seek
to identify and validate additional product candidates; |
|
|
|
|
● |
acquire
or in-license other product candidates and technologies; |
|
|
|
|
● |
make
milestone or other payments under any license agreements; |
|
|
|
|
● |
maintain,
protect and expand our intellectual property portfolio; |
|
|
|
|
● |
attract
and retain skilled personnel; |
|
|
|
|
● |
build
additional infrastructure to support our operations as a larger public company and our product development and planned future commercialization
efforts, including manufacturing capacity; and |
|
|
|
|
● |
experience
any delays or encounter issues with any of the above. |
Furthermore,
upon the Closing, Varian Bio expects to incur additional costs associated with operating as a public company, including significant
legal, accounting, investor relations and other expenses that we did not incur as a private company.
As a result, Varian Bio will need
substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate
significant revenue from product sales, if ever, Varian Bio expects to finance our operations through a combination of private and public
equity offerings, debt financings or other capital sources, which may include collaborations with other companies, government funding,
or other strategic transactions.
In conjunction with the Merger
Agreement, on February 11, 2022, Varian Bio entered into a Securities Purchase Agreement in which Bridge Notes in the aggregate of $3,192,496
were issued in exchange for cash in the aggregate amount of $2,000,000 and the exchange of the outstanding related party loans plus statutory
interest for an aggregate amount of $660,413. The Bridge Notes mature on August 14, 2022 or earlier upon the close of the Business Combination
and accrue interest at an annual rate 15%. Varian Bio’s obligations under the Bridge Notes are secured by a first priority lien
on the license with CRT.
To the extent that Varian Bio
raises additional capital through the sale of private or public equity or convertible debt securities, existing ownership interests will
be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of Varian
Bio equity holders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting
or restricting Varian Bio’s ability to take specific actions, such as incurring additional debt, making acquisitions or capital
expenditures or declaring dividends. If Varian Bio raises additional funds through collaborations or other strategic transactions with
third parties, Varian Bio may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug
candidates, or grant licenses on terms that may not be favorable to Varian Bio. Varian Bio may be unable to raise additional funds or
enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into
such agreements as and when needed, Varian Bio may have to significantly delay, scale back or discontinue the development and commercialization
of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Because
of the numerous risks and uncertainties associated with product development, Varian Bio is unable to predict the timing or amount
of increased expenses or when or if we will be able to achieve or maintain profitability. Even if Varian Bio is able to generate
product sales, we may not become profitable. If Varian Bio fails to become profitable or is unable to sustain profitability on
a continuing basis, Varian Bio may be unable to continue our operations at planned levels and be forced to reduce or terminate
our operations.
Varian
Bio has incurred operating losses since our inception and as of December 31, 2021, had an accumulated deficit of $2,092,184 and
had not yet generated revenues. In addition, Varian Bio expects to continue to incur significant and increasing expenses and operating
losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going concern. As of December
31, 2021, cash and equivalents were $4,554 and our management believes that our existing cash resources will not be sufficient
to allow Varian Bio to fund current planned operations beyond the next twelve months from the date of this proxy statement/prospectus
without additional capital. Varian Bio believes, however, that the net proceeds from the Business Combination (assuming no redemptions)
and the PIPE Investment, together with our available resources and existing cash and cash equivalents, will enable us to fund our operating
expenses and capital expenditure requirements through 2024. Varian Bio has based this estimate on assumptions that may prove to be wrong,
and we could exhaust our available capital resources sooner than we expect. See “— Liquidity and capital resources”
below. Varian Bio’s future viability beyond that point is dependent on our ability to raise additional capital to finance our operations.
COVID-19
pandemic
To
date, Varian Bio’s financial condition and operations have not been significantly impacted by the COVID-19 pandemic.
However, Varian Bio cannot at this time predict the specific extent, duration, or full impact that the COVID-19 pandemic
will have on our financial condition and operations, including ongoing and planned clinical trials and other operations required
to support those clinical trials and research and development activities to advance Varian Bio’s pipeline. The impact of
the COVID-19 pandemic on our financial performance will depend on future developments, including the duration and spread
of the outbreak and related governmental advisories and restrictions. These developments and the impact of the COVID-19 pandemic
on the financial markets and the overall economy are highly uncertain and cannot be predicted. If the financial markets and/or
the overall economy are impacted for an extended period, Varian Bio’s results may be materially adversely affected.
Proposed
Business Combination Transaction
On
February 11, 2022, SPKA executed a definitive merger agreement among it, Merger Sub, and Varian Bio. As a result of the proposed Business
Combination, SPKA will be renamed to “Varian Biopharma, Inc.,” or the Combined Entity, and Varian Bio will become a wholly-owned subsidiary
of the Combined Entity. In connection with the Business Combination, the shareholders of Varian Bio will exchange their interests in
Varian Bio for shares of Common Stock. In addition, Varian Bio’s existing stock options will be terminated
and the awards will be exchanged for awards issued under a new equity incentive plan to be adopted by the Combined Entity. The
Combined Entity is expected to receive gross proceeds of approximately $47 million at the Closing (assuming no redemptions
are effected by stockholders of SPKA) and will continue to operate under the Varian Bio management team, led by chief executive officer
Jeffrey Davis. The boards of directors of both SPKA and Varian Bio have approved the proposed transaction. Completion of the transaction,
which is expected in the second quarter of 2022, is subject to approval of SPKA stockholders and the satisfaction or waiver of certain
other customary closing conditions.
Components
of Varian Bio’s Operating Results
Revenue
Varian
Bio has not generated any revenue since inception and does not expect to generate any revenue from the sale of products in the
near future, if at all. If Varian Bio’s development efforts are successful and we commercialize our products, or if we enter
into collaboration or license agreements with third parties, we may generate revenue in the future from product sales, as well
as upfront, milestone and royalty payments from such collaboration or license agreements, or a combination thereof.
Operating
Expenses
Research
and development expenses
Research
and development expenses consist primarily of costs incurred for research activities, including drug discovery efforts and the
development of Varian Bio’s potential product candidates. Varian Bio expenses research and development costs as incurred,
which include:
| ● | expenses
incurred
to
conduct
the
necessary
preclinical
studies
and
clinical
trials
required
to
obtain
regulatory
approval; |
| ● | expenses
incurred
under
agreements
with
CROs
that
are
primarily
engaged
in
the
oversight
and
conduct
of
our
drug
discovery
efforts
and
preclinical
studies,
clinical
trials
and
CMOs
that
are
primarily
engaged
to
provide
preclinical
and
clinical
drug
substance
and
product
for
our
research
and
development
programs; |
| ● | other
costs
related
to
acquiring
and
manufacturing
materials
in
connection
with
our
drug
discovery
efforts
and
preclinical
studies
and
clinical
trial
materials,
including
manufacturing
validation
batches,
as
well
as
investigative
site
and
consultants
that
conduct
our
clinical
trials,
preclinical
studies
and
other
scientific
development
services; |
| ● | employee-related expenses,
including
salaries
and
benefits,
travel
and
stock-based compensation
expense
for
employees
engaged
in
research
and
development
functions;
and |
| ● | costs
related
to
compliance
with
regulatory
requirements. |
Varian
Bio recognizes external development costs as incurred. Any advance payments that Varian Bio makes for goods or services to be
received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are expensed
as the related goods are delivered or the related services are performed, or until it is no longer expected that the goods will
be delivered or the services rendered. Varian Bio estimates and accrues for the value of goods and services received from CROs
and other third parties each reporting period based on an evaluation of the progress to completion of specific tasks using information
provided to us by our service providers. This process involves reviewing open contracts and purchase orders, communicating with
our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the
associated cost incurred for the service when Varian Bio has not yet been invoiced or otherwise notified of actual costs.
At
any one time, Varian Bio is working on multiple programs. Our direct external research and development expenses consist primarily of
external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development,
process development, manufacturing, and clinical development activities. Varian Bio does not allocate employee costs, costs associated
with our discovery efforts to specific programs because these costs are deployed across multiple programs and, as such, are not separately
classified. Varian Bio uses internal resources primarily to conduct our research and discovery as well as for managing our preclinical
development, process development, manufacturing and clinical development activities. To date, substantially all of the research and development
costs incurred to date have been in connection with the development of our lead product candidate, VAR-101/102.
The
following table summarizes our research and development expenses for the year ended December 31, 2021:
| |
Year ended
December
31, 2021 |
Direct costs: | |
| | |
VAR-101 | |
$ | 186,728 | |
VAR-102 | |
| 90,121 | |
Total direct costs | |
| 276,849 | |
Indirect costs: | |
| | |
Payroll and related
expenses | |
| 219,835 | |
| |
| | |
Total research
and development expenses | |
$ | 496,684 | |
Research
and development activities are central to Varian Bio’s business model. Product candidates in later stages of clinical development
generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size
and duration of later-stage clinical trials. As a result, Varian Bio expects that our research and development expenses will
increase substantially over the next several years as we commence planned clinical trials for VAR-101/102, as well as conduct
other preclinical and clinical development, including submitting regulatory filings for our other product candidates. Varian Bio
also expects our discovery research efforts and our related personnel costs will increase and, as a result, we expect our research
and development expenses, including costs associated with stock-based compensation, will increase above historical levels.
In addition, we may incur additional expenses related to milestone and royalty payments payable to third parties with whom we
may enter into license, acquisition and option agreements to acquire the rights to future product candidates.
At
this time, Varian Bio cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to
complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows
may commence from any of our product candidates. The successful development and commercialization of our product candidates is
highly uncertain. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization,
including the uncertainty of the following:
| ● | the
scope,
progress,
outcome
and
costs
of
our
preclinical
development
activities,
clinical
trials
and
other
research
and
development
activities; |
| ● | establishing
an
appropriate
safety
and
efficacy
profile
with
clinically
enabling
studies; |
| ● | successful
patient
enrollment
in
and
the
initiation
and
completion
of
clinical
trials; |
| ● | the
timing,
receipt
and
terms
of
any
marketing
approvals
from
applicable
regulatory
authorities
including
the
FDA
and
non-U.S.
regulators; |
| ● | the
extent
of
any
required
post-marketing approval
commitments
to
applicable
regulatory
authorities; |
| ● | establishing
clinical
and
commercial
manufacturing
capabilities
or
making
arrangements
with
third-party manufacturers
in
order
to
ensure
that
we
or
our
third-party manufacturers
are
able
to
make
product
successfully; |
| ● | development
and
timely
delivery
of
clinical-grade and
commercial-grade drug
formulations
that
can
be
used
in
our
clinical
trials
and
for
commercial
launch; |
| ● | obtaining,
maintaining,
defending
and
enforcing
patent
claims
and
other
intellectual
property
rights; |
| ● | significant
and
changing
government
regulation; |
| ● | launching
commercial
sales
of
our
product
candidates,
if
and
when
approved,
whether
alone
or
in
collaboration
with
others;
and |
| ● | maintaining
a
continued
acceptable
safety
profile
of
our
product
candidates
following
approval,
if
any,
of
our
product
candidates. |
Any
changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and
clinical development could mean a significant change in the costs and timing associated with the development of these product
candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require
us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in
enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and
time on the completion of clinical development of that product candidate.
General
and administrative expenses
General
and administrative expenses consist primarily of employee-related expenses, including salaries and related benefits, travel
and stock-based compensation for personnel in executive, business development, finance, human resources, legal, information
technology, and administrative functions. General and administrative expenses also include insurance costs and professional fees
for legal, patent, consulting, investor and public relations, pre-commercial planning, accounting and audit services. Varian
Bio expenses general and administrative costs as incurred.
Varian
Bio anticipates that our general and administrative expenses will increase in the future as we increase our headcount to support
the continued development of our product candidates. Varian Bio also anticipates that we will incur significantly increased accounting,
audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses
associated with operating as a public company. Additionally, if and when we believe a regulatory approval of a product candidate
appears likely, we anticipate an increase in payroll and other employee-related expenses as a result of our preparation for
commercial operations, especially as we relate to the sales and marketing of that product candidate.
Provision
for Income Taxes
Varian
Bio has not recorded any amounts related to income tax expense, nor have we recorded any income tax benefits for the
majority of our net losses we have incurred to date or for our research and development tax credits.
Results
of Operations
The following table summarizes
Varian Bio’s results of operations for the years ended December 31, 2021 and 2020:
|
|
2021 |
|
2020 |
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development |
|
$ |
496,684 |
|
|
$ |
181,559 |
|
General
and administrative |
|
|
980,307 |
|
|
|
412,150 |
|
Total operating expenses |
|
|
1,476,991 |
|
|
|
593,709 |
|
Net loss |
|
$ |
(1,476,991 |
) |
|
$ |
(593,709 |
) |
Research
and development expenses
Research and development expenses were $181,559 for the year ended December
31, 2020 and $496,684 for the year ended December 31, 2021. The increase from 2020 to 2021 was primarily related to development of VAR-101/102
and the external costs of vendors engaged to produce materials used in research and development activities.
General
and administrative expenses
General and administrative
expenses were $412,150 for the year ended December 31, 2020 and $980,307 for the year ended December 31, 2021. The increase from 2020
to 2021 was primarily related to a $429,318 increase in professional expenses and a $286,500 increase in salaries.
Liquidity
and Capital Resources
Sources
of Liquidity and Capital
Since
inception, Varian Bio has not generated any revenue from any product sales or any other sources, and has incurred operating losses
and negative cash flows from our operations. We have not yet commercialized any of our product candidates and we do not expect
to generate revenue from sales of any product candidates for several years, if at all.
Our net loss was $1,476,991
for the year ended December 31, 2021. As of December 31, 2021, we had an accumulated deficit of $2,092,184. We have
funded our operations to date primarily with proceeds from the issuance of promissory notes. As of December 31, 2021, we had raised aggregate
proceeds of $547,907 from the issuance of promissory notes and had cash, of $4,554.
Cash
Flows
The
following table summarizes Varian Bio’s cash flows for the years ended December 31, 2021 and 2020:
|
|
2021 |
|
2020 |
Net cash used in operating activities |
|
$ |
(1,388,407 |
) |
|
$ |
(21,086 |
) |
Net cash provided by financing activities |
|
|
1,390,923 |
|
|
|
23,124 |
|
Net increase in cash and cash equivalents |
|
$ |
2,516 |
|
|
$ |
2,038 |
|
Operating
activities
During
the year ended December 31, 2020, cash used in operating activities was $21,086, primarily resulting from changes in accrued expenses
and outstanding payables.
During the year ended December
31, 2021, cash used in operating activities was $1,388,407, primarily resulting from increased research and development activity,
increased professional expenses and the reduction in outstanding payables.
Financing
activities
During
the year ended December 31, 2020, net cash provided by financing activities was $23,124, consisting of proceeds from the issuance
of promissory notes.
During the year ended December
31, 2021, net cash provided by financing activities was $1,390,923, consisting of proceeds from the issuance of promissory notes and
loans.
Funding
Requirements
In conjunction with the Merger
Agreement, on February 11, 2022, Varian Bio entered into a Securities Purchase Agreement in which Bridge Notes in the aggregate amount
of $3,192,496 were issued in exchange for cash in the aggregate amount of $2,000,000 in cash and the exchange of the outstanding related
party loans plus statutory interest for an aggregate amount of $660,414. The Bridge Notes mature on August 14, 2022 or earlier
upon the close of the Business Combination, and accrue interest at an annual rate 15%. Varian Bio’s obligations under the Bridge
Notes are secured by a first priority lien on the license with CRT.
Varian
Bio expects our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical
activities and initiates clinical trials of our product candidates. In addition, upon the Closing and concurrent PIPE Investment,
Varian Bio expects to incur additional costs associated with operating as a public company, including significant legal, accounting,
investor relations and other expenses that we did not incur as a private company. The timing and amount of our operating expenditures
will depend largely on our ability to:
| ● | advance
preclinical
development
of
our
early-stage programs
and
initiate
clinical
trials
of
our
product
candidates; |
| ● | manufacture,
or
have
manufactured
on
our
behalf,
our
preclinical
and
clinical
drug
material
and
develop
processes
for
late
stage
and
commercial
manufacturing; |
| ● | seek
regulatory
approvals
for
any
product
candidates
that
successfully
complete
clinical
trials; |
| ● | establish
a
sales,
marketing,
medical
affairs,
managed
care,
and
distribution
infrastructure
to
commercialize
any
product
candidates
for
which
we
may
obtain
marketing
approval
and
intend
to
commercialize
on
our
own; |
| ● | hire
additional
clinical,
quality
control
and
scientific
personnel; |
| ● | expand
our
operational,
financial
and
management
systems
and
increase
personnel,
including
personnel
to
support
our
clinical
development,
manufacturing
and
commercialization
efforts
and
our
operations
as
a
public
company; |
| ● | obtain,
maintain,
expand
and
protect
our
intellectual
property
portfolio; |
| ● | manage
the
costs
of
preparing,
filing
and
prosecuting
patent
applications,
maintaining
and
protecting
our
intellectual
property
rights,
including
enforcing
and
defending
intellectual
property
related
claims;
and |
| ● | manage
the
costs
of
operating
as
a
public
company. |
Going
Concern
Varian
Bio has incurred operating losses since our inception and, as of December 31, 2021, had an accumulated deficit of $2,092,184 and
has not yet generated any revenues. In addition, as discussed above, Varian Bio expects to continue to incur significant and increasing
expenses and operating losses for the foreseeable future. These factors raise substantial doubt about our ability to continue as a going
concern. Management believes that our existing cash resources will not be sufficient to allow us to fund current planned operations beyond
the next twelve months from the date of this proxy statement/prospectus without additional capital. This evaluation does not take into
consideration the effect of potential mitigating plans of management that have not been fully implemented as of the date of this proxy
statement/prospectus.
Varian Bio is seeking to complete
a proposed business combination transaction with SPKA and the PIPE Investment, described above. The completion of the
proposed Business Combination is conditioned on the satisfaction of certain closing conditions. Upon the completion of the proposed Business
Combination transaction, the shareholders of Varian Bio will exchange their equity interests in Varian Bio for shares of Common Stock.
[In connection with the Business Combination, certain investors have agreed to subscribe for and purchase an aggregate of $[●]
of Common Stock in the PIPE Investment.] The Combined Company is expected to receive gross proceeds of approximately $47 million
at the closing of the transaction (assuming no redemptions are affected by stockholders of SPKA). The Combined Entity may also pursue
additional cash resources through public or private equity or debt financings.
Varian Bio’s expectations with respect to our ability to fund current planned operations is based on estimates that are
subject to risks and uncertainties. Our operating plan may change as a result of many factors currently unknown to management and
there can be no assurance that the current operating plan will be achieved in the time frame anticipated by Varian Bio, and Varian
Bio may need to seek additional funds sooner than planned. If adequate funds are not available to Varian Bio on a timely basis, we
may be required to delay, limit, reduce or terminate certain of our research, product development or future commercialization
efforts, obtain funds through arrangements with collaborators on terms unfavorable to Varian Bio, or pursue other merger or
acquisition strategies, all of which could adversely affect the holdings or the rights of the Varian Bio’s stockholders. If
additional capital is raised through debt financing, Varian Bio may be subject to covenants limiting or restricting our ability to
take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. Any failure to raise
capital as and when needed could have a negative impact on Varian Bio’s financial condition and on its ability to pursue
business plans and strategies. If Varian Bio is unable to raise capital, we may need to delay, reduce or terminate planned
activities to reduce costs.
If
Varian Bio raises additional funds through governmental funding, collaborations, strategic partnerships and alliances or marketing,
distribution or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future
revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If Varian
Bio is unable to raise additional funds through equity or debt financings or other arrangements when needed, we may be required
to delay, limit, reduce or terminate our research, product development or future commercialization efforts or grant rights to
develop and market product candidates that we would otherwise prefer to develop and market by ourselves.
For
additional information on risks associated with Varian Bio’s substantial capital requirements, please read the section titled
“Risk Factors” included elsewhere in this proxy statement/prospectus.
Working
Capital
Because
of the numerous risks and uncertainties associated with research, development and commercialization of product candidates, Varian
Bio is unable to estimate the exact amount of our working capital requirements. Our future funding requirements will depend on
and could increase significantly as a result of many factors, including:
| ● | the
scope,
progress,
results
and
costs
of
researching
and
developing
our
product
candidates,
and
conducting
preclinical
and
clinical
trials; |
| ● | the
costs,
timing
and
outcome
of
regulatory
review
of
our
product
candidates; |
| ● | the
costs,
timing
and
ability
to
manufacture
our
product
candidates
to
supply
our
clinical
and
preclinical
development
efforts
and
our
clinical
trials; |
| ● | the
costs
of
future
activities,
including
product
sales,
medical
affairs,
marketing,
manufacturing
and
distribution,
for
any
of
our
product
candidates
for
which
we
receive
marketing
approval; |
| ● | the
costs
of
manufacturing
commercial-grade product
and
necessary
inventory
to
support
commercial
launch; |
| ● | the
ability
to
receive
additional
non-dilutive funding,
including
grants
from
organizations
and
foundations; |
| ● | the
revenue,
if
any,
received
from
commercial
sale
of
our
products,
should
any
of
our
product
candidates
receive
marketing
approval; |
| ● | the
costs
of
preparing,
filing
and
prosecuting
patent
applications,
obtaining,
maintaining,
expanding
and
enforcing
our
intellectual
property
rights
and
defending
intellectual
property-related claims; |
| ● | our
ability
to
establish
and
maintain
collaborations
on
favorable
terms,
if
at
all;
and |
| ● | the
extent
to
which
we
acquire
or
in-license other
product
candidates
and
technologies. |
Critical
Accounting Policies and Estimates
Varian
Bio’s financial statements are prepared in accordance with generally accepted accounting principles in the United States,
or GAAP. The preparation of Varian Bio’s financial statements and related disclosures requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, costs and expenses. Varian Bio bases our estimates on historical
experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Varian Bio evaluates our estimates and assumptions on an ongoing basis. Our actual results may differ from
these estimates under different assumptions or conditions.
While
Varian Bio’s significant accounting policies are described in more detail in Note 3 to Varian Bio’s financial statements
appearing elsewhere in this proxy statement/prospectus, we believe that the following accounting policies are those most significant
to the judgments and estimates used in the preparation of our financial statements.
Research
and Development
As
part of the process of preparing our financial statements, Varian Bio is required to estimate our accrued research and development
expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel to identify
services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred
for the service when we have not yet been invoiced or otherwise notified of actual costs. The majority of Varian Bio’s service
providers invoice us in arrears for services performed, on a pre-determined schedule or when contractual milestones are met;
however, some require advance payments. Varian Bio makes estimates of our accrued expenses as of each balance sheet date in the
financial statements based on facts and circumstances known to us at that time. Varian Bio periodically confirms the accuracy
of the estimates with the service providers and makes adjustments if necessary. Examples of estimated accrued research and development
expenses include fees paid to:
| ● | vendors,
including
research
laboratories,
in
connection
with
preclinical
development
activities; |
| ● | CROs
and
investigative
site
in
connection
with
preclinical
studies
and
clinical
trials;
and |
| ● | CMOs
in
connection
with
drug
substance
and
drug
product
formulation
of
preclinical
studies
and
clinical
trial
materials. |
Varian
Bio bases our expenses related to preclinical studies on our estimates of the services received and efforts expended pursuant
to quotes and contracts with multiple research institutions and CROs that supply, conduct and manage preclinical studies and clinical
trials on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may
result in uneven payment flows. There may be instances in which payments made to Varian Bio’s vendors will exceed the level
of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such
as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, Varian Bio
estimates the time period over which services will be performed and the level of effort to be expended in each period. If the
actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the prepaid
expense accordingly. Although Varian Bio does not expect our estimates to be materially different from amounts actually incurred,
our understanding of the status and timing of services performed relative to the actual status and timing of services performed
may vary and may result in reporting amounts that are too high or too low in any particular period. To date, Varian Bio’s
estimated accruals have not differed materially from actual costs incurred.
Recently
Issued Accounting Pronouncements
A
description of recently issued accounting pronouncements that may potentially impact Varian Bio’s financial position and results
of operations is disclosed in Note 3 to Varian Bio’s financial statements included elsewhere in this proxy statement/prospectus.
Quantitative
and Qualitative Disclosures about Market Risks
Varian
Bio is exposed to market risk in the ordinary course of its business. These risks primarily relate to changes in interest rates. Varian
Bio’s cash and cash equivalents as of December 31, 2021 consisted of cash and prepaid expenses. Additionally, while inflation
generally affects us by increasing our cost of labor and research and development contracts, we do not believe that inflation has had
a material effect on our financial results during the periods presented.
Emerging
Growth Company and Smaller Reporting Company Status
Varian
Bio is, and the post-combination company is expected to be, an “emerging growth company,” as defined in the Jumpstart
Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies. Varian Bio may take advantage of these exemptions
until we are no longer an emerging growth company under Section 107 of the JOBS Act, which provides that an emerging growth company can
take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards.
Varian Bio has elected to avail ourselves of the extended transition period and, therefore, while Varian Bio is an emerging growth company
we will not be subject to new or revised accounting standards the same time that they become applicable to other public companies that
are not emerging growth companies, unless we choose to early adopt a new or revised accounting standard. We will cease to be an emerging
growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenue of
$1.07 billion or more, (ii) the last day of our fiscal year following the fifth anniversary of the date of the closing of the
IPO, (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (iv)
the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
Additionally,
Varian Bio is, and the post-combination company is expected be a “smaller reporting company” as defined in Item
10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including,
among other things, providing only two years of audited financial statements. Varian Bio will remain a smaller reporting company
until the last day of the fiscal year in which (i) the market value of Varian Bio’s Common Stock held by non-affiliates exceeds
$250 million as of the prior June 30, or (ii) Varian Bio’s annual revenues exceeded $100 million during such
completed fiscal year and the market value of our common stock held by non-affiliates exceeds $700 million as of the
prior June 30. We cannot predict if investors will find our common shares less attractive because we may rely on these exemptions.
If some investors find our common shares less attractive as a result, there may be a less active trading market for our common
shares and our share price may be more volatile.