UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
COMMISSION FILE NO. 0-27264
VIA PHARMACEUTICALS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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Delaware
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33-0687976
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(STATE OR OTHER JURISDICTION OF
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(I.R.S. EMPLOYER
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INCORPORATION OR ORGANIZATION)
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IDENTIFICATION NO.)
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750 Battery Street, Suite 330
San Francisco, California 94111
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE:
(415) 283-2200
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, Par Value $0.001 Per Share
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act.
Yes
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No
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Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or 15(d) of the Act. Yes
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No
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes
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No
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Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes
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No
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As of June 30, 2010, the aggregate market value of the registrant’s common stock held by
non-affiliates was approximately $973,575 based upon the closing sales price of the registrant’s
common stock on the Pink Sheets on such date.
The number of shares of the registrant’s Common Stock outstanding as of March 1, 2011 was
20,558,446.
PART I
Forward-looking statements
This Annual Report on Form 10-K contains “forward-looking” statements within the meaning of
the Private Securities Litigation Reform Act of 1995. These statements relate to future events or
to the Company’s future financial performance and involve known and unknown risks, uncertainties
and other factors that may cause the Company’s actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. In some cases, you can
identify forward-looking statements by the use of words such as “may,” “could,” “expect,” “intend,”
“plan,” “seek,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue” or the
negative of these terms or other comparable terminology. You should not place undue reliance on
forward-looking statements since they involve known and unknown risks, uncertainties and other
factors which are, in some cases, beyond the Company’s control and which could materially affect
actual results, levels of activity, performance or achievements. Factors that may cause actual
results to differ materially from current expectations include, but are not limited to:
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the ability and willingness of active market makers in our Company’s common stock to
trade the Company’s common stock on the Pink Sheets under a “piggyback qualification”;
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the Company’s ability to borrow additional amounts under the 2010 loan, as amended, from
Bay City Capital, as described in Note 6 in the Notes to the Financial Statements;
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the Company’s ability to obtain necessary financing in the near term, including amounts
necessary to repay the 2009 loan from Bay City Capital following the April 1, 2010 maturity
date, and the 2010 loan, as amended, from Bay City Capital by the September 30, 2011 maturity
date (or earlier if certain repayment acceleration provisions are triggered);
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the Company’s ability to control its operating expenses;
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the Company’s ability to comply with covenants included in the loans with Bay City
Capital;
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the Company’s ability to operate its business following the restructuring, as described
in Note 12 in the Notes to the Financial Statements;
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the Company’s ability to comply with its reporting obligations under the rules and
regulations promulgated by the Securities and Exchange Commission following the
restructuring;
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the Company’s ability to timely recruit and enroll patients in any future clinical
trials;
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complexities in designing and implementing cardiometabolic clinical trials using
surrogate endpoints in Phase 1 and Phase 2 clinical trials which may differ from the
ultimate endpoints required for registration of a candidate drug;
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if the results of the ACS, CEA and FDG-PET studies, upon further review and analysis, are
revised, interpreted differently by regulatory authorities or negated by later stage
clinical trials;
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the Company’s ability to obtain necessary FDA approvals;
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the Company’s ability to successfully commercialize VIA-2291;
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the Company’s ability to identify potential clinical candidates from the family of DGAT1
compounds licensed and move them into preclinical development;
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the Company’s ability to obtain and protect its intellectual property related to its
product candidates;
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the Company’s potential for future growth and the development of its product pipeline,
including the THR beta agonist candidate and the other compounds licensed from Roche;
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the Company’s ability to obtain strategic opportunities to partner and collaborate with
large biotechnology or pharmaceutical
companies to further develop VIA-2291;
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the Company’s ability to form and maintain collaborative relationships to develop and
commercialize our product candidates;
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general economic and business conditions; and
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the other risks described under the heading “Risk Factors” in Part I, Item 1A below.
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All forward-looking statements attributable to the Company or persons acting on the Company’s
behalf are expressly qualified in their entirety by the cautionary statements set forth above.
Forward-looking statements speak only as of the date they are made, and the Company undertakes no
obligation to update publicly any of these statements in light of new information or future events.
Corporate History and Description of Merger
On June 5, 2007, privately-held VIA Pharmaceuticals, Inc. completed a reverse merger
transaction (the “Merger”) with Corautus Genetics Inc. Until shortly before the Merger, Corautus
Genetics Inc. (“Corautus”) was primarily focused on the clinical development of gene therapy
products using a vascular growth factor gene. These activities were discontinued in November 2006.
Privately-held VIA Pharmaceuticals, Inc. was formed in Delaware and began operations in June 2004.
Unless otherwise specified, the “Company,” “VIA,” “we,” “us,” and “our” refers to the business of
the combined company after the Merger and the business of privately-held VIA Pharmaceuticals, Inc.
prior to the Merger. Unless specifically noted otherwise, “Corautus Genetics Inc.” or “Corautus”
refers to the business of Corautus Genetics Inc. prior to the Merger.
Business Overview
VIA Pharmaceuticals, Inc. is a biotechnology company focused on the treatment of
cardiovascular and metabolic diseases. VIA is building a pipeline of small-molecule drugs that
target cardiovascular and metabolic diseases. Metabolic diseases such as diabetes, obesity and
dyslipidemia are highly prevalent world-wide and have both genetic and environmental etiologies.
Ultimately, these metabolic diseases progress into more severe forms of diabetes and cardiovascular
disease leading to diabetic complications such as blindness, heart attacks and strokes.
VIA’s current drug development pipeline includes (i) VIA-3196, a Phase-1 ready liver-directed
thyroid hormone receptor (“THR”) beta agonist that targets dyslipidemia, including high LDL
cholesterol, high triglycerides and elevated Lp(a), (ii) a Diacylglycerol Acyl Transferase 1
(“DGAT1”) inhibitor for diabetes, with upside potential in weight control and dyslipidemia, and
(iii) VIA’s 5-LO inhibitor, VIA-2291, which targets the treatment of atherosclerotic plaque, an
underlying cause of heart attack, stroke and other vascular diseases.
In December 2008, the Company entered into two research, development and commercialization
agreements with Hoffman-LaRoche Inc. and Hoffman-LaRoche Ltd. (collectively, “Roche”) to license,
on an exclusive, worldwide basis, two sets of compounds (the “Roche Licenses”). The first license
is for Roche’s THR beta agonist, a clinically ready candidate for the control of cholesterol,
triglyceride levels and potential in insulin sensitization/diabetes. The second license is for
multiple compounds from Roche’s preclinical DGAT1 metabolic disorders program.
Liver-directed THR Beta Agonist (VIA-3196)
The liver-directed THR beta agonist, VIA-3196, is a clinically ready candidate for
dyslipidemia to lower LDL cholesterol, triglyceride levels and Lp(a). The THR beta agonist is an
orally administered, small-molecule beta-selective Thyroid Hormone Receptor agonist designed to
specifically target receptors in the liver involved in metabolism and cholesterol regulation, and
avoid side effects associated with Thyroid Hormone receptor activation outside the liver. The
mechanism by which THR beta lowers cholesterol is distinct from statins and is believed to
primarily be mediated by increased cholesterol excretion out of the body through the bile. The
compound also reduces triglycerides in the liver by increasing fat metabolism. Preclinical studies
demonstrated a rapid reduction of non-HDL cholesterol and the drug was shown to be synergistic with
statins in animal studies. VIA will investigate the possibility of using the THR beta agonist alone
or in combination with statins for the treatment of hypercholesterolemia in high risk patients
whose LDL cholesterol is not controlled by statins alone. In addition, in animal studies, insulin
sensitization and glucose lowering were observed making this compound a possible treatment of
patients with type 2 diabetes in combination with other
diabetes medications. The Phase 1 clinical trials planned for VIA-3196 anticipated in 2011
will provide safety information and demonstrate proof of concept for LDL cholesterol lowering. The
Company filed an Investigational New Drug (“IND”) application with the FDA on September 3, 2010
(IND #109408). The IND is required before the Company can proceed with human clinical trials. The
IND contains the plans for the clinical studies and gives a complete picture of the drug, including
its structural formula, animal test results, and manufacturing information. The IND is currently
open to conduct the initial Phase1 clinical study.
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DGAT1
The preclinical DGAT1 metabolic disorders program targets the treatment of type 2 diabetes and
has potential benefit in dyslipidemia and body weight loss. DGAT1 is an enzyme that catalyzes
triglyceride synthesis and fat storage. Triglycerides are the principal component of fat, which is
the major repository for storage of metabolic energy in the body. Overweight and obese individuals
have significantly greater triglyceride levels, making them more prone to diabetes and its
associated metabolic complications. DGAT1 inhibitors are an innovative class of compounds that may
modify the way that lipids are absorbed in the intestine leading to elevation of peptides. In
studies of obese animals, DGAT1 inhibitors have been shown to induce weight loss and improve
insulin sensitization, glucose tolerance and lipid levels. These observations suggest DGAT1
inhibitors may have the potential to treat obesity, diabetes and dyslipidemia. VIA intends to
identify potential clinical candidates from the compounds in this program and begin IND-enabling
studies.
VIA-2291
In 2005, the Company identified 5-Lipoxygenase (“5LO”) as a key target of interest for
treating atherosclerosis. 5LO is a key enzyme in the biosynthesis of leukotrienes, which are
important mediators of inflammation and are involved in the development and progression of
atherosclerosis. In addition, cardiovascular-related literature has also identified 5LO as a key
target of interest for treating atherosclerosis and preventing heart attack and stroke. Following
such identification, the Company identified a number of late-stage 5LO inhibitors that had been in
clinical trials conducted by large biotechnology and pharmaceutical companies primarily for
non-cardiovascular indications, including ABT-761, a compound developed by Abbott Laboratories
(“Abbott”) for use in treatment of asthma. Abbott abandoned its ABT-761 clinical program in 1996
after the U.S. Food and Drug Administration (“FDA”) approved a similar Abbott compound for use in
asthma patients. Abbott made no further developments to ABT-761 from 1996 to 2005. In August 2005,
the Company entered into an exclusive, worldwide license agreement (the “Abbott License”) with
Abbott to develop and commercialize ABT-761 for any indication. The Company subsequently renamed
the compound VIA-2291.
VIA-2291 is a selective and reversible inhibitor of 5-LO, which is a key enzyme in the
biosynthesis of leukotrienes (important mediators of inflammation involved in the development and
progression of atherosclerosis). Potentially a complement to current standard of care therapies
that treat risk factors, such as statins, antiplatelet and blood pressure medications, VIA-2291
could be beneficial to more than 15 million patients who suffer from atherosclerosis and
cardiovascular disease.
VIA-2291 was studied in three Phase 2 clinical trials with novel study designs aimed at
providing evidence of plaque modification and systemic anti-inflammatory effects as early as
possible in the clinical development process.
VIA completed the Phase 2 ACS Trial in 191 patients at 15 clinical sites in the United States
and Canada for patients with Acute Coronary Syndrome (ACS) who experienced a recent heart attack.
In addition, the Company has completed the Phase 2 CEA Trial of VIA-2291 at clinical sites in Italy
for patients who underwent a carotid endarterectomy (“CEA”).
Results from the CEA and ACS Phase 2 trials were presented at the American Heart Association
(AHA) 2008 Scientific Sessions on November 9, 2008. A sub-study of over 85 patients in the ACS
Phase 2 trial elected to continue in the study for an additional 12 weeks, receiving either placebo
of VIA-2291 on top of standard medical care. Following treatment these patients received a 64 slice
multi-detector computed tomography (“MDCT”) scan which was compared to a baseline scan. Results of
this sub-study were presented May 2009 at the AHA Arteriosclerosis, Thrombosis and Vascular Biology
Annual Conference 2009. The results of the ACS study are published in Circulation Cardiovascular
Imaging by lead author and principal investigator Jean-Claude Tardif
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2010;3:298-307
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VIA completed its third Phase 2 clinical trial of VIA-2291, the FDG-PET Trial — an
experimental non-invasive imaging technique that utilizes Positron Emission Tomography with
fluorodeoxyglucose tracer (“FDG-PET”) to measure the impact of VIA-2291 on reducing FDG uptake into
vascular beds. The Company enrolled 52 patients following an Acute Coronary Syndrome event, such as
heart attack or unstable angina, into the 24 week, randomized, double blind, placebo-controlled
study, which was run at clinical sites in the United States and Canada.
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Overall, the studies demonstrated potent dose-dependent inhibition of Leukotrienes B4 and E4
by VIA-2291. Systemic and plaque anti-inflammatory effects were observed, including statistically
significant inhibition of hsCRP with the 100 mg dose. Inflammatory genes in unstable plaques were
down-regulated with VIA-2291 treatment. Serial multi-detector Computed Tomography (“MDCT”)
indicated a statistically significant reduction in non-calcified plaque volume and the number of
patients developing new coronary lesions with VIA-2291 treatment.
The Phase 3 trial for VIA -2291 will test the ability of the drug to reduce heart attacks and
strokes in a high risk cardiovascular patient population. Due to the size and cost of such a trial
the Company believes it is best undertaken with a pharmaceutical company partner. To date VIA has
been unable to establish such a collaboration. The Company continues to evaluate strategies for
partnering the program but currently intends to conduct no further internally funded activities
with respect to VIA-2291.
Business Strategy
The Company’s objective is to become a leading biotechnology company focused on discovering,
developing and commercializing novel drugs for the treatment of unmet medical needs of
cardiovascular and metabolic disease. The key elements of the Company’s business strategy are as
follows:
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Pursue the clinical development of the THR beta agonist compound licensed from Roche.
The
Company intends to pursue this clinically ready asset and is in the planning phases for its
clinical development. The Company has filed an IND application (IND # 109408), and plans to
initiate a Phase 1 clinical trials, during the first half of 2011.
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Pursue the preclinical development of DGAT1 compounds licensed from Roche.
The Company
intends to pursue the preclinical development of the DGAT1 compounds in order to identify a
potential lead candidate for further development in human clinical trials.
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Pursue the development of VIA-2291.
The Company seeks to develop VIA-2291 for the
treatment of atherosclerotic plaque and secondary prevention of ACS in patients who have
experienced a recent heart attack. The Phase 3 trial for VIA-2291 will test the ability of
the drug to reduce heart attacks and strokes in a high risk cardiovascular patient
population. Due to the size and cost of such a trial, the Company plans to pursue business
collaborations with large biotechnology or pharmaceutical companies to conduct additional
clinical trials required for regulatory approval. No further internal clinical studies are
currently planned.
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Expand our portfolio of small molecule product candidates through acquisitions and
in-licensing.
The Company intends to continue to license and develop preclinical and
clinical small molecule compounds for the treatment of cardiovascular and metabolic disease.
The Company believes this strategy will enable the Company to build a valuable drug
development pipeline.
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Maximize economic value for our product candidates under development.
The Company intends
to maximize the value of its product candidates through independent development, licensing
and other partnership and collaboration opportunities with large biotechnology or
pharmaceutical companies.
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Enhance and protect our intellectual property portfolio.
The Company plans to pursue,
license and acquire additional intellectual property protection as required to enhance and
protect its existing and future portfolio and to enable the Company to maximize the
commercial lifespan of its compounds and technology.
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Unmet Needs in Cardiovascular and Metabolic Diseases
Metabolic Syndrome, Dyslipidemia and Diabetes
The American Heart Association currently estimates that more than 50 million Americans suffer
from metabolic syndrome and its incidence is high and growing worldwide. Metabolic syndrome is
generally considered a group of risk factors, including high blood pressure, insulin resistance or
diabetes, unhealthy cholesterol levels, high triglycerides, abdominal fat and a pro-inflammatory
state, evidenced by elevated levels of C-reactive protein in the blood. People with metabolic
syndrome are at increased risk of atherosclerosis and its complications, including heart attack and
stroke. While the biological mechanisms of metabolic syndrome are complex and not fully understood,
risk factors considered in the diagnosis include insulin resistance, diabetes, dyslipidemia,
obesity (especially abdominal obesity) and unhealthy lifestyle. The Company believes that small
molecule drugs targeting a number of these
key risk factors will be important in treating metabolic syndrome and reducing patient risk
from cardiovascular and metabolic disease, including heart attack, stroke and type 2 diabetes. The
Company believes that the compounds in our pipeline licensed from Roche have the potential to be
important drugs for the treatment of cardiovascular and metabolic disease.
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Atherosclerotic Plaque
Atherosclerosis is the result of chronic inflammation and the build-up of plaque in arterial
blood vessel walls. Plaque consists of inflammatory cells, cholesterol and cellular debris.
Atherosclerosis, depending on its severity and the location of the artery it affects, may result in
blockage in certain vessels and can cause a rupture of inflamed plaque tissue, leading to major
adverse cardiovascular event (“MACE”) such as heart attack and stroke. Heart attack and stroke are
leading causes of death worldwide. Atherosclerosis in the blood vessels of the heart is called
coronary artery disease or heart disease. It is the leading cause of death in the United States,
claiming more lives each year than all forms of cancer combined. Recent estimates from the American
Heart Association’s “Heart Disease and Stroke Statistics—2009 Update” indicate that approximately
16.8 million Americans were diagnosed with atherosclerosis in 2006. Approximately 1.7 million of
these cases were patients with a history of heart attacks and a high risk of MACE. When
atherosclerosis becomes severe enough to cause complications, physicians must treat the
complications which can include angina, heart attack, abnormal heart rhythms, heart failure, kidney
failure, stroke or obstructed peripheral arteries. Many of the patients with established
atherosclerosis are treated aggressively for their associated risk factors, which include elevated
triglyceride levels, high blood pressure, smoking, diabetes, obesity and physical inactivity. In
addition, most patients suffering from atherosclerosis have concomitant high cholesterol, and as a
result, the current treatment regime focuses primarily on cholesterol reduction. Additionally,
these patients are routinely treated with anti-hypertensives to lower blood pressure and
anti-platelet drugs to help prevent the formation of blood clots. There are currently no
medications available for physicians to directly treat the underlying chronic inflammation of
plaque associated with atherosclerosis.
Abbott Exclusive License Agreement
In August 2005, the Company entered into an exclusive, worldwide license agreement with Abbott
for the development and commercialization of a patented compound and related technology, formerly
known as ABT-761 and subsequently renamed VIA-2291, claimed in U.S. Patent No. 5,288,751 and EU
Patent No. 667,855. In exchange for such license, the Company agreed to make certain payments to
Abbott related to: (i) the grant of the license, (ii) the transfer of the licensed technology,
(iii) the achievement of certain development milestones (i.e., the first dosing of a Phase 3
clinical trial patient, and regulatory approval to commence sale of a licensed product in United
States, Japan or specified European countries), and (iv) the achievement of certain worldwide sales
milestones. Abbott will be entitled to an aggregate of $19.0 million in payments if all development
milestones are achieved and $27.0 million in payments if all worldwide sales milestones are paid.
To date, the Company has paid Abbott $2.0 million for the grant of the license and $1.0 million for
the transfer of the licensed technology. However, to date, no development or worldwide sales
milestones have been achieved.
The Company is also required to pay Abbott a royalty (subject to certain step-down and offset
provisions) during the term of the agreement, ranging from 3% to 6.5% of aggregate worldwide annual
net sales. The Company may sublicense its rights under the agreement to third parties, and the
agreement continues on a jurisdiction-by-jurisdiction basis until there are no remaining royalty
payment obligations in such jurisdiction. Upon completing payment of all royalty obligations due
under the agreement, the Company will have a perpetual, irrevocable and fully-paid exclusive
license to commercialize VIA-2291 for any indication.
Stanford License Agreement
In March 2005, the Company entered into an exclusive license agreement (the “Stanford
License”) with Stanford University (“Stanford”) to use a comprehensive gene expression database and
analysis tool to identify novel, and prioritize known, molecular targets for the treatment of
vascular inflammation and to study the impact of candidate therapeutic interventions on the
molecular mechanisms underlying atherosclerosis (the “Stanford Platform”). One of the Company’s
founders, Thomas Quertermous, M.D., who currently serves on the advisory board to the Company,
developed the Stanford Platform at Stanford during the course of a four-year, $30.0 million
research study (the “Stanford Study”). The Stanford Study initially utilized human tissue samples
made available from the Stanford heart transplant program to characterize human plaque at the level
of gene expression and identify the inflammatory genes and pathways involved in the development of
atherosclerosis and associated complications in humans. To develop the Stanford Platform, the
Stanford Study performed similar experiments on vascular tissue samples from mice prone to
developing atherosclerosis and identified genes and pathways associated with the development of
atherosclerosis that mice and humans have in common (the “Overlap Genes”). The Stanford Platform
allowed us to analyze the expression of the Overlap Genes following the administration of candidate
drugs to atherosclerotic-prone mice, and thus provided a useful tool for studying the effects of
therapeutic intervention in the
development of cardiovascular disease. This platform also gave us useful insight into the
molecular pathways that we believe to be most relevant to the cardiovascular disease process.
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In January 2009, the Company notified Stanford that it was terminating the March 2005 Stanford
License to use the Stanford Platform effective February 14, 2009. The Stanford License required
certain royalty payments to Stanford related to the issuance and sublicense of the Stanford License
and payments corresponding to the achievement of certain development and regulatory milestones. The
royalty rate varied from 1% to 6% of net sales depending on the type of product sold and whether
the Company held an exclusive right to the Stanford License at the time of sale. The Company was
also required to make milestone payments to Stanford for each VIA licensed product that used the
Stanford License as the product reaches various development and regulatory milestones. The Company
does not believe that it owes any amounts under the terminated Stanford License.
Roche Licensed Assets
In December 2008, the Company entered into the Roche Licenses for two sets of compounds that
we believe represent novel potential drugs for treatment of cardiovascular and metabolic disease.
The first license is for Roche’s THR beta agonist, a clinically ready candidate for the control of
cholesterol, triglyceride levels and potential in insulin sensitization/diabetes. The second
license is for multiple compounds from Roche’s preclinical DGAT1 metabolic disorders program. Under
the terms of the agreements, the Company assumes control of all development and commercialization
of the compounds, and will own exclusive worldwide rights for all potential indications.
Roche will receive up to $22.8 million in upfront and milestone payments, the majority of
which is tied to the achievement of product development and regulatory milestones. In addition,
once products containing the compounds are approved for marketing, Roche will receive single-digit
royalties based on net sales, subject to certain reductions.
The Company must use commercially reasonable efforts to conduct clinical and commercial
development programs for products containing the compounds. Under the license for the THR beta
agonist, if the Company has not completed a Phase 1 single ascending dose clinical trial with
respect to a lead product containing this compound by January 5, 2012, then either the Company must
commit to developing another of Roche’s compounds or Roche may terminate the license for that
compound. The Company plans to begin Phase 1 single ascending dose trials in the first half of
2011.
If the Company determines that it is not reasonable to continue clinical trials or other
development of the compounds, it may elect to cease further development and Roche may terminate the
licenses. If the Company determines not to pursue the development or commercialization of the
compounds in the United States, Japan, the United Kingdom, Germany, France, Spain, or Italy, Roche
may terminate the licenses for such territories.
The Roche Licenses will expire, unless earlier terminated pursuant to other provisions of the
licenses, on the last to occur of (i) the expiration of the last valid claim of a licensed patent
covering the manufacture, use or sale of products containing the compounds, or (ii) ten years after
the first sale of a product containing the compounds.
The THR beta agonist is an orally administered, small-molecule beta-selective thyroid hormone
receptor agonist designed to specifically target receptors in the liver involved in metabolism and
cholesterol regulation, and avoid side effects associated with thyroid hormone receptor activation
outside the liver. Roche has completed preclinical studies of the THR beta agonist. These studies
demonstrated a rapid reduction of non-HDL cholesterol and the drug was shown to be synergistic with
statins in animal studies. The Company will investigate the possibility of using the THR beta
agonist in combination with statins for the treatment of hypercholesterolemia. In addition, in
animal studies insulin sensitization and glucose lowering were observed making this compound a
possible treatment of patients with type 2 diabetes in combination with other diabetes medications.
DGAT1 is an enzyme that catalyzes triglyceride synthesis and fat storage. Triglycerides are
the principal component of fat, which is the major repository for storage of metabolic energy in
the body. Overweight and obese individuals have significantly greater triglyceride levels, making
them more prone to diabetes and its associated metabolic complications. DGAT1 inhibitors are
believed to be an innovative class of compounds that modify lipid metabolism. In studies of obese
animals, DGAT1 inhibitors have been shown to induce weight loss and improve insulin sensitization,
glucose tolerance and lipid levels. These observations suggest DGAT1 inhibitors may have the
potential to treat obesity, diabetes and dyslipidemia.
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Patents and Intellectual Property
Protection of assets by means of patents and other instruments conferring proprietary rights
is an essential element of the Company’s business strategy. The Company primarily relies on patent
law, trade secret law and contract law to protect its proprietary information and technology as
well as to establish and maintain market exclusivity. In regard to patents, the Company actively
seeks patent protection in the United States and other jurisdictions to protect technology,
inventions and improvements to inventions that are commercially important to the development of its
business. The following table sets forth the status of the patents and patent applications in the
United States, the European Union and most other major markets covering our drug candidates that
have progressed up to at least Phase 1 clinical trial stage:
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Status of European Union and other Major
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Status of United States Patent Estate (Earliest
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Markets Patent Estate (Earliest Anticipated
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Anticipated Expirations, Subject to Potential
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Expirations, Subject to Potential Extensions
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Drug Candidate (Target)
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Patent Type
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Extensions and Payment of Maintenance Fees)
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and Payment of Maintenance Fees)
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VIA-2291 (5-LO)
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COM
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Granted (2012)
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Granted (2013)
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VIA-2291 (5-LO)
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MOU
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Granted (2026)
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Applications pending (2026)
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VIA-2291 (5-LO)
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U
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Application pending (2030)
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—
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VIA-3196
(THRβ)
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COM
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Granted (2025)
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Granted and pending (2025)
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VIA-3196
prodrug (THRβ)
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COM
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Granted (2027)
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Applications pending (2027)
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COM = composition of matter
MOU = method of use
U = utility
In addition to the patents listed above, several patents have been filed and/or issued in
the U.S. and other major markets for the preclinical DGAT1 inhibitor program.
The United States Drug Price Competition and Patent Term Restoration Act of 1984, known as the
Hatch-Waxman Act, provides for the restoration of up to five years of patent term for a patent that
covers a new product or its use, to compensate for time lost from the effective life of the patent
due to the regulatory review process of the FDA. An application for patent term restoration is
subject to approval by the U.S. Patent and Trademark Office in conjunction with the FDA. The
Hatch-Waxman Act also provides for up to five years of data exclusivity in the United States for
new chemical entities (“NCE”) such as VIA-2291 that have not yet been commercially sold in the
market.
Other jurisdictions have statutory provisions similar to those of the Hatch-Waxman Act that
afford both patent extensions and market exclusivity for drugs that have obtained market
authorizations, such as European Supplementary Protection Certificates that extend effective patent
life and European data exclusivity rules that create marketing exclusivity for certain time periods
following marketing authorization. European data exclusivity is longer than the equivalent NCE
marketing exclusivity in the United States, possibly as long as 11 years. The Company believes that
if it obtains marketing authorization for VIA-3196 and/or VIA-2291 in Europe or other jurisdictions
with similar statutory provisions, the Company may be eligible for patent term extension and
marketing exclusivity under these provisions and the Company intends to seek such privileges.
The Company’s commercial success will depend in part on its ability to manufacture, use and
sell its product candidates and proposed product candidates without infringing on the patents or
other proprietary rights of third parties. The Company may not be aware of all patents or patent
applications that may impact its ability to make, use or sell any of its product candidates or
proposed product candidates. For example, U.S. patent applications do not publish until 18 months
from their effective filing date. Further, the Company may not be aware of published or granted
conflicting patent rights. Any conflicts resulting from patent applications and patents of others
could significantly affect the validity or enforceability of the Company’s patents and limit the
Company’s ability to obtain meaningful patent protection. If others obtain patents with competing
claims, the Company may be required to obtain licenses to these patents or to develop or obtain
alternative technology. The Company may not be able to obtain any licenses or other rights to
patents, technology or know-how necessary to conduct our business as described in this Annual
Report. Any failure to obtain such licenses or other rights could delay or prevent the Company from
developing or commercializing its product candidates and proposed product candidates, which could
materially affect the Company’s business.
Litigation or patent interference proceedings may be necessary to enforce the Company’s patent
or other proprietary rights, or to determine the scope and validity or enforceability of the
proprietary rights of others. The defense and prosecution of patent and intellectual property
claims are both costly and time consuming, even if the outcome is favorable to the Company. Any
adverse
outcome could subject the Company to significant liabilities, require the Company to license
disputed rights from others or to cease selling the Company’s future products.
7
Trademarks
The Company has not yet applied to register any of its trademarks with the USPTO. The Company
will take any and all actions that it deems necessary to protect the trademarks and/or service
marks that the Company uses or intends to use in connection with its business.
Clinical Trials
The Company enters into master services agreements with contract research organizations to
assist in the conduct of its clinical trials for development of products. The Company used i3
Research, a division of Ingenix Pharmaceutical Services, Inc., to conduct the VIA-2291 ACS and CEA
clinical trials. The Company used PharmaNet LLC to conduct the VIA-2291 FDG PET clinical trial.
Manufacturing
The Company enters into manufacturing agreements with third party contract manufacturing
organizations that comply with current Good Manufacturing Practice (“cGMP”) guidelines for bulk
drug substance and oral formulations of VIA-2291 and the Company’s other product candidates needed
to support both ongoing and planned clinical trials, as well as commercial marketing of the product
following regulatory approval.
Sales and Marketing
The Company plans to consider business collaborations with large biotechnology or
pharmaceutical companies to commercialize approved products that it develops to target patients or
prescribing physicians in broad markets. The Company believes that collaborating with large
companies that have significant marketing and sales capabilities provides for optimal penetration
into broad markets, particularly into those areas that are highly competitive.
Competition
The Company faces intense competition in the development of compounds addressing
cardiovascular and metabolic disease particularly from biotechnology and pharmaceutical companies.
Certain of these companies may, using other approaches, identify and decide to pursue the discovery
and development of new drug targets or disease pathways that the Company has identified through its
research. Many of the Company’s competitors, either alone or with collaborative partners, have
substantially greater financial resources and larger research and development operations than the
Company does. These competitors may discover, characterize or develop important genes, drug targets
or drug candidates with respect to treating atherosclerosis, inflammation or other targets to
address cardiovascular and metabolic diseases before the Company does or they may obtain regulatory
approvals of their drugs more rapidly than the Company does.
In addition, the Company believes that certain companies may have preclinical programs
underway targeting atherosclerotic-related inflammation. Many of these entities have substantially
greater resources, longer operating histories and greater marketing and financial resources than
the Company does. They may, therefore, succeed in commercializing products before the Company does
that compete on the basis of efficacy, safety and price.
The Company also faces competition from other biotechnology and pharmaceutical companies
focused on alternative treatments for cardiovascular and metabolic disease, such as anti-oxidants,
antibodies against oxidized LDL, compounds to raise HDL, and compounds addressing insulin
resistance. Any product that the Company successfully develops may compete with these other
approaches and may be rendered obsolete or noncompetitive.
The Company’s competitors may obtain patent protection or other intellectual property rights
that could limit the Company’s rights to use its technologies or databases, or commercialize its
products. In addition, the Company faces, and will continue to face, intense competition from other
companies for collaborative arrangements with biotechnology and pharmaceutical companies, for
establishing relationships with academic and research institutions and for licenses to proprietary
technology.
8
The Company’s ability to compete successfully will depend, in part, on its ability to: (i)
develop proprietary products; (ii) develop
and maintain products that reach the market first, and are technologically superior to and
more cost effective than other products on the market; (iii) obtain patent or other proprietary
protection for its products and technologies; (iv) attract and retain scientific and product
development personnel; (v) obtain required regulatory approvals; and (vi) manufacture, market and
sell products that the Company develops. Developments by third parties may render our product
candidates obsolete or noncompetitive. These competitors, either alone or in collaboration, may
succeed in developing technologies or products that are more effective than those developed by the
Company.
Governmental Regulation
The Company plans to develop prescription-only drugs for the foreseeable future. Prescription
drug products are subject to extensive pre- and post-market regulation by the FDA, including
regulations that govern the testing, manufacturing, safety, efficacy, labeling, storage, record
keeping, advertising and promotion of such products under the Federal Food Drug and Cosmetic Act
(“FDCA”) and its implementing regulations, and by comparable agencies and laws in foreign
jurisdictions. The European Union has vested centralized authority in the European Medicines
Evaluation Agency and Committee on Proprietary Medicinal Products to standardize review and
approval across EU member nations. Failure to comply with applicable FDA, EU or other requirements
may result in civil or criminal penalties, recall or seizure of products, partial or total
suspension of production or withdrawal of the product from the market.
FDA approval is required before any new unapproved drug or dosage form, including a new use of
a previously approved drug, can be marketed in the United States. All applications for FDA approval
must contain, among other things, information relating to pharmaceutical formulation, stability,
manufacturing, processing, packaging, labeling, and quality control.
New Drug Application
Approval by the FDA of a new drug application (“NDA”) is generally required before a drug may
be marketed in the United States. This process generally involves:
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•
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completion of preclinical laboratory and animal testing in compliance with the FDA’s good
laboratory practice regulations;
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•
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submission to the FDA of an IND for human clinical testing which must become effective
before human clinical trials may begin;
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•
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performance of adequate and well-controlled human clinical trials to establish the safety
and efficacy of the proposed drug product for each intended use;
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•
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satisfactory completion of an FDA pre-approval inspection of the facility or facilities
at which the product is produced to assess compliance with the FDA’s current cGMP
guidelines; and
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•
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submission to, and approval by, the FDA of an NDA.
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The preclinical and clinical testing and approval process requires substantial time, effort
and financial resources, and the Company cannot be certain that the FDA will grant any approvals
for its product candidates on a timely basis, if at all.
Preclinical tests include laboratory evaluation of product chemistry, formulation and
stability, as well as studies to evaluate toxicity in animals. The results of preclinical tests,
together with manufacturing information and analytical data, are submitted as part of an IND to the
FDA. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA,
within the 30-day time period, raises concerns or questions about the conduct of the clinical
trial, including concerns that human research subjects will be exposed to unreasonable health
risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the
clinical trial can begin. The Company’s submission of an IND may not result in FDA authorization to
commence a clinical trial. A separate submission to an existing IND must also be made for each
successive clinical trial conducted during product development. Further, an independent
institutional review board (“IRB”) for each medical center proposing to conduct the clinical trial
must review and approve the plan for any clinical trial before it commences at that center and it
must monitor the study until completed. The FDA, the IRB, or the sponsor (
i.e
. VIA) may suspend a
clinical trial at any time on various grounds, including a finding that the subjects or patients
are being exposed to an unacceptable health risk. Clinical testing also must satisfy extensive GCP,
or Good Clinical Practice requirements, including regulations for informed consent.
9
The Company is also subject to various laws and regulations regarding laboratory practices and
the experimental use of animals in connection with its research. In these areas, as elsewhere, the
FDA has broad regulatory and enforcement powers, including the ability to levy fines and civil
penalties, suspend or delay issuance of approvals, seize or recall products, and withdraw
approvals, any one or more of which could have a material adverse effect on the Company.
For purposes of an NDA submission and approval, human clinical trials are typically conducted
in the following three sequential phases, which may overlap:
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Phase 1:
Studies are initially conducted in a limited population to test the product
candidate for safety, dose tolerance, absorption, metabolism, distribution and excretion in
healthy humans or, on occasion, in patients, such as cancer patients.
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•
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Phase 2:
Studies are generally conducted in a limited patient population to identify
possible adverse effects and safety risks, to evaluate the efficacy of the product for
specific targeted indications and to determine dose tolerance and optimal dosage. Multiple
Phase 2 clinical trials may be conducted by the sponsor to obtain information prior to
beginning larger and more expensive Phase 3 clinical trials.
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•
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Phase 3:
These are commonly referred to as pivotal studies. When Phase 2 evaluations
demonstrate that a dose range of the product may be effective and has an acceptable safety
profile, Phase 3 trials are undertaken in large patient populations to further evaluate
dosage, to provide substantial evidence of clinical efficacy and to further test for safety
in an expanded and diverse patient population at multiple, geographically-dispersed clinical
trial sites.
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•
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Phase 4:
In some cases, the FDA may condition approval of an NDA for a product candidate
on the sponsor’s agreement to conduct additional post-approval clinical trials to further
assess the drug’s safety and effectiveness after NDA approval and commercialization. Such
post approval trials are typically referred to as Phase 4 studies.
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Clinical trials, including the adequate and well-controlled clinical investigations conducted
in Phase 3, are designed and conducted in a variety of ways. Phase 3 studies are often randomized,
placebo-controlled and double-blinded. A “placebo-controlled” trial is one in which one group of
patients, referred to as an “arm” of the trial, receives the drug being tested while another group
receives a placebo, which is a substance known not to have pharmacologic or therapeutic activity.
In a “double-blind” study, neither the researcher nor the patient knows which arm of the trial is
receiving the drug or the placebo. “Randomized” means that upon enrollment patients are placed into
one arm or the other at random by computer. Other controls also may be used by which the test drug
is evaluated against a comparator. For example, “parallel control” trials generally involve
studying a patient population that is not exposed to the study medication (i.e., is either on
placebo or standard treatment protocols). In such studies experimental subjects and control
subjects are assigned to groups upon admission to the study and remain in those groups for the
duration of the study. Not all studies are highly controlled. An “open label” study is one where
the researcher and the patient know that the patient is receiving the drug. A trial is said to be
“pivotal” if it is designed to meet statistical criteria with respect to pre-determined
“endpoints,” or clinical objectives, that the sponsor believes, based usually on its interactions
with the relevant regulatory authority, will be sufficient to demonstrate safety and effectiveness
meeting regulatory approval standards. In some cases, two “pivotal” clinical trials are necessary
for approval.
The results of product development, preclinical studies and clinical trials are submitted to
the FDA as part of an NDA. NDAs must also contain extensive manufacturing information. Once the
submission has been accepted for filing, by law the FDA has 180 days to review the application and
respond to the applicant. In 1992, under the Prescription Drug User Fee Act (“PDUFA”), the FDA
agreed to specific goals for improving the drug review time and created a two-tiered system of
review times — Standard Review and Priority Review. Standard Review is applied to a drug that
offers at most, only minor improvement over existing marketed therapies. The 2002 amendments to
PDUFA set a goal that a Standard Review of an NDA be accomplished within ten months. A Priority
Review designation is given to drugs that offer major advances in treatment, or provide a treatment
where no adequate therapy exists. A Priority Review means that the time it takes the FDA to review
an NDA is reduced such that the goal for completing a Priority Review initial review cycle is six
months. The review process is often significantly extended by FDA requests for additional
information or clarification. The FDA may refer the application to an advisory committee for
review, evaluation and recommendation as to whether the application should be approved. The FDA is
not bound by the recommendation of an advisory committee, but it generally follows such
recommendations. The FDA may deny approval of an NDA if the applicable regulatory criteria are not
satisfied, or it may require additional clinical data and/or an additional pivotal Phase 3 clinical
trial. Even if such data are submitted, the FDA may ultimately decide that the NDA does not satisfy
the criteria for approval. Data from clinical trials are not always conclusive and the FDA may
interpret data differently than the Company does. Once issued, the FDA may withdraw product
approval if ongoing regulatory requirements are not met or if safety problems occur after the
product reaches the market. In addition, the FDA may require
testing, including Phase 4 studies, and surveillance programs to monitor the effect of
approved products which have been commercialized, and the FDA has the power to prevent or limit
further marketing of a product based on the results of these postmarketing programs. Drugs may be
marketed only for the approved indications and in accordance with the provisions of the approved
label. Further, if there are any modifications to the drug, including changes in indications,
labeling, or manufacturing processes or facilities, the Company may be required to submit and
obtain FDA approval of a new or supplemental NDA, which may require the Company to develop
additional data or conduct additional preclinical studies and clinical trials.
10
The FDA has expanded its expedited review process in recognition that certain severe or
life-threatening diseases and disorders have only limited treatment options. Fast track designation
expedites the development process, but places greater responsibility on a drug company during Phase
4 clinical trials. The drug company may request fast track designation for one or more indications
at any time during the IND process, and the FDA must respond within 60 days. Fast track designation
allows the drug company to develop product candidates faster based on the ability to request an
accelerated approval of the NDA. For accelerated approval the clinical effectiveness is based on a
surrogate endpoint in a smaller number of patients. In addition, the drug company may request
priority review at the time of the NDA submission. If the FDA accepts the NDA submission as a
priority review, the time for review is reduced from one year to six months. The Company plans to
request fast track designation and/or priority review, as appropriate, for its product candidates.
PDUFA, which has been reauthorized twice and is likely to be reauthorized again before the
Company’s submission of an NDA, requires the payment of user fees with the submission of NDAs.
These application fees are substantial ($1,405,500 in the FDA’s Fiscal Year 2010) and will likely
increase in future years. If the Company obtains FDA approval for its product candidates, it could
obtain five years of Hatch-Waxman marketing exclusivity for product candidates containing no active
ingredient (including any ester or salt of the active ingredient) previously approved by the FDA.
Under this form of exclusivity, third parties would be precluded from submitting a drug application
which refers to the previously approved drug and for which the safety and effectiveness
investigations relied upon by the new applicant were not conducted by or for the applicant and for
which the applicant has not obtained a right of reference or use for a period of five years. This
form of exclusivity does not block acceptance and review of stand-alone NDAs supported entirely by
data developed by the applicant or to which the applicant has a right of reference.
The Company and its contract manufacturers are required to comply with applicable cGMP
guidelines. cGMP guidelines require among other things, quality control, and quality assurance as
well as the corresponding maintenance of records and documentation. The manufacturing facilities
for the Company’s products must demonstrate that they meet GMP guidelines to the satisfaction of
the FDA pursuant to a pre-approval inspection before they can manufacture products. The Company and
its third-party manufacturers are also subject to periodic inspections of facilities by the FDA and
other authorities, including procedures and operations used in the testing and manufacture of its
products to assess its compliance with applicable regulations.
Failure to comply with statutory and regulatory requirements subjects a manufacturer to
possible legal or regulatory action, including warning letters, the seizure or recall of products,
injunctions, consent decrees placing significant restrictions on or suspending manufacturing
operations, and civil and criminal penalties. Adverse experiences with the product must be reported
to the FDA and could result in the imposition of market restriction through labeling changes or in
product removal. Product approvals may be withdrawn if compliance with regulatory requirements is
not maintained or if problems concerning safety or efficacy of the product occur following
approval.
Other Regulatory Requirements
Following approval of a drug candidate, the FDA imposes a number of complex regulations on
entities that advertise and promote pharmaceuticals, which include, among others, standards for
direct-to-consumer advertising, prohibitions on off-label promotion, and restrictions on
industry-sponsored scientific and educational activities, and promotional activities involving the
internet. The FDA has very broad enforcement authority under the FDCA, and failure to abide by
these regulations can result in penalties, including the issuance of a warning letter directing
entities to correct deviations from FDA standards, a requirement that future advertising and
promotional materials be pre-cleared by the FDA, and state and federal civil and criminal
investigations and prosecutions.
Any products the Company manufactures or distributes under FDA approvals are subject to
pervasive and continuing regulation by the FDA, including record-keeping requirements and reporting
of adverse experiences with the products. Safety issues uncovered by such reporting may result in
it having to recall approved products or FDA withdrawing its approval for such products, which
could have a material adverse effect on the Company. Failure to make such reports as required by
the FDA may result in fines and civil penalties, suspension of approvals, the seizure or recall of
products, and the withdrawal of approvals, any one or more of which could have a material adverse
effect on the Company.
11
Outside the United States, the Company’s ability to market a product is contingent upon
receiving marketing authorization from the appropriate regulatory authorities. The requirements
governing marketing authorization, pricing and reimbursement vary widely from jurisdiction to
jurisdiction. At present, foreign marketing authorizations are applied for at a national level,
although within the EU registration procedures are available to companies wishing to market a
product in more than one EU member state. The regulatory authority generally will grant marketing
authorization if it is satisfied that the Company has presented it with adequate evidence of
safety, quality and efficacy.
Research and Development
The Company’s research and development expenses were $1.8 million and $6.1 million in the
years ended December 31, 2010 and 2009, respectively. The Company will continue to incur
significant research and development expenses as it initiates its clinical programs related to
VIA-3196, continues planning for clinical trials of its preclinical pipeline assets and evaluates
other potential preclinical or clinical compounds that the Company may consider acquiring or
licensing.
Employees
As of December 31, 2010, the Company had six full-time employees, including four in research
and development. Of these employees, two have Ph.D.s, one has an M.D. and two have Masters degrees.
EXECUTIVE OFFICERS OF THE REGISTRANT
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The executive officers of VIA Pharmaceuticals, Inc. as of March 1, 2011 are as follows:
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Name
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Age
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Position
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Lawrence K. Cohen
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57
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Director, President and Chief Executive Officer
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Karen S. Wright
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55
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Vice President, Controller
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Rebecca A. Taub
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59
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Senior Vice President, Research and Development
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Biographical information relating to each of our executive officers is set forth below.
Lawrence K. Cohen, Ph.D.
has served as President, Chief Executive Officer and a director of
the Company since the consummation of the Merger on June 5, 2007, and prior to that time served as
President, Chief Executive Officer and a director of privately-held VIA Pharmaceuticals, Inc. since
its formation in 2004. Previously, he was the Chief Executive Officer of Zyomyx, Inc., a
privately-held biotechnology company focused on protein chip technologies. Dr. Cohen joined Zyomyx
in 1999 as Chief Operating Officer, where he was responsible for all internal activities, including
research and development, business development, financing and operations. Dr. Cohen received a
Ph.D. in Microbiology from the University of Illinois and completed his postdoctoral work in
Molecular Biology at the Dana-Farber Cancer Institute and the Department of Biological Chemistry at
Harvard Medical School.
Karen S. Wright
has served as Vice President, Controller of the Company since December 2006
and as a consultant to the Company from December 2005 through November 2006. In April 2010, the
Company appointed Ms. Wright as an executive officer to serve as the principal financial officer of
the Company following the restructuring of the Company. Prior to joining the Company, Ms. Wright
was Vice President Finance, Corporate Controller at Intermune, Inc. from December 2004 through
November 2006. Ms. Wright was Senior Director Finance at Cytokinetics, Inc. from November 2001
through December 2004. From 1997 through 2001, Ms. Wright served as the Senior Director of Finance
at Elan Pharmaceuticals, Inc. (formerly Athena Neurosciences). Ms. Wright served in various
positions at Genentech, Inc. from 1984 through 1997, most recently as Senior Controller for the
Research and Development Group. Previous to her biotech experience, Ms. Wright practiced in public
accounting from 1977 through 1984. Ms. Wright holds a B.S. in Business from the University of
California at Berkeley Business School, with an emphasis in accounting and marketing.
Rebecca Taub, M.D.
has served as Senior Vice President, Research and Development of the
Company since January 14, 2008, and prior to that time served as Vice President of Research in
Metabolic Diseases of Roche Pharmaceuticals, a unit of Roche Holding Ltd. since 2004. While at
Roche Dr. Taub oversaw drug discovery programs in diabetes, dyslipidemia and obesity, including
target identification, lead optimization and advancement of preclinical candidates into clinical
development. From 2000 through 2003, Dr. Taub worked at Bristol-Myers Squibb Co. and DuPont
Pharmaceutical Company, which was acquired by Bristol-Myers in 2001, in a variety of positions,
including executive director of CNS and obesity research. Before becoming a pharmaceutical
executive, Dr. Taub
served in a number of academic medicine and biomedical research positions. She was a tenured
professor of genetics and medicine at the University of Pennsylvania School of Medicine from 1997
to 2001, and she remains an adjunct professor. Earlier she was an assistant professor at the Joslin
Diabetes Center of Harvard Medical School, Harvard University and an associate investigator with
the Howard Hughes Medical Institute. She is the author of more than 120 research articles. Dr. Taub
received her M.D. from Yale University School of Medicine and B.A. from Yale College.
12
Advisors
The Company has established an advisory board to provide guidance and counsel on aspects of
its business. Members of the board provide input on product research and development strategy,
assist in targeting future pathways of interest, provide industry perspectives and background and
assist in education and publication plans.
The Company’s advisors are as follows:
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Employment/Current
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Name
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Specialty
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Positions
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Peter Libby, MD
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Atherosclerosis and cardiovascular
disease, including the role of
inflammation in the disease process
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Mallinckrodt Professor of Medicine, and
Chief, Cardiovascular Division, Brigham and
Women’s Hospital
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Marc Pfeffer, MD, Ph.D.
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Pathophysiology and clinical management
of progressive cardiac dysfunction
following heart attack or hypertension
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Dzau Professor of Medicine, Harvard Medical
School Senior Physician, Brigham and Women’s
Hospital in Boston
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Thomas Quertermous, MD
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Vascular pathophysiological, genetic and
molecular mechanisms of inflammation and
atherogenics
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William G. Irwin Professor of Cardiovascular
Medicine and Chief of Research,
Cardiovascular Medicine Division, at Stanford
University School of Medicine.
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Paul Ridker, MD
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Atherosclerosis and cardiovascular
disease, including the role of
inflammation in the disease process and
the role of CRP
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Eugene Braunwald Professor of Medicine,
Harvard Medical School and Director, Center
for Cardiovascular Disease Prevention,
Divisions of Cardiovascular Diseases and
Preventive Medicine, Brigham and Women’s
Hospital
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Jean-Claude Tardif, MD
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Atherosclerosis and cardiovascular disease
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Associate Professor of Medicine, University
of Montreal Director of Research, Montreal
Heart Institute
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Renu Virmani, MD
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Cardiovascular pathology
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President and Medical Director of CVPath
Institute, Inc.
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Corporate Information
Our principal executive office is located at 750 Battery Street, Suite 330, San Francisco, CA
94111, and our telephone number is (415) 283-2200. Our website address is:
www.viapharmaceuticals.com. The reference to our website address does not constitute incorporation
by reference of the information contained on the website, which should not be considered part of
this Annual Report on Form 10-K. You may view our financial information, including the information
contained in this annual report, and other reports we file with the Securities and Exchange
Commission (“SEC”), on the Internet, without charge as soon as reasonably practicable after we file
them with the SEC, in the “SEC Filings” page of the Investor Relations section of our website at
www.viapharmaceuticals.com. Alternatively, you may view or obtain reports filed with the SEC at the
SEC Public Reference Room at 100 F Street, N.E. in Washington, D.C. 20549, or at the SEC’s Internet
site at www.sec.gov. You may obtain information on the operation of the SEC Public Reference Room
by calling the SEC at 1-800-SEC-0330.
13
Risks Related to the Company’s Financial Results
The Company has experienced significant losses, expects losses in the future, has limited
resources and there is substantial doubt as to the Company’s ability to continue as a going
concern.
The Company is a clinical-stage biotechnology company with a limited operating history. The
Company is not profitable and its current operating business has incurred losses in each year since
the inception of the Company in 2004. The Company currently does not have any products that have
been approved for marketing, and the Company will continue to incur significant research and
development and general and administrative expenses related to its operations. The Company’s net
loss for the years ended December 31, 2010 and 2009 was approximately $9.6 million and $21.0
million, respectively. As of December 31, 2010, the Company had an accumulated deficit of
approximately $91.2 million. The Company expects that it will continue to incur significant losses
for the foreseeable future, and the Company may never achieve or sustain profitability. If the
Company’s product candidates fail in clinical trials or do not gain regulatory approval, or if the
Company’s future products do not achieve market acceptance, the Company may never become
profitable. Even if the Company achieves profitability in the future, it may not be able to sustain
profitability in subsequent periods.
Failure to obtain adequate financing in the near term will adversely affect the Company’s
ability to operate as a going concern. The Company’s ability to continue as a going concern is also
dependent upon its ability to control its operating expenses and its ability to achieve a level of
revenues adequate to support its capital and operating requirements.
The factors described in the auditor’s report and Note 1 and Note 12 in the Notes to the
Financial Statements may make it more difficult for the Company to obtain additional financing, and
there can be no assurance that the Company will be able to obtain such financing on favorable
terms, or at all. As a result of the Company’s losses to date, expected losses in the future,
limited capital resources, including cash on hand, and accumulated deficit, the Company’s
independent registered public accounting firm concluded that there is substantial doubt as to the
Company’s ability to continue as a going concern, and accordingly, included an explanatory
paragraph describing conditions that raise substantial doubt about its ability to continue as a
going concern in their report on the Company’s December 31, 2010 financial statements.
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The Company will require substantial additional funding in the near term to continue operating
its business, which may not be available to the Company on acceptable terms, or at all, which
could force the Company to delay, scale back or eliminate some or all of its research and
development programs, or ultimately cease operations.
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As of December 31, 2010, the Company had $84,001 in cash. As described under “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 below
and in Note 6 in the Notes to the Financial Statements, in March 2009, the Company entered into a
loan (the “2009 Loan Agreement”) with its principal stockholder, Bay City Capital, and one of Bay
City Capital’s affiliates (the “Lenders”) whereby the Lenders agreed to lend to the Company in the
aggregate up to $10.0 million, which loan is secured by all of the Company’s assets, including its
intellectual property, and accrues interest at the rate of 15% per annum, which increases to 18%
per annum following an event of default. As of September 11, 2009, the Company had drawn down the
full amount from the debt facility. As described under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 below and in Note 6 in the Notes
to the Financial Statements, the Company entered into another loan (the “2010 Loan Agreement”) with
the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million,
which loan is secured by all of the Company’s assets, including its intellectual property, and
accrues interest at the rate of 15% per annum, which increases to 18% per annum following an event
of default. As of September 28, 2010, the Company had drawn down the full amount from the debt
facility. As described under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in Part II, Item 7 below and in Note 6 in the Notes to the Financial
Statements, on October 29, 2010, the Company executed a secured promissory note (the “Bridge Note”)
in favor of Bay City Capital Fund IV, L.P., a Delaware limited partnership, in the principal sum of
$200,000 for general corporate purposes. By the terms of the Bridge Note, upon execution of the
2010 Loan Amendment (as defined below) the unpaid principal amount and accrued and unpaid interest
under the Bridge Note automatically converted into obligations of the Company under the 2010 Loan
Amendment as advances under the 2010 Loan Amendment. As described under “Management’s Discussion
and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 below and in Note
6 in the Notes to the Financial Statements, in November 2010, the Company entered into an amendment
to the 2010 Loan Agreement (the “2010 Loan Amendment”) with the Lenders whereby the Lenders agreed
to lend to the Company an additional aggregate principal amount of up to $3.0 million, pursuant to
the terms of 2010 Loan Amendment. The 2010 Loan Amendment is secured by all of the Company’s
assets, including its intellectual property, and accrues interest at the rate of 15%
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per annum, which increases to 18% per annum following an event of default. On November 15, 2010,
$201,397 in principal and interest amounts borrowed under the Bridge Note automatically converted
into obligations of the Company under the 2010 Loan Amendment as advances. During the three months
ended December 31, 2010, the Company borrowed an additional $800,000 on November 22, 2010. On
January 14, 2011, the Company entered into an amendment to the 2010 Loan Agreement and 2010 Loan
Amendment to extend the maturity date under the 2010 Loan Agreement and 2010 Loan Amendment from
December 31, 2010 to June 30, 2011 and on March 24, 2011, the Company entered into a second
amendment to further extend the maturity date to September 30, 2011. Management believes that the total
amount of cash borrowed
under the 2010 Loan Amendment, if fully drawn, will enable the Company to meet its current
obligations into the second quarter of 2011. Management does not believe that existing cash
resources will be sufficient to enable the Company to meet its ongoing working capital requirements
for the next twelve months and the Company will need to raise substantial additional funding in the
near term to meet its working capital requirements and to continue its research, development and
commercialization activities. Current funds and additional funds raised will be required to:
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fund the business operations of the Company, including general and administrative
expenses and the expenses surrounding the restructuring as described in Note 12 in the Notes
to the Financial Statements;
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fund clinical trials and seek regulatory approvals;
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pursue and implement strategic partnering transactions;
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pursue the development of additional product candidates;
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conduct and expand the Company’s research and development activities;
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access manufacturing and commercialization capabilities, including seeking collaboration
and partnering opportunities;
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implement additional internal systems and infrastructure; and
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maintain, defend and expand the scope of the Company’s intellectual property portfolio.
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The Company’s future funding requirements will depend on many factors, including but not
limited to:
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the terms and timing of any collaboration, licensing or other strategic arrangements into
which the Company may enter;
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the scope, cost, rate of progress, and results of the Company’s current and future
clinical trials, preclinical studies and other discovery, research and development
activities;
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the costs associated with establishing manufacturing and commercialization capabilities;
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the costs of acquiring or investing in product candidates and technologies;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other
intellectual property rights;
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the costs and timing of seeking and obtaining FDA and other regulatory approvals;
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the potential need to hire additional management and research, development and clinical
personnel;
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the effect of competing technological and market developments; and
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general and industry-specific economic conditions that may affect the Company’s research
and development expenditures.
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Until the Company can establish profitable operations to finance its cash requirements, which
the Company may never do, the Company plans to finance future cash needs primarily through public
or private equity or debt financings, the establishment of credit or other funding facilities, or
entering into collaborative or other strategic arrangements with corporate sources or other sources
of financing. Global market and economic conditions have been, and continue to be, disrupted and
volatile. Concern about the stability of the markets has led many lenders and institutional
investors to reduce, and in some cases, cease to provide credit to businesses and consumers. The
Company does not know whether additional financing will be available in the near term when needed,
particularly in light of the current economic environment and adverse conditions in the financial
markets, or that, if available, financing will be
15
obtained on terms favorable to the Company or its stockholders. Since August 2007, other than
through bridge loans from its largest stockholder, the Company has been unsuccessful in securing
additional financing and may not be able to do so in the near term when needed. The delisting of
the Company’s common stock from the NASDAQ Capital Market may further adversely affect our ability
to obtain additional financing in the near term when needed. Having insufficient funds may require
the Company to delay, scale back, or eliminate some or all of its research and development
programs, including activities related to its clinical trials, or to relinquish greater or all
rights to product candidates at an earlier stage of development or on less favorable terms than the
Company would otherwise choose, or ultimately cease operations.
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The Company is currently in default under the 2009 Loan Agreement which could lead to a
foreclosure on the Company’s assets.
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All outstanding principal and accrued interest under the 2009 Loan Agreement was due on April
1, 2010. While the Lenders have not declared an event of default, the Company failed to repay the
loan amount on April 1, 2010. As a result, the Lenders may demand immediate payment of all amounts
borrowed by the Company and take possession of all collateral securing the 2009 Loan Agreement,
which would cause the Company to cease operations. In addition, if the Company raises additional
funds through collaborative or other strategic arrangements, it may be required to relinquish
potentially valuable rights to its product candidates or grant licenses on terms that are not
favorable to the Company.
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The Company may not be able to pay third-party vendors and suppliers, which could adversely
affect the Company’s business, financial condition and results of operations.
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The Company may not be able to pay third-party vendors or suppliers for services performed in
the ordinary course of business. This may cause third-party vendors or suppliers to withhold goods
and services and may subject the Company to litigation, as well as interest and late charges, which
will increase our cost of operations and could adversely affect our business, financial condition
and results of operations.
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The Company may not be able to satisfy certain covenant restrictions, which could adversely
affect the Company’s business, financial condition, results of operations and liquidity.
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As described under “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Part II, Item 7 below and in Note 6 in the Notes to the Financial Statements, in
March 2009, the Company entered into a loan with the Lenders whereby the Lenders agreed to lend to
the Company in the aggregate up to $10.0 million, which loan is secured by all of the Company’s
assets, including its intellectual property. As of September 11, 2009, the Company had drawn down
the full amount from the debt facility. As described under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” in Part II, Item 7 below and in Note 6 in the Notes
to the Financial Statements, the Company entered into the 2010 Loan Agreement with the Lenders
whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million, which loan
is secured by all of the Company’s assets, including its intellectual property. As of September 28,
2010, the Company had drawn down the full amount from the debt facility. As described under
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II,
Item 7 below and in Note 6 in the Notes to the Financial Statements, on October 29, 2010, the
Company executed the Bridge Note in favor of Bay City Capital Fund IV, L.P., a Delaware limited
partnership, in the principal sum of $200,000 for general corporate purposes. By the terms of the
Bridge Note, upon execution of the 2010 Loan Amendment the unpaid principal amount and accrued and
unpaid interest under the Bridge Note automatically converted into obligations of the Company under
the 2010 Loan Amendment as advances under the amended and restated promissory notes issued under
the 2010 Loan Amendment. As described under “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” in Part II, Item 7 below and in Note 6 in the Notes to the
Financial Statements, in November 2010, the Company entered into the 2010 Loan Amendment whereby
the Lenders agreed to lend to the Company an additional aggregate principal amount of up to $3.0
million, pursuant to the terms of the amended and restated promissory notes issued under the 2010
Loan Amendment. The 2010 Loan Amendment is secured by all of the Company’s assets, including its
intellectual property, and accrues interest at the rate of 15% per annum, which increases to 18%
per annum following an event of default. On November 15, 2010, $201,397 in principal and interest
amounts borrowed under the Bridge Note automatically converted into obligations of the Company
under the 2010 Loan Amendment as advances. During the three months ended December 31, 2010, the
Company borrowed an additional $800,000 on November 22, 2010. On January 14, 2011, the Company
entered into an amendment to the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity
date under the 2010 Loan Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011
and on March 24, 2011, the Company entered into a second amendment to further extend the maturity
date to September 30, 2011.
In connection with the 2009 Loan Agreement, the 2010 Loan Agreement and the 2010 Loan Amendment,
the Company must also satisfy certain conditions and comply with covenants, including covenants
relating to the Company’s ability to incur additional indebtedness, make future acquisitions,
consummate asset dispositions, grant liens and pledge assets, pay dividends or make other
distributions, incur capital expenditures and
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make restricted payments. These restrictions may limit the Company’s ability to pursue its
business strategies and obtain additional funds. The Company’s ability to meet these financial
covenants may be adversely affected by a deterioration in business conditions or its results of
operations, adverse regulatory developments, the economic environment and adverse conditions in the
financial markets or other events beyond the Company’s control. Failure to comply with these
restrictions may result in the occurrence of an event of default. Upon the occurrence of an event
of default, the Lenders may terminate the loan, demand immediate payment of all amounts borrowed by
the Company and take possession of all collateral securing the loan, which could adversely affect
the Company’s ability to repay its debt securities and cause the Company to cease operations. In
addition, the loans provide that, subject to certain specified exemptions, the proceeds of any debt
or equity offering or asset sale must be used to reduce outstanding indebtedness under the loan or
other specified indebtedness. This restriction severely limits the Company’s ability to use the
proceeds of any debt or equity offering or asset sale to operate or grow the Company’s business.
All outstanding principal and accrued interest under the 2009 Loan Agreement was due on April 1,
2010 and all outstanding principal and accrued interest under the 2010 Loan Agreement was
originally due on December 31, 2010. The Company failed to repay the loan amounts on April 1, 2010
and December 31, 2010, respectively. On January 14, 2011, the Company entered into an amendment to
the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan
Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
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Raising additional funds by issuing securities or through collaboration and other strategic
arrangements will likely cause dilution to existing stockholders, restrict operations or require
the Company to relinquish potentially valuable rights.
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The Company may raise additional capital through private or public equity or debt financings,
the establishment of credit or other funding facilities, entering into collaborative or other
strategic arrangements with corporate sources or other sources of financing, which may include
partnerships for product development and commercialization, merger, sale of assets or other similar
transactions. If the Company raises additional capital by issuing equity securities, its existing
stockholders’ ownership will be diluted. Given the Company’s current market capitalization and
financing needs, it is likely that any financing obtained will result in significant dilution to
existing stockholders. Any additional debt financing that the Company enters into may involve
covenants that restrict its operations. These restrictive covenants may include limitations on
additional borrowing, specific restrictions on the use of its assets as well as prohibitions on its
ability to create liens, pay dividends, redeem its stock or make investments. The Company may also
be required to pledge all or substantially all of its assets, including intellectual property
rights, as collateral to secure any debt obligations.
The 2009 Loan Agreement is secured by all of the Company’s assets, including its intellectual
property. In connection with this loan, the Company granted the Lenders warrants to purchase an
aggregate of 83,333,333 shares of common stock (“2009 Warrant Shares”) at $0.12 per share. The 2009
Warrant Shares vest based on the amount of borrowings under the loan and the passage of time. For
each $2.0 million borrowing, 8,333,333 Warrant Shares vest and are exercisable immediately on the
date of grant, and 8,333,333 vest and are exercisable 45 days thereafter as the Company meets
certain conditions provided for in the warrants, including that the Company did not complete a
$20.0 million financing, as defined in the 2009 Loan Agreement, within 45 days of the borrowing.
Based on the $10.0 million of borrowings, 83,333,333 2009 Warrant Shares are vested and are
exercisable. The Warrant Shares are exercisable at any time until 5:00 p.m. (Pacific Time) on March
12, 2014, upon the surrender to the Company of the properly endorsed 2009 Warrant Shares, as
specified in the warrants. To the extent the 2009 Warrant Shares are exercised by the Lenders,
existing stockholders’ ownership in the Company will be significantly diluted.
The 2010 Loan Agreement is secured by all of the Company’s assets, including its intellectual
property. In connection with this loan, the Company granted the Lenders warrants to purchase an
aggregate of 17,647,059 shares of common stock (“2010 Warrant Shares”) at $0.17 per share. The 2010
Warrant Shares vest based on the amount of borrowings under the loan. Based on the $3.0 million of
borrowings, 17,647,059 2010 Warrant Shares are vested and are exercisable. The 2010 Warrant Shares
are exercisable at any time until 5:00 p.m. (Pacific Time) on March 26, 2015, upon the surrender to
the Company of the properly endorsed 2010 Warrant Shares, as specified in the warrants. To the
extent the Warrant Shares are exercised by the Lenders, existing stockholders’ ownership in the
Company will be further diluted. In addition, upon a declaration of default of the 2009 Loan
Agreement the Lenders will have the right to declare the 2010 Loan Agreement due and payable upon
sixty days notice.
The 2010 Loan Amendment is secured by all of the Company’s assets, including its intellectual
property. In connection with this loan amendment, the Company granted the Lenders warrants to
purchase an aggregate of 42,253,521 shares of common stock (“2010 Additional Warrant Shares”) at
$0.071 per share. The 2010 Additional Warrant Shares vest based on the amount of borrowings under
the loan. Based on the $1,501,397 million of borrowings, 21,146,437 of the 2010 Warrant Shares are
vested and are exercisable as of March 1, 2011. The 2010 Additional Warrant Shares are exercisable
at any time until 5:00 p.m. (Pacific Time) on March 26, 2015, upon the surrender to the Company of
the properly endorsed 2010 Additional Warrant Shares, as specified in the warrants. To the extent
the 2010 Additional Warrant Shares are exercised by the Lenders, existing stockholders’ ownership
in the Company will be further diluted. In addition, upon a declaration of default of the 2009 Loan
Agreement, the Lenders will have the right to declare the 2010 Loan Agreement and the 2010 Loan
Amendment due and payable upon sixty days notice.
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Risks Related to the Company’s Business
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The Company is at an early stage of development. The Company has never generated and may never
generate revenues from commercial sales of its products and the Company may not have products to
market for several years, if ever.
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Since its inception, the Company has dedicated substantially all its resources to the support
and conduct of research and development of compounds for clinical trials, and specifically, toward
the development of VIA-2291. Because none of the Company’s current or potential products have been
finally approved by any regulatory authority, the Company currently has no products for commercial
sale and has not generated any revenues to date. The Company is considering its partnering
opportunities with large biotechnology or pharmaceutical companies in connection with its current
and future clinical trials and development activities. The Company does not expect to generate any
revenues until it successfully partners its current or future programs or until it receives final
regulatory approval and launches one of its products for sale.
The Company has conducted three Phase 2 clinical trials for VIA-2291: the CEA study, the ACS
study, and the FDG-PET study. While the Company does not currently intend to internally conduct any
further clinical trials with respect to VIA-2291, subject to the receipt of substantial additional
financing, the Company may at some point in the future initiate clinical development activities
with respect to VIA-2291. Such clinical development activities may include one or more additional
clinical trials designed to further demonstrate that the drug can be safely administered following
an acute coronary syndrome event and link the mechanism of action of VIA-2291 to improved cardiac
outcomes. Any future trials will require regulatory approval and the failure to obtain such
approval would have a material adverse effect on the Company’s business. Substantial additional
investment in future clinical trials will be required and will require significant time.
In December 2008, the Company entered into two license agreements with Roche to develop and
commercialize two sets of compounds (the “Metabolic Compounds”). The first license is for Roche’s
THR beta agonist, a clinically ready candidate for the control of cholesterol, triglyceride levels
and potential in insulin sensitization/diabetes. The second license is for multiple compounds from
Roche’s preclinical DGAT1 metabolic disorders program. Subject to the receipt of substantial
additional financing, the Company intends to begin Phase 1 single ascending dose trials with
respect to THR beta agonist in the first half of 2011. In addition, the Company intends to identify
potential clinical candidates from the DGAT1 program and begin IND-enabling studies in 2011. If
necessary financing is obtained either through additional investment in the Company or through
another vehicle, the Company intends to enter into strategic arrangements to pursue development of
the Metabolic Compounds. There can be no assurance that the Company will be able to obtain such
financing.
The Company’s ability to generate product revenue will depend heavily on the successful
development and regulatory approval of VIA-2291, the Metabolic Compounds or any other product
candidates. The Company cannot guarantee that it will be successful in completing any subsequent
clinical trials initiated for VIA-2291, or that it will be able to obtain the necessary financing
to initiate and/or complete clinical trials for the Metabolic Compounds or any other product
candidates. The Company also cannot assure you that it will be able to successfully negotiate a
strategic collaboration with a large biotechnology or pharmaceutical company with respect to
VIA-2291 or otherwise finance the development of VIA-2291, the Metabolic Compounds or any other
product candidates. The Company’s revenues, if any, will be derived from products that the Company
does not expect to be commercially available for several years, if ever. The development of
VIA-2291, the Metabolic Compounds or any other product candidates may be discontinued at any stage
of the clinical trial programs and the Company may never generate revenue from any of its product
candidates. Accordingly, there is no assurance that the Company will ever generate revenues.
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Clinical trials are expensive, difficult to design and implement, time-consuming and subject to
delay, particularly in the cardiovascular area due to the large number of patients who must be
enrolled and treated in clinical trials. As a result, there is a high risk that the Company’s
drug development activities will not result in regulatory approval, or that such approval will be
delayed, thereby reducing the likelihood of successful commercialization of products.
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Clinical trials are very expensive and difficult to design and implement. Conducting clinical
trials is a complex and uncertain process and involves screening, assessing, testing, treating and
monitoring patients at multiple sites, and coordinating with patients and clinical institutions.
This is especially true for trials related to the cardiovascular indications, in part because they
require a large number of patients and because of the complexities involved in using histology,
measurement of biomarkers and medical imaging. The clinical trial process is also time-consuming.
The Phase 3 trial for VIA -2291 will test the ability of the drug to reduce heart attacks and
strokes in a high risk cardiovascular patient population. Due to the size and cost of such a trial
the company believes it is best undertaken with a pharmaceutical company partner. To date VIA has
been unable to establish such a collaboration. The company continues to evaluate strategies for
partnering the program but currently intends to conduct no further internally funded activities
with
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respect to VIA-2291. Subject to the receipt of additional financing, the Company intends to
pursue clinical development of the THR beta agonist compound and preclinical development of the DGAT1
compounds licensed from Roche, each of which will require significant spending and may require
separate sources of funding. Until the Company can generate a sufficient amount of revenue to
finance its cash requirements, which the Company may never do, it expects to finance future cash
needs primarily through public or private equity offerings, debt financings or strategic
collaborations. Global market and economic conditions have been, and continue to be, disrupted and
volatile. Concern about the stability of the markets has led many lenders and institutional
investors to reduce, and in some cases, cease to provide credit to businesses and consumers. To
date the Company has been unsuccessful in securing additional financing and may not be able to do
so in the near term when needed, particularly in light of the current economic environment, adverse
conditions in the financial markets, and the Company’s inability to secure financing over the past
two years other than through bridge financing from its largest stockholder. Further, additional
financing, if available, may not be obtained on terms favorable to the Company or its stockholders.
The conduct of the Company’s clinical trial activities, including the commencement, if any,
and completion of any future clinical trial activities, could be delayed, prevented or otherwise
negatively impacted by several factors, including:
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lack of adequate funding to commence the preclinical and clinical development of the
Metabolic Compounds, including the incurrence of unforeseen costs due to enrollment delays,
requirements to conduct additional trials and studies and increased expenses associated with
the services of the Company’s clinical research organizations (“CROs”) and other third
parties;
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failure to enter into strategic partnering transactions or other strategic arrangements
for the continued research and development of compounds for clinical trials;
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delays in obtaining regulatory approvals to commence a clinical trial;
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delays in identifying and reaching agreement on acceptable terms with prospective CROs
and clinical trial sites;
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delays in obtaining institutional review board approval to conduct a clinical trial at a
prospective site;
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slower than expected rates of patient recruitment and enrollment for a variety of
reasons, including competition from other clinical trial programs for the treatment of
similar indications, the nature of the protocol, and the eligibility criteria for the trial;
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enrolled patients may not remain in or complete clinical trials at the rates we expect;
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lack of effectiveness during clinical trials;
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failure to achieve clinical trial endpoints;
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unforeseen safety issues;
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uncertain dosing issues;
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changes in regulatory requirements causing the Company to amend clinical trial protocols
or add new clinical trials to comply with these changes;
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unforeseen difficulties developing the advanced manufacturing techniques, including
adequate process controls, quality controls, and quality assurance testing, required to
scale up production of the Company’s product candidates to commercial levels;
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inability to monitor patients adequately during or after treatment;
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conflicting or negating results, upon further analysis of the data from the clinical
trials;
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retaining participants who have enrolled in a clinical trial but may be prone to withdraw
due to the design of the trial, lack of efficacy or personal issues or who fail to return
for follow-up visits for a variety of reasons; and
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inability or unwillingness of medical investigators to follow the Company’s clinical
trial protocols and follow good clinical practices.
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The Company will not know whether any future clinical trials, if any, will begin on time, need
to be restructured or be completed on schedule, if at all. Significant delays in clinical trials
will impede the Company’s ability to commercialize its product candidates and generate revenue, and
could significantly increase its development costs, all of which could have a material adverse
effect on the Company’s business.
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Failure to timely recruit and enroll patients for any future clinical trials may cause the
development of the Company’s product candidates to be delayed.
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The Company may encounter delays if it is unable to timely recruit and enroll enough patients
to complete any future clinical trials. Clinical trial patient levels depend on many factors,
including the eligibility criteria for the trial, assumptions regarding the baseline disease state
and the impact of standard medical care, the size of the patient population, the nature of the
protocol, the proximity of patients to clinical sites, and competition from other clinical trial
programs for the treatment of similar indications. For example, although patient enrollment was
completed, the Company experienced slower than expected patient enrollment in its completed CEA
clinical trial. Any delays in planned patient enrollment in the future may result in increased
costs, delay or prevent regulatory approval or harm the Company’s ability to develop and
commercialize current or future product candidates, including in collaboration with biotechnology
or pharmaceutical companies.
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The Company’s Phase 2 clinical trials of VIA-2291 primarily target biomarkers, histology and
medical imaging as endpoints, and the results of any Phase 2 clinical trials may not be
indicative of success in future clinical trials that will target outcomes such as heart attack
and stroke. The results of previous clinical trials may not be predictive of future results, and
the Company’s current and future clinical trials may not satisfy the requirements of the FDA or
other non-U.S. regulatory authorities.
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The clinical data collected during the (i) prior clinical trials involving VIA-2291 (formerly
known as ABT-761) conducted by Abbott prior to the licensing of VIA-2291 from Abbott in August
2005, and (ii) the CEA, ACS, ACS MDCT sub-study and FDG-PET clinical trials for VIA-2291, do not
provide evidence of whether VIA-2291 will prove to be an effective treatment to reduce the rate of
MACE in the prospective treatment population. In order to prove or disprove the validity of the
Company’s assumption about the efficacy of VIA-2291, at least one additional clinical trial will
need to be conducted which may include a Phase 2b or Phase 3 clinical trial and which may be 12 to
36 months in duration from the recruitment of the first patient, although this time may increase
due to unforeseen circumstances. Such additional clinical trials must ultimately demonstrate that
there is a statistically significant reduction in the number of MACE in patients treated with
VIA-2291 compared to patients taking a placebo. Due to the size and cost of such additional
trials, the Company believes it is best undertaken with a pharmaceutical company partner. To date
the Company has been unable to establish such a collaboration and currently intends to conduct no
further internally funded activities with respect to
VIA-2291.
Until data from one or more of
these outcome clinical trials can be performed, collected and analyzed, the Company will not know
whether VIA-2291 shows clinically significant benefits.
Results of the CEA and ACS clinical trials as described under “Business — VIA-2291 Clinical
Trial Results” in Part I, Item 1 above are based on a very limited number of patients and may, upon
review and further analysis, be revised, interpreted differently by regulatory authorities or
negated by later stage clinical results. For instance, we believe the results of the CEA and ACS
clinical trials support further clinical development of VIA-2291 in larger outcome trials based on
the fact both trials achieved nearly every key endpoint, although the CEA trial missed its primary
endpoint. The results from preclinical testing and Phase 2 clinical trials often have not been
predictive of results obtained in later trials. A number of new drugs and therapeutics have shown
promising results in initial clinical trials, but later-stage trials may fail to establish
sufficient safety and efficacy data to obtain necessary regulatory approvals. Negative or
inconclusive results, or adverse medical events during a clinical trial, could cause the
termination of a clinical trial or require it to be repeated or a whole new clinical trial
conducted. Data obtained from preclinical and clinical studies are subject to varying
interpretations, which may delay, limit or prevent regulatory approval.
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The Company’s Phase 2 FDG-PET clinical trial utilizes new, innovative imaging technology that
does not represent a widely accepted and validated clinical trial methodology for measuring
inflammation in atherosclerosis. The results of this clinical trial may not be predictive of
future results and may not be consistent with the results of the CEA and ACS clinical trials, the
ACS MDCT sub-study or future clinical trials.
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FDG-PET is a new, innovative imaging technology that does not represent a widely accepted and
validated clinical trial methodology for measuring atherosclerotic plaque inflammation. The last
patient in the FDG-PET Phase 2 clinical trial was reported in December 2009. In the Company’s
FDG-PET study, VIA-2291 was well-tolerated and demonstrated highly significant leukotriene
inhibition similar to the other Phase 2 studies. Nonetheless, the results of this clinical trial
may not be predictive of future results which may delay or prevent regulatory approval of
VIA-2291,
may harm the Company’s ability to develop and commercialize VIA-
2291, and may negatively impact the Company’s ability to raise additional capital in the
future.
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The Company’s clinical trials could be delayed, suspended or stopped.
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The Company will not know whether future clinical trials, if any, will begin on time or
whether it will complete any of its ongoing clinical trials on schedule or at all. Product
development costs to the Company and potential future collaborators or strategic partners will
increase if the Company has delays in testing or approvals, or if the Company needs to perform more
or larger clinical trials than planned. Significant delays, suspension or termination of clinical
trials would adversely affect the Company’s financial results and the commercial prospects for the
Company’s products, and would delay or prevent the Company from achieving profitable operations.
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The Company relies on third parties to conduct its clinical trials. If these third parties do not
successfully carry out their contractual duties or meet expected deadlines, the Company may be
unable to obtain, or may experience delays in obtaining, regulatory approval, or may not be
successful in commercializing the Company’s planned and future products.
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The Company enters into master service agreements with third-party CROs and depends on
independent clinical investigators, medical institutions and contract laboratories to conduct its
clinical trials. Similarly, the Company intends to rely on CROs to oversee any clinical trials for
the Metabolic Compounds and will depend on independent clinical investigators, medical institutions
and contract laboratories to conduct these clinical trials. The Company remains responsible,
however, for ensuring that each of its clinical trials is conducted in accordance with the general
investigational plan and protocols for the trial. Moreover, the FDA requires the Company to comply
with standards, commonly referred to as Good Clinical Practices, for conducting, recording and
reporting the results of clinical trials to assure that data and reported results are credible and
accurate and that the rights, integrity and confidentiality of trial participants are protected.
The Company’s reliance on third parties that it does not control does not relieve it of these
responsibilities and requirements. If the Company’s CROs or independent investigators fail to
devote sufficient time and resources to the Company’s drug development programs, if they are unable
or unwilling to follow the Company’s clinical protocols, or if their performance is substandard,
our clinical trials may not meet regulatory requirements. If our clinical trials do not meet
regulatory requirements or if these third parties need to be replaced, our clinical trials may be
extended, delayed, suspended or terminated. If any of these events occurs, the clinical development
costs for the Company’s product candidates would be expected to rise and the Company may not be
able to obtain regulatory approval or commercialize its product candidates.
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The Company will need to provide additional information to the FDA regarding preclinical and
clinical safety issues raised during prior trials of VIA-2291 that could result in delays in
future FDA approvals.
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During preclinical animal testing and clinical trials of ABT-761 (now VIA-2291) conducted by
Abbott, safety issues with regards to tumors in animals and higher incidence of liver function
abnormality in clinical trials in humans were identified. The liver function abnormalities were
demonstrated to be reversible with discontinuance of the drug in Abbott’s trials. The FDA requested
that the Company provide additional materials and information regarding the incidence of tumors in
animals. In the ACS clinical trial, the Company did see generally mild, reversible elevations of
normal liver enzymes in the low dose VIA-2291 treated group, but no elevations in the higher dose
drug-treated groups. Safety issues could delay the FDA’s approval of any Phase 2b and/or Phase 3
clinical trial, which could have a material adverse effect on the Company’s business.
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To date, VIA-2291 is the Company’s only product candidate to be tested in clinical trials. The
Company’s efforts to identify, develop and commercialize new product candidates beyond VIA-2291
will be at an early stage and will be subject to a high risk of failure.
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The Company’s product candidates are in various stages of development and are prone to the
risks of failure inherent in drug development. The Company will need to complete significant
additional clinical trials before it can demonstrate that its product candidates are safe and
effective to the satisfaction of the FDA and other non-U.S. regulatory authorities. Clinical trials
are expensive and uncertain processes that take years to complete. Failure can occur at any stage
of the process, and successful early clinical trials do not ensure that later clinical trials will
be successful. Current and future preclinical products have increased risk as there is no assurance
that products will be identified that will qualify for, and be successful in, clinical trials.
Furthermore, the Company may expend significant resources on research or target compounds that
ultimately do not qualify for, or are not successful in, clinical trials. For example, in December
2008 the Company entered into two license agreements with Roche to develop and commercialize the
Metabolic Compounds for up to $22.8 million in upfront and milestone payments with potential
royalty payments in the future. The Company plans to begin Phase 1 single ascending dose trials for
the THR beta agonist in the first half of 2011 and to pursue preclinical and clinical development
of the DGAT1 compounds. There can be no assurance that the Company will successfully develop and
commercialize products containing these compounds. Product candidates may fail to show desired
efficacy and safety traits despite having progressed through initial clinical trials. A number of
companies in the biotechnology and pharmaceutical industries have suffered significant setbacks in
advanced clinical trials where costs of clinical trials are significant, even after
obtaining promising results in earlier trials. In addition, a clinical trial may prove
successful with respect to a secondary endpoint, but fail to demonstrate clinically significant
benefits with respect to a primary endpoint. Failure to satisfy a primary endpoint in a Phase 2b
and/or Phase 3 clinical trial would generally mean that a product candidate would not receive
regulatory approval without a subsequent successful Phase 2b and/or Phase 3 clinical trial which
the Company may not be able to fund, and may be unable to complete.
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If the Company is unable to form and maintain the collaborative relationships that its business
strategy requires, its product development programs will suffer, and the Company may not be able
to develop or commercialize its product candidates and may ultimately have to cease operations.
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A key element of the Company’s business strategy with regard to the development and
commercialization of VIA-2291 includes collaboration with third parties, particularly leading
biotechnology and pharmaceutical companies. If necessary financing is obtained, the Company plans
to pursue partnering opportunities with biotechnology and pharmaceutical companies to conduct
additional clinical trials required for regulatory approval of VIA-2291. Subject to the receipt of
additional financing, the Company expects to consider further collaborations for the development
and commercialization of its product candidates in the future. The timing and terms of any
collaboration will depend on the evaluation by prospective collaborators of the Company’s clinical
trial results and other aspects of the safety and efficacy profiles of its product candidates. If
the Company is unable to reach agreements with suitable collaborators for any product candidate, it
would be forced to fund the entire development and commercialization of such product candidate, and
the Company currently does not have the resources to do so. Even if the Company is able to reach an
agreement with a suitable collaborator, the Company may be forced to fund a significant portion of
the development and commercialization expenses, and the Company currently does not have the
resources to do so. Additionally, if resource constraints require the Company to enter into a
collaboration early in the development of a product candidate, the Company may be forced to accept
a more limited share of any revenues such product may eventually generate. The Company faces
significant competition in seeking appropriate collaborators. Moreover, these collaboration
arrangements are complex and time-consuming to negotiate and document. The Company may not be
successful in its efforts to establish collaborations or other alternative arrangements for any
product candidate, may be unable to raise required capital to fund clinical trials, and therefore,
may be unable to continue operations.
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Even if the Company receives regulatory approval to market its product candidates, such products
may not gain the market acceptance among physicians, patients, healthcare payors and the medical
community.
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Any products that the Company may develop may not gain market acceptance among physicians,
patients, healthcare payors and the medical community even if they ultimately receive regulatory
approval. If these products do not achieve an adequate level of acceptance, the Company, or future
collaborators, may not be able to generate material product revenues and the Company may not become
profitable. The degree of market acceptance of any of the Company’s product candidates, if approved
for commercial sale, will depend on a number of factors, including:
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demonstration of efficacy and safety in clinical trials;
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the prevalence and severity of any side effects;
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the introduction and availability of generic substitutes for any of the Company’s
products, potentially at lower prices (which, in turn, will depend on the strength of the
Company’s intellectual property protection for such products);
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potential or perceived advantages over alternative treatments;
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the timing of market entry relative to competitive treatments;
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the ability to offer the Company’s product candidates for sale at competitive prices;
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relative convenience and ease of administration;
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the strength of marketing and distribution support;
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sufficient third party coverage or reimbursement; and
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the product labeling or product insert (including any warnings) required by the FDA or
regulatory authorities in other
countries.
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22
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The Company will rely on third parties to manufacture and supply its product candidates.
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The Company does not own or operate manufacturing facilities for clinical or commercial
production of product candidates. The Company will not have any experience in drug formulation or
manufacturing, and it will lack the resources and the capability to manufacture any of the
Company’s product candidates on a clinical or commercial scale. The Company expects to depend on
third-party contract manufacturers for the foreseeable future. Any performance failure on the part
of the Company’s contract manufacturers could delay clinical development, regulatory approval or
commercialization of the Company’s current or future product candidates, depriving the Company of
potential product revenue and resulting in additional losses.
The manufacture of pharmaceutical products requires significant expertise and capital
investment, including the development of advanced manufacturing techniques and process controls.
Manufacturers of pharmaceutical products often encounter difficulties in production, particularly
in scaling up initial production. These problems include difficulties with production costs and
yields, quality control (including stability of the product candidate and quality assurance
testing), shortages of qualified personnel, as well as compliance with strictly enforced federal,
state and foreign regulations. If the Company’s third-party contract manufacturers were to
encounter any of these difficulties or otherwise fail to comply with their obligations to the
Company or under applicable regulations, the Company’s ability to provide product candidates to
patients in its clinical trials would be jeopardized. Any delay or interruption in the supply of
clinical trial supplies could delay the completion of the Company’s clinical trials, increase the
costs associated with maintaining its clinical trial program and, depending upon the period of
delay, require the Company to commence new trials at significant additional expense or terminate
the trials completely.
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The Company may be subject to costly claims related to its clinical trials and may not be able to
obtain adequate insurance.
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Because the Company currently conducts clinical trials in humans, it faces the risk that the
use of its current or future product candidates will result in adverse side effects. During
preclinical animal testing and clinical trials of ABT-761 (now VIA-2291) conducted by Abbott,
safety issues with regard to tumors in animals and higher incidence of liver function abnormality
in clinical trials in humans were identified. The liver function abnormalities were demonstrated to
be reversible with discontinuance of the drug in Abbott’s trials. Although the Company currently
has, and intends to maintain, clinical trial liability insurance for up to $10.0 million, such
insurance may be insufficient to cover any such adverse events. The Company does not know whether
it will be able to continue to obtain clinical trial coverage on acceptable terms, or at all. The
Company may not have sufficient resources to pay for any liabilities resulting from a claim
excluded from, or beyond the limit of, its insurance coverage. There is also a risk that third
parties, which the Company has agreed to indemnify, could incur liability. Any litigation arising
from the Company’s clinical trials, even if the Company is ultimately successful in its defense,
would consume substantial amounts of its financial and managerial resources and may create adverse
publicity, which may result in significant damages and may adversely impact the Company’s ability
to raise required capital or continue operations.
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The Company may be subject to costly claims related to Corautus’ former clinical trials of
Vascular Endothelial Growth Factor 2.
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Prior to November 1, 2006, Corautus was the sponsor of a Phase 2b clinical trial to study the
efficacy of VEGF-2 for the treatment of severe cardiovascular disease, known as the GENASIS trial.
In addition, Corautus supported initial clinical trials studying the efficacy of VEGF-2 for the
treatment of peripheral artery disease and diabetic neuropathy. On April 10, 2006, Corautus
announced the termination of enrollment in the GENASIS trial.
The Company has and intends to maintain, clinical trial liability insurance for up to $10.0
million. Insurance may not adequately cover any such claims and if not, such claims may have a
material adverse effect on the Company’s business, financial condition and results of operations.
Such insurance may be insufficient to cover any claims unrelated to the GENASIS trial. The Company
does not know whether it will be able to continue to obtain clinical trial coverage on acceptable
terms, or at all. The Company may not have sufficient resources to pay for any liabilities
resulting from a claim excluded from, or beyond the limit of, its insurance coverage. There is also
a risk that third parties, which the Company has agreed to indemnify, could incur liability, and
the Company may be required to reimburse such third parties for such liability if required pursuant
to these indemnification arrangements.
23
For example, on July 17, 2007, the Company received a letter requesting indemnification from
the Company of approximately $1.3 million of legal costs incurred by Tailored Risk Assurance
Company, Ltd. in defending Caritas St. Elizabeth’s Medical Center of Boston, Inc. (“CSEMC”) and
several physician co-defendants in the matter of Susan Darke, Individually, and as Executrix of the
Estate of Roger J. Darke v. Caritas St. Elizabeth’s Medical Center of Boston, Inc., et al. (Suffolk
Superior Court, Boston,
Massachusetts). Vascular Genetics Inc. (“VGI”), the Company’s wholly-owned subsidiary, was
also a defendant in the litigation, but was dismissed from the litigation in March 2007 after
entering into a settlement agreement with the plaintiffs. The letter alleged that the Company, as a
successor to Corautus Genetics Inc., was required to indemnify CSEMC pursuant to a License
Agreement, dated October 31, 1997, between CSEMC and VGI. In August 2008, the parties reached a
settlement. The Company’s insurance carrier covered the entire settlement payment. The Company, VGI
and the insurance carrier obtained a release of liabilities in connection with the settlement.
Any cost required to be paid out by the Company or any litigation arising from these
terminated clinical trials, even if the Company is ultimately successful in its defense, would
consume substantial amounts of its financial and managerial resources and may create adverse
publicity, which may result in significant damages and may adversely impact the Company’s ability
to raise required capital or adversely affect the Company’s business, financial condition or
results of operations.
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If the Company is unable to retain its management, research, development, clinical teams and
scientific advisors or to attract additional qualified personnel, the Company’s product
operations and development efforts may be seriously jeopardized.
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As described in Note 12 in the Notes to the Financial Statements, the Company’s current
financial constraints has caused and may further cause the loss of the services of principal
members of our management and research, development and clinical teams which could negatively
impact our ability to operate, obtain necessary financing, or pursue strategic partnering
opportunities. The employment agreement for Dr. Lawrence K. Cohen, the Company’s Chief Executive
Officer, provides that his employment is terminable at will at any time with or without cause or
notice by either the Company or Dr. Cohen. The employment agreement for Dr. Rebecca Taub, the
Company’s Sr. Vice President, Research & Development, is terminable at will at any time with or
without cause or notice by either the Company or Dr. Taub. Competition among biotechnology
companies for qualified employees is intense, and the ability to retain and attract qualified
individuals is critical to the Company’s success. The Company may be unable to attract and retain
key personnel on acceptable terms, if at all. The Company does not maintain “key person” life
insurance on any of its officers, employees or consultants.
The Company has relationships with consultants and scientific advisors who will continue to
assist the Company in formulating and executing its research, development, regulatory and clinical
strategies. The Company’s consulting agreements typically have provisions for hourly billing,
non-disclosure of confidential information, and the assignment to the Company of any inventions
developed within the scope of services to the Company. The consulting and scientific advisory
agreements are typically terminable by either party on 30 days or shorter notice. These consultants
and scientific advisors are not the Company’s employees and may have commitments to, or consulting
or advisory contracts with, other entities that may limit their availability to the Company. The
Company will have only limited control over the activities of these consultants and scientific
advisors and can generally expect these individuals to devote only limited time to the Company’s
activities. The Company relies heavily on these consultants to perform critical functions in key
areas of its operations. The Company also relies on these consultants to evaluate potential
compounds and products, which may be important in developing a long-term product pipeline for the
Company. Consultants also assist the Company in preparing and submitting regulatory filings. The
Company’s scientific advisors provide scientific and technical guidance on cardiovascular drug
discovery and development. The loss of service of any or all of these consultants may further
impact our ability to operate or obtain additional financing needed in the near term. Failure of
any of these persons to devote sufficient time and resources to the Company’s programs could harm
its business. In addition, these advisors may have arrangements with other companies to assist
those companies in developing technologies that may compete with the Company’s products.
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If the Company’s competitors develop and market products that are more effective than the
Company’s product candidates or others it may develop, or obtain regulatory and marketing
approval for similar products before the Company does, the Company’s commercial opportunity may
be reduced or eliminated.
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The development and commercialization of new pharmaceutical products that target
cardiovascular and metabolic disease is competitive, and the Company will face competition from
numerous sources, including major biotechnology and pharmaceutical companies worldwide. Many of the
Company’s competitors have substantially greater financial and technical resources, and
development, production and marketing capabilities than the Company does. In addition, many of
these companies have more experience than the Company in preclinical testing, clinical trials and
manufacturing of compounds, as well as in obtaining FDA and foreign regulatory approvals. The
Company will also compete with academic institutions, governmental agencies and private
organizations that are conducting research in the same fields. Competition among these entities to
recruit and retain highly qualified scientific, technical and professional personnel and
consultants is also intense. As a result, there is a risk that one of the competitors of the
Company will develop a more effective product for the same indication for which the Company is
developing a product or, alternatively, bring a similar product to market before the Company can do
so. Failure of the Company to successfully compete will
adversely impact the ability to raise additional capital and continue operations.
24
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The Company may be subject to damages resulting from claims that the Company or its employees,
have wrongfully used or disclosed alleged trade secrets of its employees’ former employers.
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Many of the Company’s employees were previously employed at biotechnology or pharmaceutical
companies, including the Company’s competitors or potential competitors. Although the Company has
not received any claim to date, it may be subject to claims that these employees or the Company
have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of
such employees’ former employers. Litigation may be necessary to defend against these claims. If
the Company fails in defending such claims, in addition to paying monetary damages, the Company may
lose valuable intellectual property rights or personnel or may be unsuccessful in identifying,
developing or commercializing current or future products.
Risks Related to the Company’s Intellectual Property
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The Company’s failure to protect adequately or to enforce its intellectual property rights or
secure rights to third party patents could materially harm its proprietary position in the
marketplace or prevent the commercialization of its products.
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The Company’s success will depend in large part on its ability to obtain and maintain
protection in the United States and other countries for the intellectual property covering or
incorporated into its technologies and products. The patents and patent applications in the
Company’s existing patent portfolio are either owned by the Company or licensed to the Company. The
Company’s ability to protect its product candidates from unauthorized use or infringement by third
parties depends substantially on its ability to obtain and maintain valid and enforceable patents.
Due to evolving legal standards relating to the patentability, validity and enforceability of
patents covering pharmaceutical inventions and the scope of claims made under these patents, the
Company’s ability to obtain and enforce patents is uncertain and involves complex legal and factual
questions for which important legal principles are unresolved.
The Company may not be able to obtain patent rights on products, treatment methods or
manufacturing processes that it may develop or to which the Company may obtain license or other
rights. Even if the Company does obtain patents, rights under any issued patents may not provide it
with sufficient protection for the Company’s product candidates or provide sufficient protection to
afford the Company a commercial advantage against its competitors or their competitive products or
processes. It is possible that no patents will be issued from any pending or future patent
applications owned by the Company or licensed to the Company. Others may challenge, seek to
invalidate, infringe or circumvent any patents the Company owns or licenses. Alternatively, the
Company may in the future be required to initiate litigation against third parties to enforce its
intellectual property rights. The cost of this litigation could be substantial and the Company’s
efforts could be unsuccessful. Changes in patent laws or in interpretations of patent laws in the
United States and other countries may diminish the value of the Company’s intellectual property or
narrow the scope of the Company’s patent protection.
The Company’s patents also may not afford protection against competitors with similar
technology. The Company may not have identified all patents, published applications or published
literature that affect its business either by blocking the Company’s ability to commercialize its
product candidates, by preventing the patentability of its products or by covering the same or
similar technologies that may affect the Company’s ability to market or license its product
candidates. For example, patent applications filed with the United States Patent and Trademark
Office (“USPTO”) are maintained in confidence for up to 18 months after their filing. In some
cases, however, patent applications filed with the USPTO remain confidential for the entire time
prior to issuance as a U.S. patent. Patent applications filed in countries outside the United
States are not typically published until at least 18 months from their first filing date.
Similarly, publication of discoveries in the scientific or patent literature often lags behind
actual discoveries. Therefore, the Company or its licensors might not have been the first to
invent, or the first to file, patent applications on the Company’s product candidates or for their
use. The laws of some foreign jurisdictions do not protect intellectual property rights to the same
extent as in the United States and many companies have encountered significant difficulties in
protecting and defending these rights in foreign jurisdictions. If the Company encounters such
difficulties in protecting or is otherwise precluded from effectively protecting its intellectual
property rights in either the United States or foreign jurisdictions, the Company’s business
prospects could be substantially harmed.
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Because VIA-2291 is exclusively licensed from Abbott and the Metabolic Compounds are exclusively
licensed from Roche, any dispute with Abbott or Roche, respectively, may materially harm the
Company’s ability to develop and commercialize VIA-2291 or the Metabolic Compounds, as
applicable.
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In August 2005, the Company licensed exclusive worldwide rights to its product candidate,
VIA-2291, from Abbott (the “Abbott
License”) and in 2008, Company entered into two license agreements (the “Roche Licenses”) with
Roche to develop and commercialize the Metabolic Compounds. The Company does not have, nor has the
Company ever had, any material disputes with Abbott or Roche regarding the Abbott License or the
Roche Licenses. However, if there is any future dispute between the Company and Abbott regarding
the parties’ rights under the Abbott License agreement, the Company’s ability to develop and
commercialize VIA-2291 may be materially harmed. Any uncured, material breach under the Abbott
License could result in the Company’s loss of exclusive rights to VIA-2291 and may lead to a
complete termination of the Abbott License and force the Company to cease product development
efforts for VIA-2291. Similarly, if there is any future dispute between the Company and Roche
regarding the parties’ rights under the Roche License agreements, the Company’s ability to develop
and commercialize the Metabolic Compounds may be materially harmed. Any uncured, material breach
under the Roche License agreements could result in the Company’s loss of exclusive rights to
Metabolic Compounds and may lead to a complete termination of the Roche License agreements and
force the Company to cease product development efforts for the Metabolic Compounds.
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If Abbott or Roche elect to maintain or enforce proprietary rights under the Abbott License or
the Roche Licenses, respectively, the Company will depend on Abbott or Roche, as applicable, for
the maintenance and enforcement of certain intellectual property rights and will have limited
control, if any, over the amount or timing of resources that Abbott or Roche devote on the
Company’s behalf.
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The Company depends on Abbott to protect certain proprietary rights covering VIA-2291 and
Roche to protect certain proprietary rights covering THR beta agonist (the “VIA Rights”) pursuant
to the terms of the Abbott License and the Roche Licenses, respectively. Abbott and Roche are
responsible for maintaining certain issued patents and prosecuting certain patent applications.
Abbott and Roche are also responsible for seeking to obtain all available extensions or
restorations of the VIA Rights. Although the Company has limited, if any, control over the amount
or timing of resources that Abbott or Roche devote or the priority they place on maintaining these
certain patent rights to the Company’s advantage, the Company expects Abbott and Roche to comply
with its respective obligations pursuant to the Abbott License and the Roche Licenses and devote
resources accordingly. However, if Abbott or Roche decide to no longer maintain any of the patents
licensed under the Abbott License or the Roche Licenses, they are required to afford the Company
the opportunity to do so at the Company’s expense. If Abbott or Roche elect not to maintain any of
these certain licensed patents and if the Company does not assume the maintenance of these certain
licensed patents in sufficient time to make required payments or filings with the appropriate
governmental agencies, the Company risks losing the benefit of all or some of the VIA Rights.
While the Company currently intends to take actions reasonably necessary to enforce its patent
rights, such enforcement depends, in part, on Abbott and Roche, respectively, to protect the VIA
Rights. Abbott and Roche each have the first right to bring and pursue a third-party infringement
action related to the VIA Rights. The Company has the right to cooperate with Abbott and Roche in
third-party infringement suits involving the VIA Rights. If Abbott or Roche decline to prosecute a
claim, the Company will have the right but not the obligation to bring suit and/or pursue any such
infringement action as it determines, in its discretion, to be appropriate.
Abbott, Roche, and the Company may also be notified of alleged infringement and be sued for
infringement of third-party patents or other proprietary rights related to the VIA Rights. Abbott
has the right but not the obligation to defend and control the defense of an alleged third-party
patent infringement claim or suit asserting that VIA-2291 infringes third-party patent rights
directed to the composition of matter or the use of VIA-2291 in the treatment and/or prevention of
diseases in humans, if Abbott is made a party to such suit. If Abbott so elects, the Company may
have limited, if any, control or involvement over the defense of these claims, and Abbott and the
Company could be subject to injunctions and temporary or permanent exclusionary orders in the
United States or other countries. The Company has the sole responsibility to defend and control the
defense of all other claims of infringement by a third party. If Abbott elects not to defend a
claim it has the first right to defend against, or if the claim is one that the Company has the
responsibility to defend against, Abbott is required to reasonably assist the Company in its
defense. Roche has the right but not the obligation to defend and control the defense of an alleged
third-party patent infringement claim or suit against the Metabolic Compounds in which the Company
has indemnification rights under the Roche Licenses. The Company has limited, if any, control over
the amount or timing of resources, if any, that Abbott or Roche devote, or the priority Abbott or
Roche place on the defense of such third-party claims of infringement.
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If the Company fails to comply with its obligations and meet certain milestones related to its
intellectual property licenses with third parties, the Company could lose license rights that are
important to its business.
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The Company’s commercial success depends on not infringing the patents and proprietary rights
of other parties and not breaching any collaboration, license or other agreements that the Company
has entered into with regard to its technologies and product candidates. For example, the Company
entered into a license agreement with Abbott pursuant to which the Company is required to use
commercially reasonable efforts, at its own expense, to (a) initiate and complete the clinical
development of VIA-2291, (b) obtain all
required regulatory approvals in major markets, and (c) obtain and carry out subsequent
worldwide marketing, distribution and sale of VIA-2291 in such major markets. Prior to the first
commercial sale of VIA-2291, the Company is required to furnish Abbott with an annual written
report summarizing the progress of its efforts to implement the preclinical/clinical development
plan.
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In December 2008, the Company entered into the Roche Licenses to develop and commercialize the
Metabolic Compounds. The Company must use commercially reasonable efforts to conduct preclinical,
clinical and commercial development programs for products containing the Metabolic Compounds. If
the Company has not completed a Phase 1 clinical trial with respect to a lead product containing
the THR beta agonist compound by January 5, 2012, the Company either must commit to developing
another of Roche’s compounds or Roche may terminate the license for that compound. If the Company
determines that it is not reasonable to continue clinical trials or other development of the
compounds, it may elect to cease further development and Roche may terminate the licenses. If the
Company determines not to pursue the development or commercialization of the compounds in the
United States, Japan, the United Kingdom, Germany, France, Spain or Italy, Roche may terminate the
licenses solely for such territories.
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Third parties may own or control intellectual property that the Company may infringe.
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If a third party asserts that the Company infringes such third party’s patents, copyrights,
trademarks, trade secrets or other proprietary rights, the Company could face a number of issues
that could seriously harm the Company’s competitive position, including:
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•
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infringement and other intellectual property claims, which would be costly and
time-consuming to litigate, whether or not the claims have merit, and which could delay the
regulatory approval process and divert management’s attention from the Company’s business;
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•
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substantial damages for past infringement, which the Company may have to pay if a court
determines that the Company has infringed a third party’s patents, copyrights, trademarks,
trade secrets or other proprietary rights;
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•
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a court prohibiting the Company from selling or licensing its technologies or future
products unless such third party licenses its patents, copyrights, trademarks, trade secrets
or other proprietary rights to the Company, which it is not required to do; and
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•
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if a license is available from a third party, the requirement that the Company pay
substantial royalties or grant cross licenses to its patents, copyrights, trademarks, trade
secrets or other proprietary rights.
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The Company’s commercial success will depend in part on its ability to manufacture, use, sell and
offer to sell its products without infringing patents or other proprietary rights of others.
|
The Company may not be aware of all patents or patent applications that potentially impact its
ability to manufacture (or have manufactured by a third party), use or sell any of its product
candidates or proposed product candidates. For example, patent applications are filed with the
USPTO but not published until 18 months after their effective filing date. Further, the Company may
not be aware of published or granted conflicting patent rights. Any conflicts resulting from other
patent applications and patents of third parties could significantly reduce the coverage of the
Company’s patents and limit the Company’s ability to obtain meaningful patent protection. If others
obtain patents with conflicting claims, the Company may be required to obtain licenses to these
patents or to develop or obtain alternative technology. The Company may not be able to obtain any
licenses or other rights to patents, technology or know-how necessary to conduct the Company’s
business. Any failure to obtain such licenses or other rights could delay or prevent the Company
from developing or commercializing its product candidates and proposed product candidates, which
could materially affect the Company’s business.
Additionally, litigation or patent interference proceedings may be necessary to enforce any of
the Company’s patents or other proprietary rights, or to determine the scope and validity or
enforceability of the proprietary rights of others. The defense and prosecution of patent and
intellectual property claims are both costly and time consuming, even if the outcome is favorable
to the Company. Any adverse outcome could subject the Company to significant liabilities, require
the Company to license disputed rights from others, or require the Company to cease selling its
future products.
27
Risks Related to the Company’s Industry
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The Company’s product candidates are subject to extensive regulation, which can be costly and
time-consuming, cause unanticipated delays or prevent the receipt of the required approvals to
commercialize such product candidates.
|
The Company is subject to extensive and rigorous government regulation in the United States
and foreign countries. The research, testing, manufacturing, labeling, approval, sale, marketing
and distribution of drug products are subject to extensive regulation by the
FDA and other regulatory authorities in foreign jurisdictions, which regulations differ from
jurisdiction to jurisdiction. The Company will not be permitted to market its product candidates in
the United States until it receives approval of an NDA from the FDA, or in any foreign jurisdiction
until the Company receives the requisite approval from the applicable regulatory authorities in
such jurisdiction. The Company has not submitted an NDA or received marketing approval for VIA-2291
or any of its other product candidates in the United States or any foreign jurisdiction. Obtaining
approval of an NDA is a lengthy, expensive and uncertain process. The FDA also has substantial
discretion in the drug approval process, including the ability to delay, limit, condition or deny
approval of a product candidate for many reasons. For example:
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•
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the FDA may not deem a product candidate safe and effective;
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•
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the FDA may not find the data from preclinical studies and clinical trials sufficient to
support approval;
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•
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the FDA may not approve of the Company’s third-party manufacturers’ processes and
facilities;
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•
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the FDA may change its approval policies or adopt new regulations; or
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•
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the FDA may condition approval on additional clinical studies, including post-approval
clinical studies.
|
These requirements vary widely from jurisdiction to jurisdiction and make it difficult to
estimate when the Company’s product candidates will be commercially available, if at all. If the
Company is delayed or fails to obtain required approvals for its product candidates, the Company’s
operations and financial condition would be damaged.
The process of obtaining these approvals is expensive, often takes many years, and can vary
substantially based upon the type, complexity and novelty of the products involved. Approval
policies or regulatory requirements may change in the future and may require the Company to
resubmit its clinical trial protocols to institutional review boards for re-examination, which may
impact the costs, timing or successful completion of a clinical trial. In addition, although
members of the Company’s management have drug development and regulatory experience, as a company,
it has not previously filed the applications necessary to gain regulatory approvals for any
product. This lack of experience may impede the Company’s ability to obtain regulatory approval in
a timely manner, if at all, for its product candidates for which development and commercialization
is the Company’s responsibility. The Company will not be able to commercialize its product
candidates in the United States until it obtains FDA approval and in other jurisdictions until it
obtains approval by comparable governmental authorities. Any delay in obtaining, or inability to
obtain, these approvals would prevent the Company from commercializing its product candidates and
the Company’s ability to generate revenue will be delayed.
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Even if any of the Company’s product candidates receives regulatory approval, it may still face
future development and regulatory difficulties.
|
Even if U.S. regulatory approval is obtained, the FDA may still impose significant
restrictions on a product’s indicated uses or marketing or impose ongoing requirements for
potentially costly post-approval studies. The Company’s product candidates will also be subject to
ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion,
recordkeeping and submission of safety and other post-marketing information. In addition,
manufacturers of drug products and their facilities are subject to continual review and periodic
inspections by the FDA and other regulatory authorities for compliance with current good
manufacturing practices. If the Company or a regulatory agency discovers problems with a product,
such as adverse events of unanticipated severity or frequency, or problems with the facility where
the product is manufactured, a regulatory agency may impose restrictions on that product, the
manufacturer or the Company, including requiring withdrawal of the product from the market or
suspension of manufacturing. If the Company or the manufacturing facilities for the Company’s
product candidates fail to comply with applicable regulatory requirements, a regulatory agency may:
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•
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issue warning letters or untitled letters;
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•
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impose civil or criminal penalties;
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•
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suspend regulatory approval;
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•
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suspend any ongoing clinical trials;
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•
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refuse to approve pending applications or supplements to approved applications filed by
the Company or its collaborators;
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•
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impose restrictions on operations, including costly new manufacturing requirements; or
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•
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seize or detain products or require a product recall.
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28
The FDA and other regulatory agencies actively enforce regulations prohibiting the promotion
of a drug for a use that has not been cleared or approved by the FDA. Use of a drug outside its
cleared or approved indications is known as “off-label” use. Physicians may use the Company’s
products for off-label uses, as the FDA does not restrict or regulate a physician’s choice of
treatment within the practice of medicine. However, if the FDA or another regulatory agency
determines that the Company’s promotional materials or training constitutes promotion of an
off-label use; it could request that the Company modify its training or promotional materials or
subject the Company to regulatory enforcement actions, including the issuance of a warning letter,
injunction, seizure, civil fine and criminal penalties.
In order to market any products outside of the United States, the Company and its
collaborators must establish and comply with numerous and varying regulatory requirements of other
countries regarding safety and efficacy. Approval procedures vary among jurisdictions and can
involve additional product testing and additional administrative review periods. The time required
to obtain approval in other jurisdictions might differ from that required to obtain FDA approval.
The regulatory approval process in other jurisdictions may include all of the risks detailed above
regarding FDA approval in the United States. Regulatory approval in one jurisdiction does not
ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in
one jurisdiction may negatively impact the regulatory process in others. Failure to obtain
regulatory approval in other jurisdictions or any delay or setback in obtaining such approval could
have the same adverse effects described above regarding FDA approval in the United States,
including the risk that product candidates may not be approved for all indications requested, which
could limit the uses of product candidates and adversely impact potential royalties and product
sales, and that such approval may be subject to limitations on the indicated uses for which the
product may be marketed or require costly, post-approval follow-up studies.
If the Company or any of its manufacturers or other partners fails to comply with applicable
foreign regulatory requirements, the Company and such other parties may be subject to fines,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating
restrictions and criminal prosecution.
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Legislative or regulatory reform of the healthcare system may affect the Company’s ability to
sell its products profitably.
|
In both the United States and certain foreign jurisdictions, there have been a number of
legislative and regulatory changes to the healthcare system in ways that could impact upon the
Company’s ability to sell its products profitably. In recent years, new legislation has been
enacted in the United States at the federal and state levels that effects major changes in the
healthcare system, either nationally or at the state level. These new laws include a prescription
drug benefit for Medicare beneficiaries and certain changes in Medicare reimbursement. Given the
recent enactment of these laws, it is still too early to determine their impact on the
biotechnology and pharmaceutical industries and the Company’s business. Further, federal and state
proposals are likely. More recently, administrative proposals are pending and others have become
effective that would change the method for calculating the reimbursement of certain drugs. The
adoption of these proposals and pending proposals may affect the Company’s ability to raise
capital, obtain additional collaborators or profitably market its products. Such proposals may
reduce the Company’s revenues, increase its expenses or limit the markets for its products. In
particular, the Company expects to experience pricing pressures in connection with the sale of its
products due to the trend toward managed health care, the increasing influence of health
maintenance organizations and additional legislative proposals.
Risks Related to the Securities Market and Ownership of the Company’s Common Stock
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The Company intends to deregister its common stock under the Securities Exchange Act of
1934, as amended, by filing a Form 15 with the Securities and Exchange Commission shortly after
the filing of this Annual Report on
Form 10-K
. Upon the filing of the Form 15, information
reported in the past to stockholders will not be available to the same extent or frequency which
could result in a decline in our common stock price and may negatively affect the liquidity of
our common stock.
|
Shortly following the filing of this Annual Report on Form 10-K, the Company plans to file a
Form 15, Notice of Termination of Registration and Suspension of Duty to File, with the Securities
and Exchange Commission to voluntarily terminate its registration under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Once we file the Form 15, our obligation to file reports
and other information under the Exchange Act, such as Forms 10-K, 10-Q and 8-K, will be immediately
suspended. This will result in less information about the Company being available to stockholders
and investors immediately following the filing of the
Form 15 and may negatively affect the liquidity, trading volume and trading price of our
common stock. It is expected that the deregistration of our common stock under the Exchange Act
will become effective ninety (90) days after the date on which the Form 15 is filed.
29
The Company is presently traded on the Pink Sheets which does not require Exchange Act
registration or that the Company meet the reporting requirements of the Exchange Act The Company
expects its common stock will continue to trade in the Pink Sheets, so long as market makers
demonstrate an interest in trading in the Company’s common stock. There can be no assurance that
our common stock will continue to be actively traded on the Pink Sheets or on any other quotation
medium.
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Our common stock has been delisted from the NASDAQ Capital Market and is not listed on any other
national securities exchange. It will likely be more difficult for stockholders and investors to
sell our common stock or to obtain accurate quotations of the share price of our common stock.
|
On December 29, 2009, the Company received written notice from the listing qualifications
staff of the NASDAQ Stock Market informing the Company that trading of the Company’s common stock
would be suspended from the NASDAQ Capital Market prior to the open of business on January 4, 2010
and that NASDAQ would initiate procedures to delist the Company’s common stock. The Company had
notified NASDAQ on December 23, 2009 that the Company would be unable to comply with NASDAQ listing
rule 5550(b), which requires a minimum stockholders’ equity requirement of $2.5 million, and NASDAQ
listing rule 5605, which requires, among other things, that the Company’s board of directors be
comprised of at least a majority of independent directors and that the Company’s audit committee be
comprised of at least three independent directors. The Company’s common stock is currently traded
on the Pink Sheets, a real-time inter-dealer electronic quotation and trading system in the
over-the-counter securities market.
The trading of our common stock on the Pink Sheets entails certain risks. Stocks trading on
the over-the-counter market are typically less liquid than stocks that trade on a national
securities exchange such as the NASDAQ Capital Market. Liquidity may be impaired not only in the
number of shares that are bought and sold, but also through delays in the timing of transactions,
and coverage by security analysts and the news media, if any, of the Company. Trading on the
over-the-counter market may also negatively impact the market price of our common stock, the number
of institutional and other investors that will consider investing in our common stock, the
availability of information concerning the trading prices and volume of our common stock, and the
number of broker-dealers willing to execute trades in shares of our common stock. In addition, the
trading of our common stock on the Pink Sheets may materially and adversely affect our access to
the capital markets, and the limited liquidity and reduced price of our common stock could
materially and adversely affect our ability to raise capital through alternative financing sources
on favorable terms or at all. Trading of securities on an over-the-counter securities market is
often more sporadic than the trading of securities listed on a national exchange. The decreased
liquidity of securities traded on the Pink Sheets may make it more difficult for holders of the
Company’s common stock to sell their securities. There can be no assurance that our common stock
will continue to be traded on the Pink Sheets or any trading market.
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The Company’s operating results and stock price may fluctuate significantly.
|
The Company’s results of operations may be expected to be subject to quarterly fluctuations.
The Company’s level of revenues, if any, and results of operations at any given time, will be based
primarily on the following factors:
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•
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the Company’s ability to obtain additional financing and the terms of such financing;
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•
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the Company’s ability to operate its business following the restructuring, as described
in Note 12 in the Notes to the Financial Statements;
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•
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the status of development of VIA-2291, the Metabolic Compounds, and any other product
candidates;
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•
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whether or not the Company enters into development and license agreements with strategic
partners that provide for payments to the Company, and the timing and accounting treatment
of payments to the Company, if any, under those agreements;
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•
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whether or not the Company achieves specified development or commercialization milestones
under any agreement that the Company enters into with collaborators and the timely payment
by commercial collaborators of any amounts payable to the Company;
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•
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the addition or termination of research programs or funding support;
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•
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the timing of milestone and other payments that the Company may be required to make to
others; and
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•
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variations in the level of expenses related to the Company’s product candidates or
potential product candidates during any given period.
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30
These factors may cause the price of the Company’s stock to fluctuate substantially.
Additionally, global market and economic conditions have been, and continue to be, disrupted and
volatile. The Company believes that quarterly comparisons of its financial results are not
necessarily meaningful and should not be relied upon as an indication of the Company’s future
performance.
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The Company’s stock price could decline significantly based on the results and timing of its
clinical trials.
|
The Company may not be successful in commencing or completing further clinical trials to
demonstrate the efficacy of VIA-2291 or in commencing or conducting clinical trials for the
Metabolic Compounds. Biotechnology and pharmaceutical company stock prices have declined
significantly when clinical trial results were unfavorable or perceived negatively, or when
clinical trials were delayed or otherwise did not meet expectations. Failure to initiate or delays
in the Company’s clinical trials of any of its product candidates or unfavorable results or
negative perceptions regarding the results of any such clinical trials, could cause the Company’s
stock price to decline significantly.
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Bay City Capital, the Company’s principal stockholder, has significant influence over the
Company, and the interests of the Company’s other stockholders may conflict with the interests of
Bay City Capital.
|
Bay City Capital, the Company’s principal stockholder, currently claims beneficial ownership
of approximately 93% of the Company’s common stock and holds a security interest in all of the
Company’s assets, including its intellectual property, as a Lender under the 2009 Loan Agreement,
the 2010 Loan Agreement and the 2010 Loan Amendment. As a result, Bay City Capital, as a
stockholder and a secured lender, is able to exert significant influence over the Company’s
management and affairs, including any financing transactions, and matters requiring stockholder
approval, including the election of directors, any merger, consolidation or sale of all or
substantially all of the Company’s assets, and any other significant corporate transaction. The
interests of Bay City Capital, may not always coincide with the interests of the Company or its
other stockholders. For example, Bay City Capital could delay or prevent a change of control of the
Company even if such a change of control would benefit the Company’s other stockholders. The
significant concentration of stock ownership may adversely affect the trading price of the
Company’s common stock due to investors’ perception that conflicts of interest may exist or arise.
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Our change of control agreements with our named executive officers may require us to pay
severance benefits to any of those persons who are terminated in connection with a change of
control of the Company.
|
Each of Dr. Lawrence K. Cohen and Dr. Rebecca A. Taub are party to a change of control
agreement providing for the payment of severance benefits and acceleration of vesting stock options
in the event of a termination of employment in connection with a change of control of the Company.
Accelerated vesting of options could result in dilution to our existing stockholders and harm the
market price of our common stock. The payment of these severance benefits could harm our financial
condition and results. In addition, these potential severance payments under these agreements may
discourage or prevent third parties from seeking a business combination with the Company.
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As a “smaller reporting company,” the Company has not been subject to the full requirements of
Section 404 of the Sarbanes-Oxley Act of 2002. If the Company is unable to favorably assess the
effectiveness of its internal controls over financial reporting, the price of the Company’s
common stock could be adversely affected.
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Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, the Company’s management is
required to report on the effectiveness of its internal control over financial reporting as of
December 31, 2010 in this Annual Report on Form 10-K for the fiscal year ending December 31, 2010.
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the Company, as
a smaller reporting company, is not required to include an attestation report from its independent
auditor in its annual reports filed with the SEC. As a smaller reporting company, the Company has
not been subject to the full requirements of Section 404 of SOX. During 2007, the Company installed
systems of internal accounting and administrative controls it believes are needed to comply with
Section 404 of SOX. Testing of systems installed was performed to enable management to report on
the effectiveness of the controls as of December 31, 2010. In addition, any updates to the
Company’s finance and accounting systems, procedures and controls, which may be required as a
result of the Company’s ongoing analysis of its internal controls, or results of testing by the
Company, may require significant time and expense. If the Company fails to have effective internal
control over financial reporting, is unable to complete any necessary modifications to its internal
control reporting, investors could lose confidence in the accuracy and completeness of the
Company’s financial reports and in the reliability of the Company’s internal control over
financial reporting, which could lead to a substantial price decline in the Company’s common stock.
31
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The stock price of the Company’s common stock is likely to be volatile and you may lose all, or a
substantial portion, of your investment.
|
The trading price of the Company’s common stock has been and is likely to continue to be
volatile and could be subject to wide fluctuations in price in response to various factors, many of
which are beyond the Company’s control including, among others, lack of trading volume in the
Company’s stock, concentration of stock ownership by Bay City Capital, the Company’s ability to
pursue preclinical and clinical development of the Metabolic Compounds, market perception of the
results of the Company’s clinical trials, the Company’s ability to control its operating expenses,
the Company’s ability to acquire new compounds for the pipeline, and in particular, the Company’s
ability to obtain necessary financing in the near term and successfully enter into collaborative or
strategic arrangements in the long-term. In addition, global market and economic conditions have
been, and continue to be, disrupted and volatile. Continued concerns about the systemic impact of
potential long-term and wide-spread recession, energy costs, geopolitical issues, the availability
and cost of credit, and the global housing and mortgage markets have contributed to increased
market volatility and diminished expectations for western and emerging economies. The stock market
in general, and the market for biotechnology and development-stage pharmaceutical companies in
particular, have experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of those companies. These broad market and
industry factors have seriously harmed and may continue to harm the market price of the Company’s
common stock, regardless of the Company’s actual operating performance. In addition, in the past,
following periods of volatility in the overall market and the market price of a company’s
securities, securities class action litigation has often been instituted against these companies.
This litigation, if instituted against the Company, could result in substantial costs and a
diversion of management’s attention and resources.
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The Company has never paid cash dividends on its common stock, and the Company does not
anticipate that it will pay any cash dividends on its common stock in the foreseeable future.
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The Company has never declared or paid cash dividends on its common stock. In addition, the
payment of cash dividends is restricted by the covenants in the Company’s loan from the Lenders.
The Company does not anticipate that it will pay any cash dividends on its common stock in the
foreseeable future. The Company intends to retain all available funds and any future earnings to
fund the development and growth of its business. Any future determination to pay dividends will be
at the discretion of the Company’s board of directors and will depend on the Company’s financial
condition, results of operations, capital requirements, restrictions contained in current or future
financing instruments and such other factors as the Company’s board of directors deems relevant. As
a result, capital appreciation, if any, of the Company’s common stock will be your sole source of
gain for the foreseeable future.
The Company leases its principal executive offices in San Francisco, California, which consist
of approximately 8,180 square feet. This lease expires on May 31, 2013. The Company also leased
approximately 4,979 square feet in Princeton, New Jersey, where its Senior Vice President, Research
and Development, was located. Although this lease expired on April 2, 2012, the Company terminated
the lease effective May 31, 2010 and moved to new facilites in Fort Washington, Pennsylvania, where
it now leases approximately 500 square feet for offices where its Senior Vice President, Research
and Development is now located. This lease expires on May 31, 2011. The Company believes that its
current facilities are adequate for its needs for the foreseeable future.
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ITEM 3.
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LEGAL PROCEEDINGS
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The Company is currently not a party to any material legal proceedings.
32
PART II
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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Market Information
Our common stock is currently traded on the Pink Sheets, a real-time inter-dealer electronic
quotation and trading system in the over-the-counter securities market, under the symbol “VIAP”.
Prior to January 4, 2010, our common stock was traded on The NASDAQ Capital Market under the same
ticker symbol. Effective January 4, 2010, trading in our common stock on The NASDAQ Capital Market
was suspended and NASDAQ initiated procedures to delist our common stock. As of March 1, 2011,
there were approximately 122 registered holders of record of common stock.
The following
table shows the high and low sales prices for our common stock on The NASDAQ
Capital Market or Pink Sheets, as applicable, during the fiscal year ended 2009 and 2010,
respectively:
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High
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Low
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FISCAL YEAR ENDED December 31, 2009:
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First Quarter
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$
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0.25
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$
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0.08
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Second Quarter
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$
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0.84
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$
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0.15
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Third Quarter
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$
|
0.74
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$
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0.21
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Fourth Quarter
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$
|
0.60
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$
|
0.20
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FISCAL YEAR ENDED December 31, 2010:
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First Quarter
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$
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0.23
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$
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0.11
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Second Quarter
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$
|
0.22
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$
|
0.10
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Third Quarter
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$
|
0.13
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$
|
0.06
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Fourth Quarter
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$
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0.10
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$
|
0.02
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Shortly following the filing of this Annual Report on Form 10-K, the Company plans to file a
Form 15, Notice of Termination of Registration and Suspension of Duty to File, with the SEC to
voluntarily terminate its registration under the Securities Exchange Act of 1934, as amended (the
“Exchange Act”). The Company has determined that deregistering under the Exchange Act would result
in significant time and cost savings to the Company. This will result in less information about
the Company being available to shareholders and investors immediately following the filing of the
Form 15. It is expected that the deregistration of our common stock under the Exchange Act will
become effective ninety (90) days after the date on which the Form 15 is filed. The Company is
eligible to deregister under the Exchange Act because its common stock is held of record by fewer
than 500 persons and its assets have not exceeded $10 million on the last day of each of its three
most recent fiscal years.
The Pink Sheets does not require Exchange Act registration or that the Company meet the
reporting requirements of the Exchange Act. The Company expects its common stock will continue to
trade in the Pink Sheets, so long as market makers demonstrate an interest in trading in the
Company’s common stock. The Company can give no assurance that its common stock will continue to
be actively traded on the Pink Sheets or on any other quotation medium.
Dividend Policy
We have never paid any cash dividends on our common stock to date. We currently anticipate
that we will retain all future earnings, if any, to fund the development and growth of our business
and do not anticipate paying any cash dividends for at least the next five years, if ever.
33
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ITEM 6.
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SELECTED FINANCIAL DATA
|
The information set forth below should be read in conjunction with “Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and our financial
statements and related notes included elsewhere in this annual report. On June 5, 2007, Corautus
completed the Merger with privately-held VIA Pharmaceuticals, Inc. pursuant to which Resurgens
Merger Corp., a wholly-owned subsidiary of Corautus, merged with and into privately-held VIA
Pharmaceuticals, Inc., with privately-held VIA Pharmaceuticals, Inc. continuing as the surviving
corporation and as a wholly-owned subsidiary of Corautus. Immediately following the effectiveness
of the Merger, privately-held VIA Pharmaceuticals, Inc. then merged with and into Corautus,
pursuant to which
Corautus continued as the surviving corporation. For accounting purposes, privately-held VIA
Pharmaceuticals, Inc. was considered to be the acquiring company in the Merger, and the Merger was
accounted for as a reverse acquisition of assets under the purchase method of accounting for
business combinations in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). In connection with the Merger, the name of the business was changed
from “Corautus Genetics Inc.” to “VIA Pharmaceuticals, Inc.” and retroactively restated its
authorized, issued and outstanding shares of common and preferred stock to reflect a 1 to 15
reverse common stock split. The financial data included in this report reflect the historical
results of privately-held VIA Pharmaceuticals, Inc. prior to the Merger and that of the combined
company following the Merger. The historical results are not necessarily indicative of results to
be expected in any future period.
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Date of
|
|
|
|
|
Years Ended December 31,
|
|
|
Inception) to
|
|
|
(In whole dollars)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
Dec 31, 2010
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(9,601,315
|
)
|
|
|
(20,978,324
|
)
|
|
|
(20,274,828
|
)
|
|
|
(21,835,382
|
)
|
|
|
(8,626,887
|
)
|
|
|
(91,205,880
|
)
|
|
Loss from continuing operations per
common share
|
|
|
(0.47
|
)
|
|
|
(1.05
|
)
|
|
|
(1.03
|
)
|
|
|
(2.24
|
)
|
|
|
(19.81
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
499,971
|
|
|
|
2,556,094
|
|
|
|
5,000,803
|
|
|
|
24,484,941
|
|
|
|
3,726,420
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term obligations
|
|
|
8,400
|
|
|
|
37,450
|
|
|
|
30,637
|
|
|
|
3,980
|
|
|
|
6,827
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
34
|
|
|
|
|
ITEM 7.
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion of our financial condition contains certain statements that are not
strictly historical and are “forward-looking” statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and involve a high degree of risk and uncertainty. Our
actual results may differ materially from those projected in the forward-looking statements due to
risks and uncertainties that exist in our operations, development efforts and business environment,
including those set forth under the Section entitled “Risk Factors” in Item 1A, and other documents
we file with the Securities and Exchange Commission. All forward-looking statements included in
this report are based on information available to us as of the date hereof, and, unless required by
law, we assume no obligation to update any such forward-looking statement.
Corporate History and Description of Merger
On June 5, 2007, privately-held VIA Pharmaceuticals, Inc. completed a reverse merger
transaction (the “Merger”) with Corautus Genetics Inc. Until shortly before the Merger, Corautus
Genetics Inc. (“Corautus”) was primarily focused on the clinical development of gene therapy
products using a vascular growth factor gene. These activities were discontinued in November 2006.
Privately-held VIA Pharmaceuticals, Inc. was formed in Delaware and began operations in June 2004.
Unless otherwise specified, the “Company,” “VIA,” “we,” “us,” and “our” refers to the business of
the combined company after the Merger and the business of privately-held VIA Pharmaceuticals, Inc.
prior to the Merger. Unless specifically noted otherwise, “Corautus Genetics Inc.” or “Corautus”
refers to the business of Corautus Genetics Inc. prior to the Merger.
Business Overview
VIA Pharmaceuticals, Inc. is a biotechnology company focused on the treatment of
cardiovascular and metabolic diseases. VIA is building a pipeline of small-molecule drugs that
target cardiovascular and metabolic diseases. Metabolic diseases such as diabetes, obesity and
dyslipidemia are highly prevalent world-wide and have both genetic and environmental etiologies.
Ultimately, these metabolic diseases progress into more severe forms of diabetes and cardiovascular
disease leading to diabetic complications such as blindness, heart attacks and strokes.
VIA’s current drug development pipeline includes (i) VIA-3196, a Phase-1 ready liver-directed
thyroid hormone receptor (“THR”) beta agonist that targets dyslipidemia, including high LDL
cholesterol, high triglycerides and elevated Lp(a), (ii) a Diacylglycerol Acyl Transferase 1
(“DGAT1”) inhibitor for diabetes, with upside potential in weight control and dyslipidemia, and
(iii) VIA’s 5-LO inhibitor, VIA-2291, which targets the treatment of atherosclerotic plaque, an
underlying cause of heart attack, stroke and other vascular diseases.
In December 2008, the Company entered into two research, development and commercialization
agreements with Hoffman-LaRoche Inc. and Hoffman-LaRoche Ltd. (collectively, “Roche”) to license,
on an exclusive, worldwide basis, two sets of compounds (the “Roche Licenses”). The first license
is for Roche’s THR beta agonist, a clinically ready candidate for the control of cholesterol,
triglyceride levels and potential in insulin sensitization/diabetes. The second license is for
multiple compounds from Roche’s preclinical DGAT1 metabolic disorders program.
Liver-directed THR Beta Agonist (VIA-3196)
The liver-directed THR beta agonist, VIA-3196, is a clinically ready candidate for
dyslipidemia to lower LDL cholesterol, triglyceride levels and Lp(a). The THR beta agonist is an
orally administered, small-molecule beta-selective Thyroid Hormone Receptor agonist designed to
specifically target receptors in the liver involved in metabolism and cholesterol regulation, and
avoid side effects associated with Thyroid Hormone receptor activation outside the liver. The
mechanism by which THR beta lowers cholesterol is distinct from statins and is believed to
primarily be mediated by increased cholesterol excretion out of the body through the bile. The
compound also reduces triglycerides in the liver by increasing fat metabolism. Preclinical studies
demonstrated a rapid reduction of non-HDL cholesterol and the drug was shown to be synergistic with
statins in animal studies. VIA will investigate the possibility of using the THR beta agonist alone
or in combination with statins for the treatment of hypercholesterolemia in high risk patients
whose LDL cholesterol is not controlled by statins alone. In addition, in animal studies, insulin
sensitization and glucose lowering were observed making this compound a possible treatment of
patients with type 2 diabetes in combination with other diabetes medications. The Phase 1 clinical
trials planned for VIA-3196 anticipated in 2011 will provide safety information and demonstrate
proof of concept for LDL cholesterol lowering. The Company filed an Investigational New Drug
(“IND”) application with the FDA on September 3, 2010 (IND #109408). The IND is required before the
Company can proceed with human clinical trials.
The IND contains the plans for the clinical studies and gives a complete picture of the drug,
including its structural formula, animal test results, and manufacturing information. The IND is
currently open to conduct the initial Phase1 clinical study.
35
DGAT1
The preclinical DGAT1 metabolic disorders program targets the treatment of type 2 diabetes and
has potential benefit in dyslipidemia and body weight loss. DGAT1 is an enzyme that catalyzes
triglyceride synthesis and fat storage. Triglycerides are the principal component of fat, which is
the major repository for storage of metabolic energy in the body. Overweight and obese individuals
have significantly greater triglyceride levels, making them more prone to diabetes and its
associated metabolic complications. DGAT1 inhibitors are an innovative class of compounds that may
modify the way that lipids are absorbed in the intestine leading to elevation of peptides. In
studies of obese animals, DGAT1 inhibitors have been shown to induce weight loss and improve
insulin sensitization, glucose tolerance and lipid levels. These observations suggest DGAT1
inhibitors may have the potential to treat obesity, diabetes and dyslipidemia. VIA intends to
identify potential clinical candidates from the compounds in this program and begin IND-enabling
studies.
VIA-2291
In 2005, the Company identified 5-Lipoxygenase (“5LO”) as a key target of interest for
treating atherosclerosis. 5LO is a key enzyme in the biosynthesis of leukotrienes, which are
important mediators of inflammation and are involved in the development and progression of
atherosclerosis. In addition, cardiovascular-related literature has also identified 5LO as a key
target of interest for treating atherosclerosis and preventing heart attack and stroke. Following
such identification, the Company identified a number of late-stage 5LO inhibitors that had been in
clinical trials conducted by large biotechnology and pharmaceutical companies primarily for
non-cardiovascular indications, including ABT-761, a compound developed by Abbott Laboratories
(“Abbott”) for use in treatment of asthma. Abbott abandoned its ABT-761 clinical program in 1996
after the U.S. Food and Drug Administration (“FDA”) approved a similar Abbott compound for use in
asthma patients. Abbott made no further developments to ABT-761 from 1996 to 2005. In August 2005,
the Company entered into an exclusive, worldwide license agreement (the “Abbott License”) with
Abbott to develop and commercialize ABT-761 for any indication. The Company subsequently renamed
the compound VIA-2291.
VIA-2291 is a selective and reversible inhibitor of 5-LO, which is a key enzyme in the
biosynthesis of leukotrienes (important mediators of inflammation involved in the development and
progression of atherosclerosis). Potentially a complement to current standard of care therapies
that treat risk factors, such as statins, antiplatelet and blood pressure medications, VIA-2291
could be beneficial to more than 15 million patients who suffer from atherosclerosis and
cardiovascular disease.
VIA-2291 was studied in three Phase 2 clinical trials with novel study designs aimed at
providing evidence of plaque modification and systemic anti-inflammatory effects as early as
possible in the clinical development process.
VIA completed the Phase 2 ACS Trial in 191 patients at 15 clinical sites in the United States
and Canada for patients with Acute Coronary Syndrome (ACS) who experienced a recent heart attack.
In addition, the Company has completed the Phase 2 CEA Trial of VIA-2291 at clinical sites in Italy
for patients who underwent a carotid endarterectomy (“CEA”).
Results from the CEA and ACS Phase 2 trials were presented at the American Heart Association
(AHA) 2008 Scientific Sessions on November 9, 2008. A sub-study of over 85 patients in the ACS
Phase 2 trial elected to continue in the study for an additional 12 weeks, receiving either placebo
of VIA-2291 on top of standard medical care. Following treatment these patients received a 64 slice
multi-detector computed tomography (“MDCT”) scan which was compared to a baseline scan. Results of
this sub-study were presented May 2009 at the AHA Arteriosclerosis, Thrombosis and Vascular Biology
Annual Conference 2009. The results of the ACS study are published in Circulation Cardiovascular
Imaging by lead author and principal investigator Jean-Claude Tardif
(
2010;3:298-307
).
VIA completed its third Phase 2 clinical trial of VIA-2291, the FDG-PET Trial — an
experimental non-invasive imaging technique that utilizes Positron Emission Tomography with
fluorodeoxyglucose tracer (“FDG-PET”) to measure the impact of VIA-2291 on reducing FDG uptake into
vascular beds. The Company enrolled 52 patients following an Acute Coronary Syndrome event, such as
heart attack or unstable angina, into the 24 week, randomized, double blind, placebo-controlled
study, which was run at clinical sites in the United States and Canada.
Overall, the studies demonstrated potent dose-dependent inhibition of Leukotrienes B4 and E4
by VIA-2291. Systemic and plaque anti-inflammatory effects were observed, including statistically
significant inhibition of hsCRP with the 100 mg dose. Inflammatory
genes in unstable plaques were down-regulated with VIA-2291 treatment. Serial multi-detector
Computed Tomography (“MDCT”) indicated a statistically significant reduction in non-calcified
plaque volume and the number of patients developing new coronary lesions with VIA-2291 treatment.
36
The Phase 3 trial for VIA -2291 will test the ability of the drug to reduce heart attacks and
strokes in a high risk cardiovascular patient population. Due to the size and cost of such a trial
the company believes it is best undertaken with a pharmaceutical company partner. To date VIA has
been unable to establish such a collaboration. The company continues to evaluate strategies for
partnering the program but currently intends to conduct no further internally funded activities.
Going Concern Uncertainty
The Company
has incurred losses since inception as it has devoted substantially all of its
resources to research and development, including early-stage clinical trials. As of December 31,
2010, the Company’s accumulated deficit was approximately $91.2 million. The Company had
$84,001 in cash at December 31, 2010. In connection with the loan amendments discussed
below, the Company borrowed an additional $500,000 on January 14, 2011 and $1,498,603 on
March 24, 2011. Management does not believe that existing cash resources will be sufficient to
enable the Company to meet its ongoing working capital requirements for the next twelve months
and the Company will need to raise substantial additional funding in the near term to repay
amounts owed under the 2009 Loan Agreement, the 2010 Loan Agreement,
and the 2010 Loan Amendment (which loan agreements and amendments are described below),
and to meet its ongoing working capital requirements. Moreover, in connection with these loans, the
Company must also satisfy certain conditions and comply with covenants, including covenants
relating to the Company’s ability to incur additional indebtedness, make future acquisitions,
consummate asset dispositions, grant liens and pledge assets, pay dividends or make other
distributions, incur capital expenditures and make restricted payments. These restrictions may
limit the Company’s ability to pursue its business strategies and obtain additional funds. As a
result, there are substantial doubts that the Company will be able to continue as a going concern
and, therefore, may be unable to realize its assets and discharge its liabilities in the normal
course of business. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or to amounts and classifications of
liabilities that may be necessary should the Company be unable to continue as a going concern.
The Company cannot guarantee to its stockholders that the Company’s efforts to raise
additional private or public funding will be successful. If adequate funds are not available in the
near term, the Company may be required to:
|
|
•
|
|
terminate or delay clinical trials or studies of VIA-3196 and the DGAT1 compounds;
|
|
|
•
|
|
terminate or delay the preclinical development of one or more of its other preclinical
candidates;
|
|
|
•
|
|
curtail its licensing activities that are designed to identify molecular targets and
small molecules for treating cardiovascular disease;
|
|
|
•
|
|
relinquish rights to product candidates, development programs, or discovery development
programs that it may otherwise seek to develop or commercialize on its own; and
|
|
|
•
|
|
delay, reduce the scope of, or eliminate one or more of its research and development
programs, or ultimately cease operations.
|
On March 26, 2010, the Company’s Board of Directors approved a restructuring of the Company to
reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce
decreased total employees by approximately 63% to a total of six employees and increased the focus
of future operating expense or research and development activities.
The Company has not generated revenue since June 14, 2004, the inception of the Company. The
Company does not expect to generate any revenues from licensing, achievement of milestones or
product sales until it is able to commercialize product candidates or execute a collaboration
arrangement. The Company cannot estimate the actual amounts necessary to successfully complete the
successful development and commercialization of its product candidates or whether, or when, it may
achieve profitability. The Company expects to
incur substantial and increasing losses as it continues to expend
substantial resources seeking to successfully research, develop, manufacture, obtain regulatory
approval for, and commercialize its product candidates.
Until the Company can establish profitable operations to finance its cash requirements, the
Company’s ability to meet its obligations in the ordinary course of business is dependent upon its
ability to raise substantial additional capital through public or private equity or debt
financings, the establishment of credit or other funding facilities, collaborative or other
strategic arrangements with corporate sources or other sources of financing, the availability of
which cannot be assured. On June 5, 2007, the Company raised $11.1 million through the Merger with
Corautus to cover existing obligations and provide operating cash flows. In July 2007, the Company
entered into a securities purchase agreement that provided for issuance of 10,288,065 shares of
common stock for approximately $25.0 million in gross proceeds.
As more fully described in Note 6 in the notes to the financial statements, in March 2009, the
Company entered into a Note and Warrant Purchase Agreement (the “2009 Loan Agreement”) with its
principal stockholder and one of its affiliates (the “Lenders”) whereby the Lenders agreed to lend
to the Company in the aggregate up to $10.0 million. The Company secured the loan with all of its
assets, including the Company’s intellectual property. On March 12, 2009, the Company borrowed the
initial $2.0 million available under the 2009 Loan Agreement. Subsequently, the Company made $2.0
million borrowings under the 2009 Loan Agreement on May 19, 2009, June 29, 2009, August 14, 2009,
respectively, and the Company borrowed the final $2.0 million available under the 2009 Loan
Agreement on September 11, 2009. According to the terms of the original 2009 Loan Agreement, the
aggregate loan amount was due to the Lenders on September 14, 2009. The parties agreed to extend
the repayment terms on various dates in 2009, and on February 26, 2010, the Lenders agreed to
modify the 2009 Loan Agreement to further extend the repayment terms to April 1, 2010. The Lenders
did not modify the interest rate or offer any concessions in the amendments to the 2009 Loan
Agreement. The Company failed to repay the debt and all related interest to the Lenders due on
April 1, 2010. As a result, the Company is now accruing interest at the higher rate of 18% per
annum beginning April 1, 2010.
37
As more fully described in Note 6 in the notes to the financial statements, in March 2010, the
Company entered into a second Note and Warrant Purchase Agreement (the “2010 Loan Agreement”) with
the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million,
pursuant to the terms of promissory notes issued under the 2010 Loan Agreement. The Company secured
the loan with all of its assets, including the Company’s intellectual property. On March 29, 2010,
the Company borrowed the initial $1.25 million available under the 2010 Loan Agreement.
Subsequently, the Company made $100,000, $200,000, $300,000, $100,000, and $750,000 borrowings
under the 2010 Loan Agreement on May 26, 2010, June 4, 2010, June 29, 2010, July 15, 2010, July 27,
2010, respectively, and the Company borrowed the final $300,000 available under the 2010 Loan
Agreement on September 28, 2010. The original 2010 Loan Agreement notes are secured by a lien on
all of the assets of the Company. Amounts borrowed under the original 2010 Loan Agreement notes
accrue interest at the rate of fifteen percent (15%) per annum, which increases to eighteen percent
(18%) per annum following an event of default. Unless earlier paid in accordance with the terms of
the original 2010 Loan Agreement notes, all unpaid principal and accrued interest shall become
fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt,
equity or combined debt/equity financing resulting in gross proceeds or available credit to the
Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company
sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of
a merger, consolidation, reorganization or other transaction or series of transactions pursuant to
which stockholders of the Company prior to such acquisition own less than 50% of the voting
interests in the surviving or resulting entity. The Company failed to repay the debt and all
related interest to the Lenders due on December 31, 2010. On January 14, 2011, the Company entered
into an amendment to the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date
under the 2010 Loan Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011
and on March 24, 2011, the Company entered into a second amendment to further extend the maturity
date to September 30, 2011.
As more fully described in Note 6 in the notes to the financial statements, on October 29,
2010, the Company executed a secured promissory note (the “Bridge Note”) in favor of Bay City
Capital Fund IV, L.P., a Delaware limited partnership in the principal sum of $200,000 for general
corporate purposes. By the terms of the Bridge Note, upon execution of the 2010 Loan Amendment (as
defined below) the unpaid principal amount and accrued and unpaid interest under the Bridge Note
automatically converted into obligations of the Company under the 2010 Loan Amendment as advances
under the amended and restated promissory notes issued under the 2010 Loan Amendment. The Company
accrued $1,397 in unpaid interest for the period October 29, 2010 to November 15, 2010, which is
included in the Company’s statement of operations.
As more fully described in Note 6 in the notes to the financial statements, on November 15,
2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to
enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant
to the terms of amended and restated promissory notes issued under the 2010 Loan Amendment. Subject
to the Lenders’ approval, as of December 31, 2010, the Company may borrow in the aggregate up to an
additional $1,998,603 at subsequent closings pursuant to the terms of the 2010 Loan Amendment and
the amended and restated promissory notes issued under the 2010 Loan Amendment. On November 15,
2010, the $201,397 outstanding principal and unpaid interest on the Bridge Note were automatically
converted into obligations of the Company under the 2010 Loan Amendment as advances. During the
three months ended December 31, 2010, the Company borrowed an additional $800,000 on November 22,
2010. The original 2010 Loan Amendment notes are secured by a lien on all of the assets of the
Company. Amounts borrowed under the 2010 Loan Amendment notes accrue interest at the rate of
fifteen percent (15%) per annum, which increases to eighteen percent (18%) per annum following an
event of default. Unless earlier paid in accordance with the terms of the original 2010 Loan
Amendment notes, all unpaid principal and accrued interest shall become fully due and payable on
the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined
debt/equity financing resulting in gross proceeds or available credit to the Company of not less
than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys,
licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger,
consolidation, reorganization or other transaction or series of transactions pursuant to which
stockholders of the Company prior to such acquisition own less than 50% of the voting interests in
the surviving or resulting entity. On January 14, 2011, the Company entered into an amendment to
the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan
Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on
March 24, 2011, the Company entered into a second amendment to further extend the maturity
date to September 30, 2011.
In November 2010, the Company was notified by the Internal Revenue Service that it has been
awarded $244,479 in grants under the Qualifying Therapeutic Discovery Project (“QTDP”) program
established under Section 48D of the Internal Revenue Code as part of the Patient Protection and
Affordable Care Act of 2010. The Company submitted the grant application in July 2010 for qualified
2009 and 2010 investments in the VIA-2291 program. The Company received the full amount of the
grant on January 19, 2011.
38
All outstanding principal and accrued interest under the 2009 Loan Agreement was due on April
1, 2010. All outstanding principal and accrued interest under the 2010 Loan Agreement and 2010 Loan
Amendment was originally due on December 31, 2010. The Company was not able to repay the loans on
the respective due dates. On January 14, 2011, the Company entered into an amendment to the 2010
Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan Agreement
and 2010 Loan Amendment from December 31, 2010 to June 30, 2011
and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
The Lenders may terminate the
2009 Loan Agreement, demand immediate payment of all amounts borrowed by the Company and take
possession of all collateral securing the loan, which consists of all of our assets, including our
intellectual property rights.
Revenue
The Company has not generated revenue since June 14, 2004, the inception of the Company. The
Company does not expect to generate any revenues from licensing, achievement of milestones or
product sales until it is able to commercialize product candidates or execute a collaboration
arrangement.
Research and Development Expenses
The Company is focused on the development of compounds for the treatment of cardiovascular and
metabolic disease. The Company’s VIA-2291 compound is a selective and reversible inhibitor of
5-LO, which is a key enzyme in the biosynthesis of leukotrienes (important mediators of
inflammation involved in the development and progression of atherosclerosis). Potentially a
complement to current standard of care therapies that treat risk factors, such as statins,
antiplatelet and blood pressure medications, VIA-2291 could be beneficial to more than 15 million
patients who suffer from atherosclerosis and cardiovascular disease. The Company has completed the
ACS, CEA and FDG-PET Phase 2 clinical trials for VIA-2291. In November 2008, the Company announced
the results of its ACS and CEA Phase 2 clinical trials at the AHA Conference, and the Company
reported results from an MDCT sub-study of its ACS Phase 2 clinical trial in May of 2009. In June
2009, the Company announced that it held an end of Phase 2a meeting with the FDA. The Company
reviewed safety and biologic activity data from the VIA-2291 CEA and ACS trials with the FDA and
received guidance, including suggestions from the FDA on the Company’s potential Phase 3 trial
design. In December 2009, the Company announced its last patient visit and as FDG-PET is an
experimental technique in vascular disease, currently not validated for image analysis end points,
it is not possible to interpret the imaging analysis of the study at this time, nor was it the
Company’s intention to use the imaging results of the FDG-PET study in determining the future
clinical plans for VIA-2291.
39
The Company’s THR (VIA-3196) compound is a clinically ready candidate for the control of
cholesterol, triglyceride levels and potential in insulin sensitization/diabetes The Company
anticipates beginning Phase 1 clinical trials for VIA-3196 in 2011 to provide safety information
and demonstrate proof of concept for LDL cholesterol lowering. The Company filed an
Investigational New Drug (“IND”) application with the FDA on September 3, 2010 (IND #109408). The
IND is required before the Company can proceed with human clinical trials. The IND contains the
plans for the clinical studies and gives a complete picture of the drug, including its structural
formula, animal test results, and manufacturing information. The IND is currently open to conduct
the initial Phase1 clinical study. In preparation for the Phase 1 clinical trials, the Company has
made significant progress in drug development and stability testing in 2009 and 2010.
The preclinical DGAT1 metabolic disorders program targets the treatment of type 2 diabetes and
has potential benefit in dyslipidemia and body weight loss. VIA intends to identify potential
clinical candidates from the compounds in this program and begin IND-enabling studies.
Research and development (“R&D”) expense represented 30% and 46% of total operating expense
for the year ended December 31, 2010 and 2009, respectively, and 54% for the period from June 14,
2004 (date of inception) to December 31, 2010. The Company expenses research and development costs
as incurred. Research and development expenses are those incurred in identifying, in-licensing,
researching, developing and testing product candidates. These expenses primarily consist of the
following:
|
|
•
|
|
compensation of personnel associated with research and development activities, including
consultants, investigators, and contract research organizations (“CROs”);
|
|
|
•
|
|
laboratory supplies and materials;
|
|
|
•
|
|
costs associated with the manufacture of product candidates for preclinical testing and
clinical studies;
|
|
|
•
|
|
preclinical costs, including toxicology and carcinogenicity studies;
|
|
|
•
|
|
fees paid to professional service providers for independent monitoring and analysis of
the Company’s clinical trials;
|
|
|
•
|
|
depreciation and equipment; and
|
|
|
•
|
|
allocated costs of facilities and infrastructure.
|
The following reflects the breakdown of the Company’s research and development expenses
generated internally versus externally for the years ended December 31, 2010 and 2009, and for the
period from June 14, 2004 (date of inception) to December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Externally generated research and development expense
|
|
$
|
361,725
|
|
|
$
|
3,639,215
|
|
|
$
|
29,066,916
|
|
|
Internally generated research and development expense
|
|
|
1,455,737
|
|
|
|
2,416,000
|
|
|
|
13,656,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,817,462
|
|
|
$
|
6,055,215
|
|
|
$
|
42,723,640
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Externally generated research and development expenses consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Externally generated research and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-licensing expenses
|
|
$
|
—
|
|
|
$
|
400,000
|
|
|
$
|
5,270,000
|
|
|
CRO and investigator expenses
|
|
|
21,068
|
|
|
|
1,090,115
|
|
|
|
10,770,407
|
|
|
Consulting expenses
|
|
|
181,088
|
|
|
|
1,120,131
|
|
|
|
6,599,757
|
|
|
Qualifying therapeutic discovery grant
|
|
|
(138,640
|
)
|
|
|
—
|
|
|
|
(138,640
|
)
|
|
Other
|
|
|
298,209
|
|
|
|
1,028,969
|
|
|
|
6,565,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361,725
|
|
|
$
|
3,639,215
|
|
|
$
|
29,066,916
|
|
|
|
|
|
|
|
|
|
|
|
|
Internally generated research and development expenses consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Internally generated research and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related expenses
|
|
$
|
1,051,915
|
|
|
$
|
1,693,205
|
|
|
$
|
9,559,074
|
|
|
Stock-based compensation expense
|
|
|
177,287
|
|
|
|
275,961
|
|
|
|
1,273,081
|
|
|
Travel and entertainment expense
|
|
|
63,737
|
|
|
|
170,249
|
|
|
|
1,219,356
|
|
|
Qualifying therapeutic discovery grant
|
|
|
(105,839
|
)
|
|
|
—
|
|
|
|
(105,839
|
)
|
|
Other
|
|
|
268,637
|
|
|
|
276,585
|
|
|
|
1,711,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,455,737
|
|
|
$
|
2,416,000
|
|
|
$
|
13,656,724
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company does not presently segregate total research and development expenses by individual
project because our research is focused on atherosclerosis and cardiometabolic disease as a unitary
field of study. Although the Company has a mix of preclinical and clinical research and
development, personnel working on the programs are combined, financial expenditures are combined,
and reporting has not matured to the point where they are separate and distinct projects. The
Company cannot reliably allocate the personnel costs, consulting costs, and other resources
dedicated to these efforts to individual projects, as we are conducting our research on an
integrated basis.
Assuming the Company is able to raise additional financing, it is expected that there will be
significant research and development expenses for the foreseeable future. Clinical trial activity
in the CEA, ACS, and FDG-PET Phase 2 clinical trials and related expenses have decreased as a
result of completing the studies. The Company began the development of its preclinical metabolic
assets in 2009 and the Company expects expenses to increase substantially over the next several
years. The ultimate level and timing of research and development spending is difficult to predict
due to the uncertainty inherent in the timing of raising additional financing, the timing and
extent of progress in our research programs, and initiation and progress of clinical trials. In
addition, the results from the Company’s preclinical and clinical research and development
activities, as well as the results of trials of similar therapeutics under development by others,
will influence the number, size and duration of planned and unplanned trials. As the Company’s
research efforts mature, we will continue to review the direction of our research based on an
assessment of the value of possible future compounds emerging from these efforts. Based on this
continuing review, the Company expects to establish discrete research programs and evaluate the
cost and potential for cash inflows from commercializing products, partnering with others in the
biotechnology or pharmaceutical industry, or licensing the technologies associated with these
programs to third parties.
The Company believes that it is not possible at this time to provide a meaningful estimate of
the total cost to complete our ongoing projects and to bring any proposed products to market. The
potential use of compounds targeting atherosclerotic plaque inflammation as a therapy is an
emerging area. Costs to complete current or future development programs could vary substantially
depending upon the projects selected for development, the number of clinical trials required and
the number of patients needed for each study. It is possible that the completion of these studies
could be delayed for a variety of reasons, including difficulties in enrolling patients, incomplete
or inconsistent data from the preclinical or clinical trials, difficulties evaluating the trial
results and delays in manufacturing. Any delay in completion of a trial would increase the cost of
that trial, which would harm our results of operations. Due to these uncertainties, the Company
cannot reasonably estimate the size, nature or timing of the costs to complete, or the amount or
timing of the net cash inflows from our current activities. Until the Company obtains further
relevant preclinical and clinical data,
and progresses further through the FDA regulatory process, the Company will not be able to
estimate our future expenses related to these programs or when, if ever, and to what extent we will
receive cash inflows from resulting products.
41
General and Administrative
General and administrative expense consists primarily of personnel costs, including salaries,
incentive and other compensation, travel and entertainment expenses, for personnel in executive,
finance, accounting, business development, information technology and human resource functions.
Other costs include facility costs not otherwise included in research and development expense,
professional fees for legal and accounting services, and public company expenses, including
investor relations, transfer agent fees and printing expenses.
Interest Income, Interest Expense and Other Expenses
Interest income consists of interest earned on cash and cash equivalents. Interest expense
consists primarily of interest due on secured notes payable and on capital leases, and amortization
of discount on notes payable — affiliate. Other expenses consist of net realized and unrealized
gains and losses associated with foreign currency transactions, and unrealized gains and losses
associated with the warrant obligation.
Results of Operations
Comparison of the years ended December 31, 2010 and 2009
The following table summarizes the Company’s results of operations with respect to the items
set forth in such table for the years ended December 31, 2010 and 2009 together with the change in
such items in dollars and as a percentage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
Research and development expense
|
|
|
1,817,462
|
|
|
|
6,055,215
|
|
|
|
(4,237,753
|
)
|
|
|
(70
|
)%
|
|
General and administrative expense
|
|
|
4,096,520
|
|
|
|
7,198,320
|
|
|
|
(3,101,800
|
)
|
|
|
(43
|
)%
|
|
Interest expense
|
|
|
3,562,483
|
|
|
|
7,733,390
|
|
|
|
(4,170,907
|
)
|
|
|
(54
|
)%
|
|
Other expense/(income)
|
|
|
17,891
|
|
|
|
(8,601
|
)
|
|
|
26,492
|
|
|
|
308
|
%
|
Revenue.
The Company did not generate any revenue in the years ended December 31, 2010 and
2009, respectively, and does not expect to generate any revenue from licensing, achievement of
milestones or product sales until the Company is able to commercialize product candidates or
execute a collaboration arrangement.
Research and Development Expense.
Research and development expense decreased 70%, or
approximately $4.3 million, from $6.1 million in the year ended December 31, 2009 to $1.8 million
in the year ended December 31, 2010. Clinical trial and preclinical related CRO and investigator
clinical trial related expenses decreased by approximately $1.0 million from $1.0 million in the
year ended December 31, 2009 to approximately $0 in the year ended December 31, 2010. The ACS and
CEA Phase 2 clinical trials were completed in 2008. As a result, related CRO and investigator
expenses were approximately $0 for each trial in the years ended December 31, 2010 and 2009.
FDG-PET CRO and investigator expenses decreased approximately $1.0 million from $1.0 million in the
year ended December 31, 2009 to approximately $0 in the year ended December 31, 2010 as last
patient visit occurred in 2009. Lab data analysis and other R&D expenses decreased $1.0 million
from $1.1 million in the year ended December 31, 2009 to approximately $100,000 in the year ended
December 31, 2010 primarily due to an $200,000 decrease in ACS, CEA and FDG-PET Phase 2 clinical
trial expenses from $200,000 in the year ended December 31, 2009 to approximately $0 in the year
ended December 31, 2010 due to the completion of the studies in 2009, a $200,000 decrease in THR
drug development expenses from $400,000 in the year ended December 31, 2009 to $200,000 in the year
ended December 31, 2010 due to the timing of work associated with THR drug development, a $500,000
decrease in VIA-2291 general development from $300,000 in the year ended December 31, 2009 to
($200,000) in the year ended December 31, 2010 due to the receipt of a $200,000 QTDP grant from the
Internal Revenue Service in November of 2010 and due to the substantial completion of clinical work
in the development of VIA-2291 in 2009, and a $100,000 decrease in expenses associated with the DNA
isolation and genotyping study that is associated with the development of VIA-2291 from $100,000 in
the year ended December 31 2009 to $0 in the year ended December 31, 2010. Employee related
expenses including salary, benefits, stock-based compensation, travel and entertainment expense,
information technology and facilities expenses, decreased $900,000 from $2.4 million in the year
ended December 31, 2009 to $1.5 million in the year ended December 31, 2010 primarily due to the
restructuring in March 2010 whereby headcount was reduced to six employees. In-licensing expenses
decreased
$400,000 from $400,000 in the year ended December 31, 2009 to $0 in the year ended December
31, 2010 due to the in-licensing of THR and DGAT1 in the year ended December 31, 2009 and no
in-licensing activities in the year ended December 31, 2010. Consulting expenses decreased $900,000
from $1.1 million in the year ended December 31, 2009 to $200,000 in the year ended December 31,
2010. The Company also incurred $65,000 in expenses associated with the termination of the lease
of research and development office space in Princeton, New Jersey in the year ended December 31,
2010.
42
General and Administrative Expense.
General and administrative expense decreased 43%, or
approximately $3.1 million, from $7.2 million in the year ended December 31, 2009 to $4.1 million
in the year ended December 31, 2010 due primarily to the restructuring in March 2010 whereby
headcount was reduced to six employees. Employee related expenses, including salary and benefits,
stock-based compensation and travel and entertainment expenses decreased $2.2 million from $4.0
million in the year ended December 31, 2009 to $1.8 million in the year ended December 31, 2010,
primarily to the decrease in headcount that resulted from the March 2010 restructuring of the
Company. Corporate and facilities general and administrative expenses decreased $900,000 from $2.7
million in the year ended December 31, 2009 to $1.8 million in the year ended December 31, 2010
primarily due to a $500,000 decrease in audit and legal expenses from $1.5 million the year ended
December 31, 2009 to $1.0 million in the year ended December 31, 2010, a $200,000 decrease in
investor relations and other public company expenses from $400,000 in the year ended December 31,
2009 to $200,000 in the year ended December 31, 2010, and a $200,000 decrease in facilities and IT
related expenses from $800,000 in the year ended December 31, 2009 to $600,000 in the year ended
December 31, 2010. The Company was able to hold consulting expenses at approximately $500,000 in
the years ended December 31, 2010 and 2009.
Interest Expense.
Interest expense decreased $4,171,000 from $7,733,000 in the year ended
December 31, 2009 to $3,562,000 in the year ended December 31, 2010. Interest on the note payable
— affiliate increased $1,215,000 from $789,000 in the year ended December 31, 2009 to $2,004,000
in the year ended December 31, 2010 due to the accumulation of increasing levels of debt over time.
Interest expense incurred in the amortization of the discount of the notes payable — affiliate
decreased $5,386,000 from $6,944,000 in the year ended December 31, 2009 to $1,558,000 in the year
ended December 31, 2010 due to all of the discount associated with the $10.0 million 2009 Loan
Agreement being fully amortized in 2009 and due to the reduction in the amount of borrowing year
over year.
Other Expense/Income.
Other expense increased $27,000 from other income of $9,000 in the year
ended December 31, 2009 to other expense of $18,000 in the year ended December 31, 2010. Unrealized
losses on foreign exchange transactions decreased $4,000 from $4,000 in the year ended December 31,
2009 to $0 in the year ended December 31, 2010; realized losses on foreign exchange transactions
increased $24,000 from realized gains $13,000 in the year ended December 31, 2009 to realized
losses of $11,000 in the year ended December 31, 2010. The foreign exchange transactions were
incurred primarily in connection with the CEA Phase 2 clinical trial and in patent legal expenses
incurred with vendors who invoiced in foreign currency. Losses on the disposal of fixed assets
increased $7,000 from approximately $0 in the year ended December 31, 2009 to $7,000 in the year
ended December 31, 2010.
Income Tax Expense.
There is no income tax provision (benefit) for federal or state income
taxes as the Company has incurred operating losses since inception and a full valuation allowance
has also been in place since inception.
Liquidity and Capital Resources
The Company does not have commercial products from which to generate cash resources. As a
result, from June 14, 2004 (date of inception) to December 31, 2010, the Company has financed its
operations primarily through a series of issuances of secured convertible notes, the generation of
interest income on the borrowed funds, the Merger with Corautus, a private placement through a
public equities transaction, and debt. The Company expects to incur substantial and increasing
losses for the next several years as it continues to expend substantial resources seeking to
successfully research, develop, manufacture, obtain regulatory approval for, and commercialize its
product candidates.
The Company’s ability to meet its obligations in the ordinary course of business is dependent
upon its ability to raise substantial additional financing through public or private equity or debt
financings, collaborative or other strategic arrangements with corporate sources or other sources
of financing, until it is able to establish profitable operations. The Company received
approximately $11.1 million in cash through the Merger with Corautus that was consummated on June
5, 2007, and the Company issued 10,288,065 shares of common stock for $25.0 million in gross
proceeds in the private placement equity financing which closed in July and August of 2007.
In March 2009, the Company entered into the 2009 Loan Agreement with the Lenders whereby the
Lenders agreed to lend to the Company in the aggregate up to $10.0 million as more fully described
in Note 6 in the notes to the financial statements. The Company secured the loan with all of its
assets, including the Company’s intellectual property. On March 12, 2009, the Company borrowed an
initial amount of $2.0 million under the Loan Agreement. During the three months ended June 30,
2009, the Company borrowed $2.0
million on May 19, 2009, and another $2.0 million on June 29, 2009. During the three months
ended September 30, 2009, the Company borrowed $2.0 million on August 14, 2009, and borrowed the
final $2.0 million on September 11, 2009. According to the terms of the original 2009 Loan
Agreement, the debt and related interest was due to the Lenders on September 14, 2009. The parties
agreed to extend the repayments terms and, on February 26, 2010, the Lenders agreed to modify the
Loan Agreement to further extend the repayment terms to April 1, 2010. The Lenders did not modify
the interest rate or offer any concessions in the amended 2009 Loan Agreement. The Company failed
to repay the debt and all related interest to the Lenders due on April 1, 2010.
43
In March 2010, the Company entered into the 2010 Loan Agreement with the Lenders whereby the
Lenders agreed to lend to the Company in the aggregate up to $3.0 million as more fully described
in Note 6 in the notes to the financial statements. On March 29, 2010, the Company secured the loan
with all of its assets, including the Company’s intellectual property. On March 29, 2010, the
Company borrowed an initial amount of $1,250,000. During the three months ended June 30, 2010, the
Company borrowed $100,000 on May 26, 2010, $200,000 on June 4, 2010, and another $300,000 on June
29, 2010. During the three months ended September 30, 2010, the Company borrowed $100,000 on July
15, 2010, $750,000 on July 27, 2010 and a final $300,000 on September 28, 2010. According to the
terms of the original 2010 Loan Agreement, the debt and related interest was due to the Lenders on
December 31, 2010. The Company failed to repay the debt and all related interest be such date. As
more fully described in Note 6 in the notes to the financial statements, on November 15, 2010, the
Company entered into the 2010 Loan Amendment to enable the Company to borrow up to an additional
aggregate principal amount of $3.0 million, pursuant to the terms of the amended and restated
promissory notes issued under the 2010 Loan Amendment. According to the original terms of the 2010
Loan Amendment, the debt was due to the Lenders on December 31, 2010. As more fully described in
Note 14 in the notes to the financial statements, on January 14, 2011, the Lenders agreed to amend
the 2010 Loan Agreement and 2010 Loan Amendment to extend the repayment terms of the aggregate $6.0
million borrowings from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011. The Lenders did not modify the interest
rate or offer any concessions in the January 14, 2011 or March 24, 2011 amendments.
The Company had $84,001 in cash at December 31, 2010. Management believes that, under normal
continuing operations, this amount of cash will enable the Company to meet only a small portion of
its current obligations. Management does not believe that existing cash resources will be
sufficient to enable the Company to meet its ongoing working capital requirements for the next
twelve months and the Company will need to raise substantial additional funding in the near term to
repay amounts owed under the 2009 Loan Agreement, the 2010 Loan Agreement, and the 2010 Loan
Amendment, and to meet its ongoing working capital requirements. Moreover, in connection with these
loans, the Company must also satisfy certain conditions and comply with covenants, including
covenants relating to the Company’s ability to incur additional indebtedness, make future
acquisitions, consummate asset dispositions, grant liens and pledge assets, pay dividends or make
other distributions, incur capital expenditures and make restricted payments. These restrictions
may limit the Company’s ability to pursue its business strategies and obtain additional funds. As
a result, there are substantial doubts that the Company will be able to continue as a going concern
and, therefore, may be unable to realize its assets and discharge its liabilities in the normal
course of business. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or to amounts and classifications of
liabilities that may be necessary should the Company be unable to continue as a going concern.
Global market and economic conditions have been, and continue to be, disrupted and volatile.
The Company cannot provide assurance that additional financing will be available in the near term
when needed, particularly in light of the current economic environment and adverse conditions in
the financial markets, or that, if available, financing will be obtained on terms favorable to the
Company or to the Company’s stockholders. Having insufficient funds may require the Company to
delay, scale back, or eliminate some or all research and development programs, including clinical
trial activities, or to relinquish greater or all rights to product candidates at an earlier stage
of development or on less favorable terms than the Company would otherwise choose. Failure to
obtain adequate financing in the near term will adversely affect the Company’s ability to operate
as a going concern and may require the Company to cease operations. If the Company raises
additional capital by issuing equity securities, its existing stockholders’ ownership will be
diluted. In addition, to the extent the vested warrants granted to the Lenders to purchase an
aggregate of 83,333,333 shares of common stock at an exercise price of $0.12 per share are
exercised by the Lenders, and to the extent the vested warrants granted to the Lenders in the 2010
Loan Agreement to purchase an aggregate of 17,647,059 shares of common stock at an exercise price
of $0.17 per share are exercised by the Lenders, and to the extent the vested warrants granted to
the Lenders to purchase an aggregate of 42,253,521 shares of common stock at an exercise price of
$0.071 per share are exercised by the Lenders, existing stockholders’ ownership in the Company will
be significantly diluted. Any new debt financing the Company enters into may involve covenants that
restrict its operations. The 2009 Loan Agreement, the 2010 Loan Agreement and the 2010 Loan
Amendment with the Lenders includes restrictive covenants relating to the Company’s ability to
incur additional indebtedness, make future acquisitions, consummate asset dispositions, grant liens
and pledge assets, pay dividends or make other distributions, incur capital expenditures and make
restricted payments. The Company may also be required to pledge all or substantially all of its
assets, including intellectual property rights, as collateral to secure any debt obligations. The
Company’s obligations under the 2009 Loan Agreement, the 2010 Loan Agreement, and the 2010 Loan
Amendment are secured by all of the Company’s assets, including its intellectual property and
any additional pledge of its assets would require the consent of the Lenders. In addition, if
the Company raises additional funds through collaborative or other strategic arrangements, the
Company may be required to relinquish potentially valuable rights to its product candidates or
grant licenses on terms that are not favorable to the Company.
44
Prior to the Merger and the private placement, the Company issued secured convertible notes
for a total of $24.4 million from June 14, 2004 (date of inception) to December 31, 2010 to finance
its operations. All of the $24.4 million in secured convertible notes have been converted to equity
as of December 31, 2007. No convertible notes were issued in the years ended December 31, 2010,
2009 or 2008.
The Company’s cash on hand decreased approximately $2.1 million from $2.2 million at December
31, 2009 to approximately $84,000 at December 31, 2010. In the fiscal year ended December 31, 2010,
the Company received $4.0 million in cash inflows and disbursed $6.1 million in cash outflows
resulting in the $2.1 million decrease in cash. Cash inflows of $4.0 million consisted of $4.0
million in proceeds from borrowings on the affiliate loan arrangements. Cash outflows of $6.1
million consisted of $2.8 million in payments for payroll and related expenses, $900,000 in
payments for research and development related expenses, $800,000 in payments to consultants for
consulting services, $400,000 in payments for legal services, $300,000 in payments for corporate
expenses, including audit fees, board fees, and public company expenses, and $900,000 in payments
for travel reimbursement, facilities and other office related expenses.
The Company used $6.1 million and $11.9 million in net cash from operations in the years ended
December 31, 2010 and 2009, respectively, and $71.6 million for the period from June 14, 2004 (date
of inception) to December 31, 2010. The $5.8 million decrease in the net cash used in operations
was comprised of an $11.4 million decrease in net loss from $21.0 million in the year ended
December 31, 2009 to $9.6 million in the year ended December 31, 2010, a $600,000 decrease in the
change in net assets, a $400,000 decrease in the change in net liabilities, a $5.4 million decrease
in the amortization of the discount on notes payable, a $1.2 million increase in the change in
interest payable to affiliate, a decrease of $500,000 in stock-based compensation expense, and a
net increase of $100,000 in excess facility lease cost, depreciation expense and net losses on
disposals of fixed assets. The $11.4 million decrease in net losses was the result of a decrease of
$4.2 million in research and development expenses and a $3.1 million decrease in general and
administrative expenses, a $100,000 increase in restructuring expenses, and a $4.2 million decrease
in interest expense. For the period from June 14, 2004 (date of inception) to December 31, 2010,
the Company used $71.6 million of net cash in operating activities which was comprised of
inception-to-date net losses of $91.2 million, net of $14.0 million non-cash expenses, including
$4.7 million inception-to-date stock-based compensation expense, $800,000 in excess facility lease
cost, depreciation expense and net losses on disposals of fixed assets, $8.5 million in interest
expense from the amortization of the discount on notes payable, and net of $1.8 million net
increase in the change in net assets and liabilities, and a $3.8 million increase in the change in
interest payable to affiliate. The Company cannot be certain if, when or to what extent it will
receive cash inflows from the commercialization of its product candidates. The Company expects its
clinical, research and development expenses to be substantial and to increase over the next few
years as it continues the advancement of its product development programs.
The Company used $0 and $16,000 in net cash from investing activities in the years ended
December 31, 2010 and 2009, respectively, and obtained $10.1 million cash from investing activities
for the period from June 14, 2004 (date of inception) to December 31, 2010. The Company used $0 and
$16,000 in cash for capital expenditures in the years ended December 31, 2010 and 2009,
respectively. From June 14, 2004 (date of inception) to December 31, 2010, the Company received
$11.1 million in cash from the Merger with Corautus, net of an additional $350,000 in capitalized
Merger costs and $664,000 in capital expenditures.
The Company received $4.0 million and $10.0 million in cash from financing activities through
loan arrangements with its principal stockholder in the years ended December 31, 2010 and 2009,
respectively. There were no equity financings in the years ending December 31, 2010 and 2009. The
Company received approximately $1,000 and $2,000 in cash from employee exercises of stock options
in the years ended December 31, 2010 and 2009, and repurchased and retired approximately $1,000 and
$0 of common stock in the years ended December 31, 2010 and 2009, respectively. From June 14, 2004
(date of inception) to December 31, 2010, the Company received $61.6 million in net cash provided
by financing activities, including $14.0 million in notes payable borrowings from the Company’s
principal stockholder, $24.4 million of cash received through the issuance of secured convertible
debt from the Company’s principal stockholder, $23.1 million of net cash received through the
equity financing completed in 2007, and $100,000 of cash received from employee and from exercises
of stock options.
In November 2010, the Company was notified by the Internal Revenue Service that it has been
awarded $244,479 in grants under the Qualifying Therapeutic Discovery Project (“QTDP”) program
established under Section 48D of the Internal Revenue Code as part of the Patient Protection and
Affordable Care Act of 2010. The Company submitted the grant application in July 2010 for qualified
2009 and 2010 investments in the VIA-2291 program. The grant is not taxable for federal income tax
purposes. The Company received the full amount of the grant in January 2011.
45
Contractual Obligation and Commitments
The following table describes the Company’s contractual obligations and commitments as of
December 31, 2010:
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
5 Years
|
|
|
Operating lease obligations (1)
|
|
$
|
795,505
|
|
|
$
|
323,792
|
|
|
$
|
471,713
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Notes and related interest payable — affiliate (2)
|
|
|
16,793,026
|
|
|
|
16,793,026
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Uncertain tax positions (3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Licensing agreements (4)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
17,588,531
|
|
|
$
|
17,116,818
|
|
|
$
|
471,713
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Operating lease obligations reflect contractual commitments for the
Company’s office facilities for its headquarters in San Francisco,
California. In 2010, the Company was released from its obligations
for its lease of space in Princeton, New Jersey, which formerly was
used for its clinical operations. In January 2008, the Company
expanded the lease of its headquarters in San Francisco to a total of
8,180 square feet to ensure adequate facilities for current
activities, and extended the lease through May 31, 2013.
|
|
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|
(2)
|
|
As more fully described in Note 6 in the notes to the financial
statements, in March 2009, the Company entered into the 2009 Loan
Agreement with the Lenders whereby the Lenders agreed to lend to the
Company in the aggregate up to $10.0 million, pursuant to the terms of
the promissory notes issued under the 2009 Loan Agreement (“2009
Notes). On March 12, 2009, the Company borrowed an initial amount of
$2.0 million. During the three months ended September 30, 2009, the
Company borrowed $2.0 million on May 19, 2009, and another $2.0
million on June 29, 2009. During the three months ended September 30,
2009, the Company borrowed $2.0 million on August 14, 2009, and a
final $2.0 million on September 11, 2009. The 2009 Notes are secured
by a first priority lien on all of the assets of the Company,
including the Company’s intellectual property. Amounts borrowed under
the 2009 Notes accrue interest at the rate of 15% per annum, which
increases to 18% per annum following an event of default. As of
December 31, 2010, the Company accrued $2,515,068 in interest payable
— affiliate for unpaid interest expenses. Unless earlier paid in
accordance with the terms of the Notes, all unpaid principal and
accrued interest shall become fully due and payable on the earlier to
occur of (i) April 1, 2010, (ii) the closing of a debt, equity or
combined debt/equity financing resulting in gross proceeds or
available credit to the Company of not less than $20,000,000, and
(iii) the closing of a transaction in which the Company sells,
conveys, licenses or otherwise disposes of a majority of its assets or
is acquired by way of a merger, consolidation, reorganization or other
transaction or series of transactions pursuant to which stockholders
of the Company prior to such acquisition own less than 50% of the
voting interests in the surviving or resulting entity. While the
Lenders have not declared an event of default, the Company failed to
repay the debt and all related interest to the Lenders due on April 1,
2010. As a result, the Company is now accruing interest at the higher
18% per annum beginning April 1, 2010.
|
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|
|
|
|
Also as more fully described in Note 6 in the notes to the financial
statements, in March 2010, the Company entered into an additional Note
and Warrant Purchase Agreement (the “2010 Loan Agreement”) with the
Lenders whereby the Lenders agreed to lend to the Company in the
aggregate up to $3.0 million, pursuant to the terms of promissory
notes issued under the 2010 Loan Agreement. On March 29, 2010, the
Company borrowed an initial amount of $1,250,000. During the three
months ended June 30, 2010, the Company borrowed $100,000 on May 26,
2010, $200,000 on June 4, 2010, and another $300,000 on June 29, 2010.
During the three months ended September 30, 2010, the Company borrowed
$100,000 on July 15, 2010, $750,000 on July 27, 2010 and a final
$300,000 on September 28, 2010. The 2010 Loan Agreement notes are
secured by a lien on all of the assets of the Company. Amounts
borrowed under the 2010 Loan Agreement notes accrue interest at the
rate of 15% per annum, which increases to 18% per annum following an
event of default. As of December 31, 2010, the Company accrued
$259,521 in interest payable — affiliate for unpaid interest
expenses. Unless earlier paid in accordance with the terms of the
original 2010 Loan Agreement, all unpaid principal and accrued
interest shall become fully due and payable on the earlier to occur of
(i) December 31, 2010, (ii) the closing of a debt, equity or combined
debt/equity financing resulting in gross proceeds or available credit
to the Company of not less than $20,000,000, and (iii) the closing of
a transaction in which the Company sells, conveys, licenses or
otherwise disposes of a majority of its assets or is acquired by way
of a merger, consolidation, reorganization or other transaction or
series of transactions pursuant to which stockholders of the Company
prior to such acquisition own less than 50% of the voting interests in
the surviving or resulting entity. The Company failed to repay the
debt and all related interest to the Lenders due on December 31, 2010.
On January 14, 2011, the Company entered into an amendment to the
2010 Loan Agreement and 2010 Loan Amendment to extend the maturity
date under the 2010 Loan Agreement and 2010 Loan Amendment from
December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
|
46
|
|
|
|
|
|
|
Also as more fully described in Note 6 in the notes to the financial
statements, on November 15, 2010, the Company entered into an
amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to enable
the Company to borrow up to an additional aggregate principal amount
of $3.0 million, pursuant to the terms of amended and restated
promissory notes issued under the 2010 Loan Amendment. On November
15, 2010, $201,397 in principal and interest amounts borrowed under an
October 29, 2010 bridge loan with the Lenders automatically converted
into obligations of the Company under the 2010 Loan Amendment as
advances. During the three months ended December 31, 2010, the
Company borrowed an additional $800,000 on November 22, 2010. The 2010
Loan Amendment notes are secured by a lien on all of the assets of the
Company. Amounts borrowed under the 2010 Loan Amendment accrue
interest at the rate of fifteen percent (15%) per annum, which
increases to eighteen percent (18%) per annum following an event of
default. As of December 31, 2010, the Company accrued $17,040 in
interest payable — affiliate for unpaid interest expenses. Unless
earlier paid in accordance with the terms of the original 2010 Loan
Amendment, all unpaid principal and accrued interest shall become
fully due and payable on the earlier to occur of (i) December 31,
2010, (ii) the closing of a debt, equity or combined debt/equity
financing resulting in gross proceeds or available credit to the
Company of not less than $20,000,000, and (iii) the closing of a
transaction in which the Company sells, conveys, licenses or otherwise
disposes of a majority of its assets or is acquired by way of a
merger, consolidation, reorganization or other transaction or series
of transactions pursuant to which stockholders of the Company prior to
such acquisition own less than 50% of the voting interests in the
surviving or resulting entity. On January 14, 2011, the Company
entered into an amendment to the 2010 Loan Agreement and 2010 Loan
Amendment to extend the maturity date under the 2010 Loan Agreement
and 2010 Loan Amendment from December 31, 2010 to June 30, 2011
and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
|
|
|
|
(3)
|
|
The Company adopted new accounting guidance for the accounting for
uncertainty in income tax positions on the first day of its 2007
fiscal year. The amount of unrecognized tax benefits at December 31,
2010 was $659,992. This amount has been excluded from the contractual
obligations table because a reasonably reliable estimate of the timing
of future tax settlements cannot be determined.
|
|
|
|
(4)
|
|
Under certain licensing agreements, Roche may receive up to $22.4
million in milestone payments, the majority of which would be tied to
the achievement of product development and regulatory milestones. In
addition, once products containing the compounds are approved for
marketing, Roche will receive single-digit royalties based on net
sales, subject to certain reductions.
|
Off-Balance Sheet Arrangements
The Company has not engaged in any off-balance sheet activities.
Critical Accounting Policies
The Company’s discussion and analysis of its financial condition and results of operations are
based on its financial statements, which have been prepared in accordance with GAAP. The
preparation of these financial statements requires the Company to make estimates and judgments that
affect the reported amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Note 2 in the notes to the financial statements includes a
summary of the Company’s significant accounting policies and methods used in the preparation of the
Company’s financial statements. On an ongoing basis, the Company’s management evaluates its
estimates and judgments, including those related to accrued expenses and the fair value of its
common stock. The Company’s management bases its estimates on historical experience, known trends
and events, and various other factors that it believes to be reasonable under the circumstances,
which form its basis for management’s judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
The Company’s management believes the following accounting policies and estimates are most
critical to aid in understanding and evaluating the Company’s reported financial results.
A critical accounting policy is defined as one that is both material to the presentation of
our financial statements and requires management to make difficult, subjective or complex judgments
that could have a material effect on our financial condition and results of operations.
Specifically, critical accounting estimates have the following attributes: (i) we are required to
make assumptions about matters that are uncertain at the time of the estimate; and (ii) different
estimates we could reasonably have used, or changes in the estimate that are reasonably likely to
occur, would have a material effect on our financial condition or results of operations.
47
Estimates and assumptions about future events and their effects cannot be determined with
certainty. We base our estimates on historical experience, facts available to date, and on various
other assumptions believed to be applicable and reasonable under the circumstances. These estimates
may change as new events occur, as additional information is obtained and as our operating
environment changes. These changes have historically been minor and have been included in the
financial statements as soon as they became known. The estimates are subject to variability in the
future due to external economic factors as well as the timing and cost of future events. Based on a
critical assessment of our accounting policies and the underlying judgments and uncertainties
affecting the application of those policies, management believes that our financial statements are
fairly stated in accordance with GAAP, and present a meaningful presentation of our financial
condition and results of operations. We believe the following critical accounting policies reflect
our more significant estimates and assumptions used in the preparation of our financial statements.
Research and Development Accruals
As part of the process of preparing its financial statements, the Company is required to
estimate expenses that the Company believes it has incurred, but has not yet been billed for. This
process involves identifying services and activities that have been performed by third party
vendors on the Company’s behalf and estimating the level to which they have been performed and the
associated cost incurred for such service as of each balance sheet date in its financial
statements. Examples of expenses for which the Company accrues include professional services, such
as those provided by certain CROs and investigators in conjunction with clinical trials, and fees
owed to contract manufacturers in conjunction with the manufacture of clinical trial materials. The
Company makes these estimates based upon progress of activities related to contractual obligations
and also information received from vendors.
A substantial portion of our preclinical studies and all of the Company’s clinical trials have
been performed by third-party CROs and other vendors. For preclinical studies, the significant
factors used in estimating accruals include the percentage of work completed to date and contract
milestones achieved. For clinical trial expenses, the significant factors used in estimating
accruals include the number of patients enrolled, duration of enrollment and percentage of work
completed to date.
The Company monitors patient enrollment levels and related activities to the extent possible
through internal reviews, correspondence and status meetings with CROs, and review of contractual
terms. The Company’s estimates are dependent on the timeliness and accuracy of data provided by our
CROs and other vendors. If we have incomplete or inaccurate data, we may either underestimate or
overestimate activity levels associated with various studies or trials at a given point in time. In
this event, we could record adjustments to research and development expenses in future periods when
the actual activity level become known. No material adjustments to preclinical study and clinical
trial expenses have been recognized to date.
Incentive Award Accruals
The Company accrues for liabilities under discretionary employee and executive incentive award
plans. These estimated liabilities are based upon progress against corporate objectives approved by
the Board of Directors, compensation levels of eligible individuals, and target bonus percentage
level of employees. The Board of Directors and the Compensation Committee of the Board of Directors
reviews and evaluates the performance against these objectives and ultimately determines what
discretionary payments are made. The Company has accrued incentive compensation expenses of
$767,185 and $1,308,043 at December 31, 2010 and December 31, 2009, respectively, for liabilities
associated with these employee and executive incentive award plans.
Stock-based Compensation
On January 1, 2006, the Company adopted new accounting guidance for accounting for stock-based
compensation. Under the fair value recognition provisions of this accounting guidance, stock-based
compensation cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service period, which is the
vesting period. The Company elected the modified-prospective method, under which prior periods are
not revised for comparative purposes. The valuation provisions of the accounting guidance apply to
new grants and to grants that were outstanding as of the effective date and are subsequently
modified. Estimated compensation for grants that were outstanding as of the effective date of this
new guidance are now being recognized over the remaining service period using the compensation cost
estimated for the required pro forma disclosures.
The Company uses the Black-Scholes option pricing model to estimate the fair value of
stock-based awards. The determination of the fair value of stock-based awards on the date of grant
using an option-pricing model is affected by the value of the Company’s stock price as well as
assumptions regarding a number of complex and subjective variables. These variables include
expected stock price volatility over the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and
expected dividends.
48
Prior to June 5, 2007, the Company was a privately-held company and its common stock was not
publicly traded. The fair value of stock options granted from January 2006 through June 5, 2007
(date of completion of the Merger with Corautus), and related stock-based compensation expense,
were determined based upon quoted stock prices of Corautus, the exchange ratio of shares in the
Merger, and a private company 10% discount for grants prior to March 31, 2007, as this represented
the best estimate of market value to use in measuring compensation. Subsequent to the Merger, the
Company, now publicly held, uses the closing stock price of the Company’s common stock on the date
the options are granted to determine the fair market value of each option. The Company revalues
each non-employee option quarterly based on the closing stock price of the Company’s common stock
on the last day of the quarter. The Company also revalues options when there is a change in
employment status.
The Company estimates the expected term of options granted by taking the average of the
vesting term and the contractual term of the option. As of December 31, 2010, the Company estimates
common stock price volatility using a hybrid approach consisting of the weighted-average of actual
historical volatility using a look back period of approximately three years, representing the
period of time the Company’s stock has been publicly traded, blended with an average of selected
peer group volatility for approximately six years, consistent with the expected life from grant
date. The volatility for the Company and the selected peer group was approximately 127% and 105%,
respectively, as of December 31, 2010, and 130% and 104%, respectively as of December 31, 2009. The
blended volatility rate was approximately a range from 115% to 116% as of December 31, 2010 and
114% as of December 31, 2009. The Company will continue to incrementally increase the look back
period of the Company’s common stock and percent of actual historical volatility until historical
data meets or exceeds the estimated term of the options. Prior to the year ended December 31, 2009,
the Company used peer group calculated volatility as the Company is a development stage company
with limited stock price history from which to forecast stock price volatility. The risk-free
interest rates used in the valuation model are based on U.S. Treasury issues with remaining terms
similar to the expected term on the options. The Company does not anticipate paying any dividends
in the foreseeable future and therefore used an expected dividend yield of zero.
The Company calculated an annualized forfeiture rate of 4.77% and 2.82% as of December 31,
2010 and 2009, respectively, using the Company’s historical data. These rates were used to exclude
future forfeitures in the calculation of stock-based compensation expense as of December 31, 2010
and 2009, respectively.
The assumptions used to value option and restricted stock award grants for the years ended
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Expected life from grant date
|
|
|
6.59 – 6.96
|
|
|
|
6.08 – 7.96
|
|
|
Expected volatility
|
|
|
115% – 116
|
%
|
|
|
105% – 114
|
%
|
|
Risk free interest rate
|
|
|
2.56% – 2.70
|
%
|
|
|
2.89% – 3.07
|
%
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
The following table summarizes stock-based compensation expenses related to stock options and
warrants for the years ended December 31, 2010 and 2009, and for the period from June 14, 2004
(date of inception) to December 31, 2010, which were included in the statements of operations in
the following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
163,612
|
|
|
$
|
260,226
|
|
|
$
|
1,243,038
|
|
|
General and administrative expense
|
|
|
541,606
|
|
|
|
941,540
|
|
|
|
3,346,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
705,218
|
|
|
$
|
1,201,766
|
|
|
$
|
4,589,506
|
|
|
|
|
|
|
|
|
|
|
|
|
If all of the remaining non-vested and outstanding stock option awards that have been granted
became vested, we would recognize approximately $473,000 in compensation expense over a weighted
average remaining period of 0.84 years. However, no compensation expense will be recognized for any
stock option awards that do not vest.
49
The following table summarizes stock-based compensation expense related to employee restricted
stock awards for the years
ended December 31, 2010 and 2009 and for the period from June 14, 2004 (date of inception) to
December 31, 2010, which was included in the statements of operations in the following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
13,675
|
|
|
$
|
15,734
|
|
|
$
|
30,043
|
|
|
General and administrative expense
|
|
|
28,897
|
|
|
|
47,655
|
|
|
|
78,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,572
|
|
|
$
|
63,389
|
|
|
$
|
108,488
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the restricted stock awards that have been granted became fully vested in 2010.
|
|
|
|
|
ITEM 8.
|
|
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
See Item 15. “Exhibits and Financial Statement Schedules.”
|
|
|
|
|
ITEM 9.
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
|
|
|
|
|
ITEM 9A.
|
|
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
The Company maintains a set of disclosure controls and procedures designed to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms. As of the end of the period covered by this
Annual Report on Form 10-K, an evaluation was carried out under the supervision and with the
participation of the Company’s management, including its Chief Executive Officer and Principal
Financial Officer, of the effectiveness of its disclosure controls and procedures. Based on that
evaluation, the Company’s Chief Executive Officer and Principal Financial Officer concluded that
the Company’s disclosure controls and procedures, as of the end of the period covered by this
Annual Report on Form 10-K, were effective at the reasonable assurance level to ensure that
information required to be disclosed by the Company in reports that it files or submits under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in United States Securities and Exchange Commission rules and forms and that such
information is accumulated and communicated to our management, including the Chief Executive
Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding
required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Internal control over financial reporting refers
to the process designed by, or under the supervision of, the Company’s Chief Executive Officer and
Principal Financial Officer, and effected by the Company’s board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted
accounting principles, and includes those policies and procedures that:
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1.
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Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;
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2.
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Provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
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3.
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Provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
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50
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of its inherent limitations. Internal control over financial
reporting is a process that involves human diligence and compliance and is subject to lapses in
judgment and breakdowns resulting from human failures. Internal control over financial reporting
also can be circumvented by collusion or improper management override. Because of such limitations,
there is a risk that material misstatements may not be prevented or detected on a timely basis by
internal control over financial reporting. However, these inherent limitations are known features
of the financial reporting process. Therefore, it is possible to design into the process safeguards
to reduce, though not eliminate, this risk. Management is responsible for establishing and
maintaining adequate internal control over financial reporting for the Company.
Management conducted an evaluation of the effectiveness of the Company’s internal control over
financial reporting based on the framework set forth in the report entitled “Internal
Control—Integrated Framework” published by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on this evaluation, management has concluded that the Company’s
internal control over financial reporting was effective as of December 31, 2010.
This annual report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public accounting firm pursuant to the rules of
the Securities and Exchange Commission that permit the Company to provide only management’s report
in this annual report.
Changes in Internal Control Over Financial Reporting
On March 26, 2010, the Company’s Board of Directors approved a restructuring of the Company to
reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce
decreased total employees by approximately 63% to a total of six employees and increased the focus
of future operating expense or research and development activities.
As a result of the restructuring, the Company made significant changes in internal control
over financial reporting to mitigate the risks associated with a lack of segregation of duties that
resulted from the reduction in force. Specifically, the Company increased the use of highly
qualified financial consultants to analyze all financial transactions for the fiscal year ended
December 31, 2010, prepare bank reconciliations for each month in fiscal year ended December 31,
2010, and prepare and independently review financial statements for external reporting purposes in
accordance with GAAP for the review and approval of the Company’s Chief Executive Officer and
Principal Financial and Accounting Officer.
The changes in internal control over financial reporting provides management with reasonable
assurance that (1) the maintenance of records is in reasonable detail and accurately and fairly
reflects the transactions and dispositions of the assets of the Company; (2) transactions are
recorded as necessary to permit preparation of financial statements in accordance with GAAP and
receipts and expenditures are being made only in accordance with authorizations of management and
directors of the Company; and (3) any unauthorized acquisition, use, or disposition of the
Company’s assets that could have a material effect on the financial statements will be prevented or
timely detected.
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ITEM 9B.
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OTHER INFORMATION
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On January 14, 2011, the Lenders agreed to amend the 2010 Loan Agreement and the 2010 Loan
Amendment, as more fully described in Note 6 in the notes to the financial statements, to extend
the repayment terms of the aggregate $6.0 million borrowings under both the 2010 Loan Agreement and
the 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011. The Lenders did not modify the
interest rate or offer any concessions in the amendments to the 2010 Loan Agreement and the 2010
Loan Amendment.
On January 14, 2011 and March 24, 2011, the Company borrowed an additional $500,000 and $1,498,603, respectively,
in principal amounts for general corporate purposes under the 2010 Loan Amendment more fully discussed in Note 6
in the notes to the financial statements. The Company has previously borrowed $1,501,397 in principal amounts and
the drawdown on March 24, 2011 was the final drawdown under the terms of the 2010 Loan Amendment. A total of 7,042,254
of the 42,253,521 2010 Additional Warrant Shares vested immediately on January 14, 2011 and a total of 21,107,084 of
the 42,253,521 2010 Additional Warrant Shares vested immediately on March 24, 2011, bringing the aggregate vested and
exercisable 2010 Additional Warrant Shares held by the Lenders to 42,253,521 shares. The 2010 Additional Warrant Shares,
to the extent they are vested and exercisable, are exercisable at any time until November 15, 2015.
51
PART III
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ITEM 10.
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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Board Leadership Structure
The Company separates the roles of Chief Executive Officer, or CEO, and Chairman of the Board
in recognition of the differences between the two roles. The CEO is responsible for setting the
strategic direction for the Company and the day to day leadership and performance of the Company,
while the Chairman of the Board provides guidance to the CEO and sets the agenda for Board meetings
and presides over meetings of the full Board. The Board believes separating the roles of Chief
Executive Officer and Chairman of the Board is in the best interests of the stockholders and the
Company because it provides the appropriate balance between strategy development and oversight and
accountability of management. However, no single leadership model is right for all companies and
at all times. The Board recognizes that depending on the circumstances, other leadership models
might be appropriate. The Company’s Bylaws allow for the Chief Executive Officer and Chairman of
the Board positions to be held by the same individual. Accordingly, the Board periodically reviews
its leadership structure.
Directors
Set forth below is certain biographical information as of March 1, 2011 regarding our current
directors.
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Name
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Age
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Title
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Lawrence K. Cohen, Ph.D.
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Director, Chief Executive Officer & President
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Douglass B. Given, M.D., Ph.D., M.B.A.
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Chairman of the Board of Directors
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Mark N.K. Bagnall(1)(2)(3)
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Director
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Fred B. Craves, Ph.D.
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Director
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David T. Howard(1)(2)(3)
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Director
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John R. Larson
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Director
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1.
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Member of the Audit Committee.
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2.
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Member of the Compensation Committee.
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3.
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Member of the Nominating and
Governance Committee.
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Lawrence K. Cohen, Ph.D.
Lawrence K. Cohen has served as President, Chief Executive Officer
and a director of the Company since the consummation of the Merger on June 5, 2007, and prior to
that time served as President, Chief Executive Officer and a director of privately-held VIA
Pharmaceuticals, Inc. since its formation in 2004. Previously, he was the Chief Executive Officer
of Zyomyx, Inc., a privately-held biotechnology company focused on protein chip technologies. Dr.
Cohen joined Zyomyx in 1999 as Chief Operating Officer, where he was responsible for all internal
activities, including research and development, business development, financing and operations. Dr.
Cohen received a Ph.D. in Microbiology from the University of Illinois and completed his
postdoctoral work in Molecular Biology at the Dana-Farber Cancer Institute and the Department of
Biological Chemistry at Harvard Medical School. The Board selected Dr. Cohen to serve as a
director because he is the Company’s Chief Executive Officer, and has served in such capacity since
privately-held VIA Pharmaceuticals, Inc. was formed in 2004. He has an expansive knowledge of the
biotechnology industry having served in various leadership roles with pharmaceutical companies for
more than two decades and he brings a unique and valuable perspective to the Board.
Douglass B. Given, M.D., Ph.D., M.B.A.
Douglass B. Given has served as Chairman of the
Company’s Board of Directors since the consummation of the Merger on June 5, 2007, and prior to
that time served as Chairman of privately-held VIA Pharmaceuticals, Inc.’s Board of Directors since
its formation in 2004. Dr. Given is a partner at Bay City Capital LLC, which manages investment
funds in the life sciences industry, and was founded in June 1997. From July 2001 to June 2003, Dr.
Given served as the Chief Executive Officer and Director of NeoRx Corporation, a cancer
therapeutics company. Since 2006, Dr. Given has served as President, Chief Executive Officer and
Chairman of Vivaldi Biosciences, an anti-viral and vaccine development company. Dr. Given was
Corporate Senior Vice President and Chief Technology Officer of Mallinckrodt, Inc. from August 1999
to October 2000. From 2006 to 2007, Dr. Given served as a member of the board of directors of
Aksys, Ltd., a company focused on hemodialysis products and services. From 2001 to 2008, Dr. Given
served as a member of the board of directors of SemBioSys Genetics Inc., a Canadian biotechnology
company. Dr. Given chairs the advisory board to the University of Chicago Medical Center, serves
on the Health Advisory Board of Johns Hopkins Bloomberg School of Public Health, serves on the
International Advisory Council of the Harvard School of Public
Health, AIDS/HIV Initiative and is a director of Arrowhead Research Corporation. Dr. Given
earned his M.D. and Ph.D. from the University of Chicago and his M.B.A. from the Wharton School,
University of Pennsylvania. He was a fellow in Internal Medicine and Infectious Diseases at Harvard
Medical School and Massachusetts General Hospital. The Board selected Dr. Given to serve as a
director because of his extensive executive experience in the biotechnology industry and his many
years of experience in the venture capital and private equity field, which is very valuable to the
Company in its evaluation of various financing and partnering alternatives presented to the
Company.
52
Mark N.K. Bagnall.
Mark N.K. Bagnall has served as a director of the Company since June 5,
2007. Since July 2009, Mr. Bagnall has served as President and a member of the board of directors
of GenturaDx, Inc., a privately-held life science and molecular diagnostic company. Mr. Bagnall
joined GenturaDx, Inc. in March 2009 as Chief Financial Officer. From April to December 2008, Mr.
Bagnall served as Executive Vice President, Chief Financial Officer and a member of the board of
directors of ADVENTRX Pharmaceuticals, Inc., a biopharmaceutical research and development company
focused on commercializing proprietary product candidates for the treatment of cancer. He
continued to serve as a member of the board of ADVENTRX until August 24, 2009. From May 2000 to
June 2007, Mr. Bagnall was Senior Vice President and Chief Finance and Operations Officer of
Metabolex, Inc., a privately-held pharmaceutical company focused on the development of drugs to
treat diabetes and related metabolic disorders. Mr. Bagnall has been in the biotechnology industry
for over 20 years. In the 12 years prior to joining Metabolex, Mr. Bagnall held the top financial
position at four life science companies: Metrika, Inc., a privately-held diagnostics company, and
three public biotechnology companies: Progenitor, Inc., Somatix Therapy Corporation, and Hana
Biologics, Inc. During his career in biotechnology, he has managed several private and public
financings, merger and acquisition transactions and corporate licensing agreements. Mr. Bagnall
received his B.S. in Business Administration from the U.C. Berkeley Business School and is a
Certified Public Accountant. The Board selected Mr. Bagnall to serve as a director because it
believes he brings valuable management and finance expertise to the Board, as well as biotechnology
expertise. He has been in the biotechnology industry for over 20 years. In the 12 years prior to
joining Metabolex, Mr. Bagnall held the top financial position at four life science companies:
Metrika, Inc., a privately-held diagnostics company, and three public biotechnology companies:
Progenitor, Inc., Somatix Therapy Corporation, and Hana Biologics, Inc. During his career in
biotechnology, he has managed several private and public financings, merger and acquisition
transactions and corporate licensing agreements. Mr. Bagnall provides the Board with a
distinguished financial expert for the Audit Committee (of which he serves as Chairman).
Fred B. Craves, Ph.D.
Fred B. Craves has served as a director of the Company since the
consummation of the Merger on June 5, 2007, and prior to that time served as a director of
privately-held VIA Pharmaceuticals, Inc. since January 2005. Dr. Craves is an Investment Partner,
Managing Director and founder of Bay City Capital, a manager of investment funds in the life
sciences industry, and serves as a member of the board of directors and Chairman of the executive
committee. Before founding Bay City Capital, he spent over 25 years leading and managing
biotechnology and pharmaceutical companies. Previously, he was Executive Vice President of Schering
Berlin, a pharmaceutical company, and Chief Executive Officer and President of Berlex Biosciences,
a research, development and manufacturing organization. He founded Burrill & Craves, a merchant
bank focused on biotechnology and emerging pharmaceutical companies. He was also the founding
Chairman of the Board and Chief Executive Officer of Codon and co-founder of Creative Biomolecules,
both biotechnology companies. From 1999 to 2007, Dr. Craves served as a member of the board of
directors of Reliant Pharmaceuticals, Inc., a privately-held pharmaceuticals company. From 2002 to
2007, Dr. Craves served as a member of the board of directors of BioSeek Inc., a privately-held
drug discovery services company. Dr. Craves is a member of the board of directors of Poniard
Pharmaceuticals, a biopharmaceutical company focused on oncology; ProGenTech, a privately-held life
science and molecular diagnostic company; and ReSet Therapeutics, Inc., a privately-held
biotechnology company. He also serves as a member of The J. David Gladstone Institutes’ Advisory
Council and is a member of the Board of Trustees of Loyola Marymount University in Los Angeles. Dr.
Craves earned a B.S. in Biology from Georgetown University and a Ph.D. in Pharmacology and
Toxicology from the University of California, San Francisco. The Board selected Dr. Craves to
serve as a director because of his extensive executive experience in the biotechnology industry and
his many years of experience in the venture capital and private equity field, which is very
valuable to the Company in its evaluation of various financing and partnering alternatives
presented to the Company. His experiences as a co-founder of a number of biotechnology companies
and life science merchant banks is valuable to the Company, as a development stage company.
David T. Howard.
David T. Howard has served as a director of the Company since the
consummation of the Merger on June 5, 2007. Mr. Howard joined the Board of Directors of Angiotech
Pharmaceuticals, Inc., a pharmaceutical and medical device company, in March 2000 and became
Chairman of the Board of Directors in September 2002. Mr. Howard is a director of MSI Methylation
Sciences Inc., a privately-owned biotechnology company located in Vancouver, British Columbia. From
May 2000 to July 2003, he was Chair of the Board and Chief Executive Officer of SCOLR, Inc., a
biopharmaceutical company located in Redmond, Washington. He continued to serve on the board of
directors of SCOLR until 2005. From 2005 to 2009, Mr. Howard served as a member of the board of
directors of SemBioSys Genetics, Inc., a Canadian biotechnology company. From 2006 to 2008, Mr.
Howard served as a
member of the board of directors of JRI International Ltd., a privately-owned agriculture
company. Prior to this, Mr. Howard served as President and Chief Operating Officer of two
pharmaceutical companies: Novopharm International of Toronto, Ontario and President of Novopharm
USA, Inc. Mr. Howard’s industry experience includes operational and strategic positions with
Boehringer Mannheim Canada, where he was Vice President Pharmaceuticals Division, and Rhône-Poulenc
Pharma in Montreal and Paris, where he was Vice-President Sales and Marketing and International
Product Manager, respectively. Mr. Howard is the Chief Executive Officer and President of 159230
Canada Inc., a consulting company for the pharmaceutical, biotechnology and medical devices
industries, which he founded in 1986. The Board selected Mr. Howard to serve as a director because
he has extensive Board and committee experience at both public and private companies. Through his
service on the boards of Angiotech, SCOLR and SemBioSys, among others, he has valuable experience
in governance, compensation and audit issues.
53
John R. Larson.
John R. Larson has served as a director of the Company since the consummation
of the February 2003 merger between Genstar Therapeutics Corporation and Vascular Genetics Inc.
Prior to such merger, he served as a director of Vascular Genetics since 1999. Mr. Larson is a
founder of Prolifaron, Inc., an early-stage biotechnology company started in 1997 and sold to
Alexion Pharmaceuticals, Inc. in 2000, and a founder of Materia, Inc., a research and development
company specializing in new applications of patented polymer products. Mr. Larson served as a
director for Prolifaron, Inc. from April 1997 to September 2000, a director of Materia, Inc. from
1997 to 1999, and a director of Northland Securities, Inc. from October 2002 to September 2004. He
continues to serves as Senior Vice President and Secretary of Northland Securities, Inc., a
position he has held since 2002. Since December 1999, he has served as the Managing Director of
Clique Capital, LLC, a venture capital group focused in the healthcare and technology area. Since
2006, Mr. Larson has also served as an officer and director of Armada Media Corporation, a
privately held company that owns and operates radio stations in small and mid-sized markets. Mr.
Larson holds a B.A. degree from Minnesota State University and a J.D. from William Mitchell College
of Law. The Board selected Mr. Howard to serve as a director because he has extensive Board and
committee experience at both public and private companies. Additionally, Mr. Larson practiced law
for over 30 years concentrating in the areas of securities and finance and since August 2000 has
been an “Of Counsel” with the law firm of Messerli & Kramer. Mr. Larson has been a frequent speaker
on securities matters, having served as Commissioner of Securities and Chairman of the Commerce
Commission for the State of Minnesota. In such capacity, Mr. Larson served on a number of
committees for the North American Securities Administrators Association, Inc. and the National
Association of Securities Dealers, Inc. With Mr. Larson’s extensive experience, he brings strong
securities law and biotechnology expertise to the Board.
There are no family relationships among any of our directors and executive officers.
Executive Officers
The information with respect to our executive officers is set forth in Part I, Item 1 of the
10-K under the caption “Executive Officers of the Registrant.”
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act, and regulations of the SEC thereunder require our
directors, officers and persons who own more than 10% of our Common Stock, as well as certain
affiliates of such persons, to file initial reports of their ownership of our Common Stock and
subsequent reports of changes in such ownership with the SEC. Directors, officers and persons
owning more than 10% of our Common Stock are required by SEC regulations to furnish us with copies
of all Section 16(a) reports they file. Based solely on our review of the copies of such reports
and amendments thereto received by us and written representations from these persons that no other
reports were required, we believe that during the fiscal year ended December 31, 2010, all of our
directors, officers and owners of more than 10% of our Common Stock complied with all applicable
filing requirements.
Code of Conduct
On June 5, 2007, we adopted a Code of Business Conduct and Ethics, which applies to all of our
officers, directors and employees, and we amended the Code of Business Conduct and Ethics on April
16, 2008. Our Code of Business Conduct and Ethics, as amended, is posted on our website at
www.viapharmaceuticals.com under the headings “Investor Relations — Corporate Governance — Other
Governance Documents — Code of Business Conduct and Ethics.” We will also provide a copy of the
Code of Business Conduct and Ethics to stockholders upon request. Any amendments to our Code of
Business Conduct and Ethics will be posted on our website. In addition, any waivers from any
provision of our Code of Business Conduct and Ethics for directors or executive officers will be
promptly disclosed to our stockholders by filing a report on Form 8-K.
54
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the full Board and through
committees of the Board, consisting of an Audit Committee, a Compensation Committee and a
Nominating and Governance Committee. In addition to the standing committees, the Board from time to
time establishes special purpose committees.
During the fiscal year ended December 31, 2010, the Company’s Board of Directors held nine
meetings, the Audit Committee held five meetings, and there were three Special Committee meetings.
The Compensation Committee and the Nominating and Governance Committee did not meet during the
fiscal year ended December 31, 2010. The Company’s Corporate Governance Principles provide that
Board members are expected to regularly prepare for and attend all meetings of the Board and of
each committee that the director is a member, with the understanding that, on occasion, a director
may be unable to attend a meeting. The Corporate Governance Principles are posted on our website at
www.viapharmaceuticals.com under the headings “Investor Relations — Corporate Governance —
Committee Charters — Corporate Governance Principles.”
The Board’s Role in Risk Oversight
The role the Company’s Board of Directors fulfills in risk oversight is set out in the
Company’s Corporate Governance Principles. The Board is actively involved in the oversight of
risks that could affect the Company. This oversight is conducted primarily through committees of
the Board but the full Board has retained responsibility for general oversight of risks. The Board
satisfies this responsibility through full reports by each committee chair regarding the
committee’s considerations and actions, as well as through regular reports directly from management
on areas of material risks to the Company, including operational, financial, liquidity, legal and
regulatory, strategic and reputational risks. A fundamental part of risk management is not only
understanding the risks a company faces and what steps management is taking to manage those risks,
but also understanding what level of risk is appropriate for the Company. Management is
responsible for establishing the Company’s business strategy, identifying and assessing the related
risks and establishing appropriate risk management practices. The Board oversees the Company’s
business strategy and management’s assessment of the related risk, and discusses with management
the appropriate level of risk for the Company.
The Audit Committee
On June 5, 2007 following the completion of the Merger, our Board adopted a charter that sets
forth the responsibilities of the Audit Committee, and we amended the Audit Committee charter on
March 25, 2009. The Audit Committee’s charter, as amended, is posted on our website at
www.viapharmaceuticals.com under the headings “Investor Relations — Corporate Governance —
Committee Charters — Audit Committee Charter.” The purpose of the Audit Committee is to assist the
Board with its oversight responsibilities regarding: (1) the integrity of the Company’s financial
statements and its financial reporting and disclosure practices; (2) the soundness of the Company’s
system of internal controls regarding finance, accounting and disclosure compliance; (3) the
independent auditor’s qualifications, engagement, compensation and independence; (4) the
performance of the Company’s internal audit function and independent auditor; (5) the Company’s
compliance with legal and regulatory requirements in connection with the foregoing; (6) compliance
with the Company’s Code of Business Conduct and Ethics to the extent such Code of Ethics addresses
financial and accounting related matters; and (7) addressing certain concerns related to
accounting, internal accounting controls and auditing matters as provided in the Company’s
Complaint and Investigation Procedures for Accounting, Internal Accounting Controls, Fraud or Other
Matters.
The Audit Committee charter provides that such Committee shall consist of two or more members
of the Board. The members of the Audit Committee are Mark N.K. Bagnall (chair) and David T.
Howard, each of whom has been determined by the Board of Directors to be independent as defined by
the rules of the SEC and the applicable NASDAQ Stock Market listing standards. The Board of
Directors has also determined that Mr. Bagnall is an “audit committee financial expert,” as defined
under Item 407(d) of Regulation S-K.
The Compensation Committee
On June 5, 2007 following the completion of the Merger, our Board adopted a charter that sets
forth the responsibilities of the Compensation Committee, and we amended the Compensation Committee
charter on April 15, 2009. The Compensation Committee’s charter, as amended, is posted on our
website at www.viapharmaceuticals.com under the headings “Investor Relations — Corporate
Governance — Committee Charters — Compensation Committee Charter.” The purposes of the
Compensation Committee are to discharge the Board’s responsibilities relating to: (1) the
establishment and maintenance of compensation and benefit policies
designed to attract, motivate and retain personnel with the requisite skills and abilities to
enable the Company to achieve superior operating results; (2) the compensation of the Company’s
executives and non-management directors; and (3) the issuance of an annual report on executive and
chief executive officer compensation for inclusion in the Company’s annual proxy statement or Form
10-K, as applicable.
55
The Compensation Committee recommends to the Board a compensation structure to compensate all
levels of management employees of the Company as well as the Company’s non-management directors.
The Compensation Committee reviews and approves the compensation of all executive officers, all
merit increases and bonuses, including the establishment of goals and objectives. The Compensation
Committee also makes recommendations to the Board as to compensation of non-management directors.
The Compensation Committee has the authority to hire compensation consultants, to request
management to perform studies and to furnish other information, to obtain advice from external
legal, accounting or other advisors, and to make such decisions or recommendations to the Board
based thereon as the Compensation Committee deems appropriate. However, since the consummation of
the Merger, the Company has not engaged any compensation consultants to assist in determining or
recommending the amount or form of executive and director compensation.
The Compensation Committee charter provides that such Committee shall consist of two or more
members of the Board. The members of the Compensation Committee are David T. Howard (co-chair) and
Mark N.K. Bagnall (co-chair). Each member of the Compensation Committee is an “outside” director as
defined in Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and a
“non-employee” director within the meaning of Rule 16b-3 under the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). The Board or Directors has determined that each of the members of
the Compensation Committee is independent, as defined by the applicable NASDAQ Stock Market listing
standards.
The Nominating and Governance Committee
On June 5, 2007 following the completion of the Merger, our Board adopted a charter that sets
forth the responsibilities of the Nominating and Governance Committee, and we amended the
Nominating and Governance Committee charter on April 15, 2009. The Nominating and Governance
Committee’s charter, as amended, is posted on our website at www.viapharmaceuticals.com under the
headings “Investor Relations — Corporate Governance — Committee Charters — Nominating and
Governance Committee Charter.” The purposes of the Nominating and Governance Committee are to: (1)
assist the Board in identifying individuals qualified to become Board members; (2) assist the Board
in the selection of nominees for election as directors at the Company’s annual meeting of the
stockholders; (3) develop and recommend to the Board a set of corporate governance guidelines
applicable to the Company; (4) establish policies and procedures regarding the consideration of
director nominations from stockholders; (5) recommend to the Board director nominees for each Board
committee; (6) review and make recommendations to the Board concerning Board committee structure,
operations and Board reporting; (7) evaluate Board and management performance; and (8) oversee
compliance with the Company’s Code of Business Conduct and Ethics other than with respect to
financial and accounting related matters.
The Nominating and Governance Committee charter provides that such Committee shall consist of
two or more members of the Board. The members of the Nominating and Governance Committee are David
T. Howard (chair) and Mark N.K. Bagnall. The Board of Directors has determined that all of the
members of the Nominating and Governance Committee are independent, as defined by the applicable
NASDAQ Stock Market listing standards.
At an appropriate time prior to each annual meeting of the Company’s stockholders at which
directors are to be elected or reelected, and whenever there is otherwise a vacancy on the Board of
Directors, the members of the Nominating and Governance Committee will assess the qualifications
and effectiveness of the current Board members and, to the extent there is a need, shall actively
seek individuals well qualified and available to serve to become Board members. Once a Committee
member has identified a potential candidate, the Committee member will recommend the potential
candidate to the full Nominating and Governance Committee. Candidates recommended by a stockholder
will be evaluated in the same manner as any candidate identified by a Committee member.
The full Nominating and Governance Committee will review each potential candidate’s
qualifications and may request such candidate to complete and return a directors and officers
questionnaire. If the Committee determines that the potential candidate may be qualified after a
preliminary inquiry, the Committee will make an investigation and interview the potential
candidate, as necessary, to make an informed final determination.
The Nominating and Governance Committee will select, by majority vote, the most qualified
candidate or candidates, as the case may be, to recommend to the Board for selection as a director
nominee. Upon selection of one or more director nominees, the
Chairman of the Board will extend an invitation to the individual to become a director nominee
to be included on the proxy card for election at the next annual meeting.
56
Nomination of Directors
Recommendations to the Board of Directors for election as directors of VIA at an annual
meeting may be made only by the Nominating and Governance Committee or by the Company’s
stockholders (through the Nominating and Governance Committee) who comply with the timing,
informational, and other requirements of our Bylaws. Stockholders have the right to recommend
persons for nomination by submitting such recommendation, in written form, to the Nominating and
Governance Committee, and such recommendation will be evaluated pursuant to the policies and
procedures adopted by the Board. Such recommendation must be delivered to or mailed to and received
by the Secretary of the Company at the principal executive offices not later than 120 calendar days
prior to the anniversary of the date the Company’s prior year proxy statement was first made
available to stockholders, except that if no annual meeting of stockholders was held in the
preceding year or if the date of the annual meeting of stockholders has been changed by more than
30 calendar days from the date contemplated at the time of the preceding year’s proxy statement,
the notice shall be received by the Secretary at the Company’s principal executive offices not less
than 150 calendar days prior to the date of the contemplated annual meeting or the date that is 10
calendar days after the date of the first public announcement or other notification to stockholders
of the date of the contemplated annual meeting, whichever first occurs.
Director Criteria and Diversity
The Nominating and Governance Committee, in accordance with the board’s governance principles,
seeks to create a board that has the ability to contribute to the effective oversight and
management of the Company, that is as a whole strong in its collective knowledge of and diversity
of skills and experience with respect to accounting and finance, management and leadership, vision
and strategy, business judgment, biotechnology industry knowledge, corporate governance and global
markets. The Nominating and Governance Committee does not have a formal policy with respect to
diversity; however, the Board and the Nominating and Governance Committee believe it is essential
that the Board members represent diverse viewpoints, professional experience, education, skill and
other individual qualities and attributes that contribute to board heterogeneity. When the
Committee reviews a potential new candidate, the Committee looks specifically at the candidate’s
qualifications in light of the needs of the Board and the Company at that time given the then
current mix of director attributes.
General criteria for the nomination and evaluation of director candidates include:
|
|
•
|
|
loyalty and commitment to promoting the long term interests of the Company’s stockholders;
|
|
|
•
|
|
the highest personal and professional ethical standards and integrity;
|
|
|
•
|
|
an ability to provide wise, informed and thoughtful counsel to top management on a range of
issues;
|
|
|
•
|
|
a history of achievement that reflects superior standards for themselves and others;
|
|
|
•
|
|
an ability to take tough positions in constructively-challenging the Company’s management
while at the same time working as a team player; and
|
|
|
•
|
|
individual backgrounds that provide a diverse portfolio of personal and professional
experience and knowledge commensurate with the needs of the Company.
|
The Committee must also ensure that the members of the board as a group maintain the requisite
qualifications under the applicable SEC rules and the Company’s Committee Charter requirements for
populating the Audit, Compensation and Nominating and Governance Committees.
Written recommendations from a stockholder for a director candidate must include the following
information:
|
|
•
|
|
the stockholder’s name and address, as they appear on our corporate books;
|
|
|
•
|
|
the class and number of shares that are beneficially owned by such stockholder;
|
57
|
|
•
|
|
the dates upon which the stockholder acquired such shares; and
|
|
|
•
|
|
documentary support for any claim of beneficial ownership.
|
Additionally, the recommendation needs to include, as to each person whom the stockholder
proposes to recommend to the Nominating and Governance Committee for nomination to election or
reelection as a director, all information relating to the person that is required pursuant to
Regulation 14A under the Exchange Act, as amended, and evidence satisfactory to us that the nominee
has no interests that would limit their ability to fulfill their duties of office.
Once the Nominating and Governance Committee receives a recommendation, it will deliver a
questionnaire to the director candidate that requests additional information about his or her
independence, qualifications and other information that would assist the Nominating and Governance
Committee in evaluating the individual, as well as certain information that must be disclosed about
the individual in the Company’s proxy statement, if nominated. Individuals must complete and return
the questionnaire within the time frame provided to be considered for nomination by the Nominating
and Governance Committee.
The Nominating and Governance Committee will review the stockholder recommendations and make
recommendations to the Board of Directors that the Committee feels are in the best interests of the
Company and its stockholders.
Communications with the Board of Directors
Stockholders may contact an individual director or the Board as a group, or a specified Board
committee or group, including the non-employee directors as a group, by the following means:
|
|
|
|
|
Mail:
|
|
Attn: Board of Directors
|
|
|
|
VIA Pharmaceuticals, Inc.
|
|
|
|
750 Battery Street, Suite 330
|
|
|
|
San Francisco, CA 94111
|
|
|
|
|
|
Email:
|
|
AskBoard@viapharmaceuticals.com
|
Each communication should specify the applicable addressee or addressees to be contacted as
well as the general topic of the communication. We will initially receive and process
communications before forwarding them to the addressee. We also may refer communications to other
departments within the Company. We generally will not forward to the directors a communication that
is primarily commercial in nature, relates to an improper or irrelevant topic, or requests the
Company’s general information.
Complaint and Investigation Procedures for Accounting, Internal Accounting Controls, Fraud or
Auditing Matters
We have created procedures for confidential submission of complaints or concerns relating to
accounting or auditing matters and contracted with Shareholder.com to facilitate the gathering,
monitoring and delivering reports on any submissions. As of the date of this report, there have
been no submissions of complaints or concerns to Shareholder.com. Complaints or concerns about our
accounting, internal accounting controls or auditing matters may be submitted to the Audit
Committee and our executive officers by contacting Shareholder.com. Shareholder.com provides phone,
internet and e-mail access and is available 24 hours per day, seven days per week, 365 days per
year. The hotline number is 1-866-713-4532 and the website is www.openboard.info/via/. Any person
may submit a written Accounting Complaint to via@openboard.com.
Our Audit Committee under the direction and oversight of the Audit Committee Chair will
promptly review all submissions and determine the appropriate course of action. The Audit Committee
Chair has the authority, in his discretion, to bring any submission immediately to the attention of
other parties or persons, including the full Board, accountants and attorneys. The Audit Committee
Chair shall determine the appropriate means of addressing the concerns or complaints and delegate
that task to the appropriate member of senior management, or take such other action as it deems
necessary or appropriate to address the complaint or concern, including obtaining outside counsel
or other advisors to assist the Audit Committee.
58
|
|
|
|
|
ITEM 11.
|
|
EXECUTIVE COMPENSATION
|
Summary Compensation Table
The total compensation paid to the Company’s Principal Executive Officer and its highest
compensated executive officers other than the Principal Executive Officer, respectively, for
services rendered in 2010 and 2009, as applicable, is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Compensation
|
|
|
|
|
|
Name and Principal Position
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)(3)
|
|
|
($)
|
|
|
($)
|
|
|
($)(4)
|
|
|
Total ($)
|
|
|
Lawrence K. Cohen
|
|
|
2010
|
|
|
$
|
385,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,215
|
|
|
$
|
386,215
|
|
|
Principal Executive Officer
|
|
|
2009
|
|
|
$
|
385,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,215
|
|
|
$
|
386,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James G. Stewart(1)
|
|
|
2010
|
|
|
$
|
279,390
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
281
|
|
|
$
|
279,671
|
|
|
Principal Financial Officer
|
|
|
2009
|
|
|
$
|
325,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,125
|
|
|
$
|
326,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen S. Wright(2)
|
|
|
2010
|
|
|
$
|
244,400
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
675
|
|
|
$
|
245,075
|
|
|
Vice President, Controller
(Principal Financial
Officer)
|
|
|
2009
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rebecca. A. Taub
|
|
|
2010
|
|
|
$
|
300,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,080
|
|
|
$
|
301,080
|
|
|
Senior Vice President,
Research & Development
|
|
|
2009
|
|
|
$
|
300,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,080
|
|
|
$
|
301,080
|
|
Footnotes to Summary Compensation Table
|
|
|
|
|
(1)
|
|
During 2010, Mr. James G. Stewart served as the principal financial
officer from January 1, 2010 through March 31, 2010. Effective March
31, 2010, the employment of Mr. Stewart was terminated in connection
with the restructuring and reduction in workforce.
|
|
|
|
(2)
|
|
On April 30, 2010, Karen S. Wright was appointed as an executive
officer to serve as the principal financial officer of the Company
following the restructuring. As Ms. Wright was not an executive
officer of the Company in 2009, the table above does not include
compensation amounts for 2009.
|
|
|
|
(3)
|
|
A decision on performance bonus compensation earned in 2009 and 2010
has been deferred and therefore is not calculable as of March 1, 2011.
It is expected that a determination will be made on the amount of
performance bonus compensation earned in 2009 and 2010, if any, once
the Company is able to secure additional financing.
|
|
|
|
(4)
|
|
Represents the dollar value of: (i) any insurance premiums paid by the
Company with respect to life insurance in 2009 (and in parenthesis,
amounts paid in 2010), (ii) tax gross-up payments made by the Company
with respect to the restricted stock awards for 2010, (iii) Company
safe harbor contributions to the executive officer’s VIA
Pharmaceuticals, Inc. 401(k) Plan for 2010 and (iv) accrued vacation
and paid time off time paid by the Company in 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued Vacation
|
|
|
Name
|
|
401(k)
|
|
|
Life Insurance
|
|
|
Tax Gross-Up
|
|
|
and Paid Time off
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence K. Cohen
|
|
$
|
—
|
|
|
$
|
1,215 (1,215
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James G. Stewart
|
|
$
|
—
|
|
|
$
|
1,125 (281
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen S. Wright
|
|
$
|
7,350
|
|
|
$
|
— (675
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rebecca. A. Taub
|
|
$
|
—
|
|
|
$
|
1,080 (1,080
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
59
Narrative to Summary Compensation Table
Understanding our history is key to the understanding of our compensation structure for 2010
and 2009. After the Merger on June 5, 2007, the executive officers of privately-held VIA
Pharmaceuticals, Inc. became our executive officers. On January 14, 2008, the Company hired Dr.
Rebecca A. Taub as Senior Vice President, Research & Development. Effective March 31, 2010, the
employment
of Mr. James G. Stewart was terminated in connection with the restructuring of the Company.
On April 30 2010, the Company appointed Karen S. Wright as an executive officer to serve as the
principal financial officer of the Company following the restructuring of the Company.
Accordingly, the following applies only to our Chief Executive Officer, Dr. Lawrence K. Cohen, our
Vice President, Controller (Principal Financial Officer) beginning in 2010, Ms. Karen S. Wright,
and our Senior Vice President, Research & Development, Dr. Rebecca A. Taub (collectively, our
“NEOs”).
Base Salary
Upon consummation of the Merger, the Compensation Committee increased Dr. Cohen’s annual base
salary to $385,000 from $325,000. Ms. Wright’s annual salary is $244,400 and was pro-rated based
on her start date as an executive officer of April 30, 2010. Dr. Taub’s annual base salary is
$300,000 and was pro-rated based on her start date of January 14, 2008.
Bonuses
For 2009 and 2010, we have not yet paid our NEOs any bonuses. The Compensation Committee
elected to defer any decision on bonuses based on our 2009 and 2010 performance until the Company
is able to secure additional financing.
Equity Compensation
The NEOs (other than Dr. Taub) received stock option grants at the time they were hired by
privately-held VIA Pharmaceuticals, Inc. Such options generally vest over time, with 25% of the
options vesting after one year of employment and monthly vesting thereafter with full vesting after
four years. Dr. Taub received stock option grants with a similar vesting schedule at the time she
was hired by VIA Pharmaceuticals, Inc.
In December 2008, the Compensation Committee granted our NEOs restricted stock awards in the
amount set forth on the table below entitled “Outstanding Equity Awards at 2010 Fiscal Year End”.
The restricted stock vests equally each month over a two year schedule, subject to earlier vesting
in full if in the discretion of the Compensation Committee the Company has entered into a
partnering transaction with a pharmaceutical or biotechnology company with respect to conducting
follow-on clinical trials which are reasonably expected to result in further progress of VIA-2291
toward ultimate registration with the FDA. The Company also agreed to provide the recipients of
the restricted stock awards a tax “gross-up” payment with respect to their applicable income tax
expenses incurred upon making an election under Section 83(b) of the Internal Revenue Code in
connection with the grant of restricted stock.
All stock options and restricted stock issued to Dr. Cohen and Dr. Taub, respectively, vest
and become exercisable upon a change in control.
Severance
Pursuant to the terms of their employment agreements, our NEOs may be entitled to severance in
the event that their employment is terminated without cause (or in the case of Dr. Cohen
constructively). Such severance is subject to execution of a general release of claims and
compliance with a non-compete. The amount of severance is 12 months base salary for Dr. Cohen,
three months base salary for Ms. Wright, and six months base salary for Dr. Taub. In addition, we
will pay the premiums for them and their dependents for COBRA continuation coverage under our group
health plan for the period of severance or, if sooner, the date they are eligible for coverage
under another employer’s group health plan.
Change in Control Agreements
On December 21, 2007, the Company entered into a Change in Control Agreement with Dr. Cohen as
a means of providing him certain protections in the event his employment were to be terminated
following a change in control. On January 14, 2008, the Company entered into a Change in Control
Agreement with Dr. Taub. The Compensation Committee considers the Change in Control Agreements to
be a retention device, as it removes any uncertainty regarding the executive’s position in the
event we were to explore further strategic transactions.
60
Under the terms of the agreements, if the executive is terminated without cause or
constructively within 12 months following a change in control, he or she would be eligible for the
following benefits:
|
|
•
|
|
base salary payable over 24 months for Dr. Cohen and 12 months for Dr. Taub;
|
|
|
•
|
|
continued health benefits for the severance period;
|
|
|
•
|
|
pro rata bonus for the year of termination; and
|
|
|
•
|
|
full vesting in all equity compensation.
|
In addition, if the executive is subject to the excise tax applicable under Section 4999 of
the Internal Revenue Code regarding excess parachute payments then:
|
|
•
|
|
if the change in control is a result of a hostile transaction or a change in directors in
contested election, the executive will be entitled to a tax-gross up to cover such excise
tax, as well as any additional income taxes on the tax-gross up; or
|
|
|
•
|
|
if the change in control is not hostile or due to a contested election, then the executive
will either be subject to the excise tax, or will forfeit payments in an amount that would
not subject him to the tax, whichever provides him the greater payment.
|
Outstanding Equity Awards at 2010 Fiscal Year End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
Stock Awards
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Market Value
|
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
|
|
Units of
|
|
|
of Shares or
|
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Stock that
|
|
|
Units of Stock
|
|
|
|
|
Options
|
|
|
Options
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
that Have Not
|
|
|
Name
|
|
(Exercisable)
|
|
|
(Unexercisable)
|
|
|
Price
|
|
|
Date
|
|
|
Vested
|
|
|
Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence K. Cohen
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0
|
(1)
|
|
|
0
|
|
|
|
|
|
450,000
|
(2)
|
|
|
150,000
|
|
|
$
|
2.38
|
|
|
|
12/17/2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
154,166
|
(3)
|
|
|
30,834
|
|
|
$
|
3.48
|
|
|
|
8/2/2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
0
|
(4)
|
|
|
0
|
|
|
$
|
0.14
|
|
|
|
9/8/2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
111,516
|
(5)
|
|
|
0
|
|
|
$
|
0.03
|
|
|
|
6/29/2015
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Karen S. Wright
|
|
|
30,000
|
(2)
|
|
|
10,000
|
|
|
$
|
2.38
|
|
|
|
12/17/2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
7,750
|
(3)
|
|
|
1,550
|
|
|
$
|
3.48
|
|
|
|
8/2/2017
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
6,691
|
(6)
|
|
|
0
|
|
|
$
|
0.14
|
|
|
|
9/8/2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
0
|
(7)
|
|
|
0
|
|
|
$
|
0.14
|
|
|
|
11/29/2016
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0
|
(9)
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rebecca A. Taub
|
|
|
171,354
|
(8)
|
|
|
63,646
|
|
|
$
|
2.90
|
|
|
|
1/15/2018
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
0
|
(10)
|
|
$
|
0
|
|
Footnotes to Outstanding Equity Awards at 2010 Fiscal Year End Table
|
|
|
|
|
(1)
|
|
Awarded 300,000 shares of restricted stock on December 17, 2008, of which 1/24th of the restricted stock vested on
the 17th day of each month starting after December 17, 2008, subject to earlier vesting in full in limited
circumstances specified in the award agreement. As of December 31, 2010, all of the shares of restricted stock
were vested.
|
|
|
|
(2)
|
|
1/48th of the shares vest on the 17th day of each month starting after December 17, 2007.
|
|
|
|
(3)
|
|
1/48th of the shares vest on the 2nd day of each month starting after August 2, 2007.
|
|
|
|
(4)
|
|
54,875 shares of the Company were acquired upon early exercise of vested options by Dr. Cohen and are subject to
repurchase by the Company upon termination of employment. 25% of the shares vested on March 31, 2007 and 1/48th of
the shares vest on the 31st day of each month thereafter, subject to Dr. Cohen continuing to be a service provider
through each such date. As of December 31, 2010, all shares were vested.
|
|
|
|
(5)
|
|
In connection with the Merger, Dr. Cohen had stock options to purchase 300,000 shares of privately-held VIA
Pharmaceuticals, Inc. which became stock options to purchase 111,516 shares of the Company in which 25% of the
shares vested on June 29, 2005 and 1/48th of the shares vest on the 29th day of each month thereafter, subject to
Dr. Cohen continuing to be a service provider through each such date.
|
61
|
|
|
|
|
(6)
|
|
25% of the shares vested on September 8, 2006 (date of grant) and 1/18th of the shares vest on the 8th day of each
month starting after September 8, 2006.
|
|
|
|
(7)
|
|
31,596 shares of the Company were acquired upon early exercise of vested options by Ms. Wright and are subject to
repurchase by the Company upon termination of employment. 17,000 shares vested on November 29, 2007 and 1/48th of
the remaining shares vest on the last day of each month thereafter, subject to Ms. Wright continuing to be a
service provider through each such date. As of December 31, 2010, 25,803 shares were vested.
|
|
|
|
(8)
|
|
25% of the shares vested on January 14, 2009 and 1/48th of the shares vest on the 14th day of each month thereafter.
|
|
|
|
(9)
|
|
Awarded 30,000 shares of restricted stock on December 17, 2008, of which 1/24th of the restricted stock vested on
the 17th day of each month starting after December 17, 2008, subject to earlier vesting in full in limited
circumstances specified in the award agreement. As of December 31, 2010, all of the shares of restricted stock
were vested.
|
|
|
|
(10)
|
|
Awarded 125,000 shares of restricted stock on December 17, 2008, of which 1/24th of the restricted stock vested on
the 17th day of each month starting after December 17, 2008, subject to earlier vesting in full in limited
circumstances specified in the award agreement. As of December 31, 2010, all of the shares of restricted stock
were vested. See footnote (8) to the section entitled “Security Ownership of Certain Beneficial Owners and
Management” below for vesting information within 60 days of March 1, 2011.
|
Compensation of Directors
The following table summarizes the total compensation earned in 2010 for the Company’s
non-management directors. Dr. Cohen receives no additional compensation for his service as a
director.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
Name
|
|
Paid in Cash
|
|
|
Option Awards(1)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark N.K. Bagnall
|
|
$
|
38,000
|
|
|
$
|
0
|
|
|
$
|
38,000
|
|
|
Fred B. Craves
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Douglass B. Given
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
David T. Howard
|
|
$
|
38,500
|
|
|
$
|
0
|
|
|
$
|
38,500
|
|
|
John R. Larson
|
|
$
|
25,000
|
|
|
$
|
0
|
|
|
$
|
25,000
|
|
Footnote to Compensation of Directors Table
|
|
|
|
|
(1)
|
|
The aggregate number of options held by each director as of December
31, 2010 was as follows: Mr. Bagnall — 35,575; Dr. Craves — 0; Dr.
Given — 0; Mr. Howard — 35,575 and Mr. Larson — 50,952. All of
these options had vested as of such date. No shares of restricted
stock are held by any director.
|
Narrative to Director Compensation Table
Each independent director is entitled to receive the following annual compensation:
|
|
•
|
|
a $20,000 annual cash retainer;
|
|
|
•
|
|
an initial equity grant of 5,575 options to purchase shares of Common Stock, which options
are fully vested on the date of grant and exercisable for ten years from the date of grant;
|
|
|
•
|
|
$10,000 for serving as a committee chair;
|
|
|
•
|
|
$1,000 for each Board meeting attended in person and $500 for each Board meeting attended
telephonically; and
|
|
|
•
|
|
$500 for each committee meeting attended, whether in person or telephonically.
|
Non-independent directors, Drs. Cohen, Craves and Given do not receive any compensation in
connection with their director service.
62
|
|
|
|
|
ITEM 12.
|
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The following table sets forth information regarding the beneficial ownership of shares of our
Common stock as of March 1, 2011 for:
|
|
•
|
|
each person known to us to be the beneficial owner of more than 5% of our outstanding shares of Common Stock;
|
|
|
•
|
|
each of our named executive officers;
|
|
|
•
|
|
each of our directors; and
|
|
|
•
|
|
all directors and named executive officers as a group.
|
Information with respect to beneficial ownership has been furnished by each director,
executive officer or beneficial owner of more than 5% of our Common Stock. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes voting and investment
power with respect to the securities. Except as otherwise provided by footnote, and subject to
applicable community property laws, the persons named in the table have sole voting and investment
power with respect to all shares of Common Stock shown as beneficially owned by them. The number of
shares of Common Stock used to calculate the percentage ownership of each listed person includes
the shares of Common Stock underlying options or warrants held by such persons that are currently
exercisable or exercisable within 60 days of March 1, 2011, but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person.
Percentage of beneficial ownership is based on 20,558,446 shares of Common Stock outstanding
as of March 1, 2011.
Unless otherwise indicated, the address of each individual listed below is c/o VIA
Pharmaceuticals, Inc., 750 Battery Street, Suite 330, San Francisco, California 94111.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
Beneficially
|
|
|
Name of Beneficial Owner
|
|
Number of Shares
|
|
|
Owned
|
|
|
5% Stockholders:
|
|
|
|
|
|
|
|
|
|
Bay City Capital LLC
|
|
|
153,288,359
|
(1)
|
|
|
93.59
|
%
|
|
Lawrence K. Cohen, Ph.D.
|
|
|
1,200,758
|
(3)
|
|
|
5.63
|
%
|
|
Directors and Named Executive Officers:
|
|
|
|
|
|
|
|
|
|
Mark N.K. Bagnall
|
|
|
35,575
|
(2)
|
|
|
*
|
|
|
Lawrence K. Cohen, Ph.D.
|
|
|
1,200,758
|
(3)
|
|
|
5.63
|
%
|
|
Fred B. Craves, Ph.D.
|
|
|
—
|
|
|
|
—
|
|
|
Douglass B. Given, M.D., Ph.D., M.B.A.
|
|
|
122,867
|
(4)
|
|
|
*
|
|
|
David T. Howard
|
|
|
35,575
|
(5)
|
|
|
*
|
|
|
John R. Larson
|
|
|
55,345
|
(6)
|
|
|
*
|
|
|
Karen S. Wright
|
|
|
112,375
|
(7)
|
|
|
*
|
|
|
Rebecca A. Taub, M.D.
|
|
|
348,437
|
(8)
|
|
|
1.68
|
%
|
|
All directors and named executive officers as a group (8 persons)
|
|
|
1,910,932
|
(9)
|
|
|
8.81
|
%
|
63
|
|
|
|
|
(1)
|
|
The information included in the beneficial ownership table is based on a Schedule 13D/A filed by Bay City Capital LLC on
November 17, 2010. Bay City Capital LLC (“BCC”) is the manager of Bay City Capital Management IV LLC (“Management IV”).
Management IV is the general partner of Bay City Capital Fund IV, L.P. (“Fund IV”) and Bay City Capital Fund IV Co-Investment
Fund, L.P. (“Co-Investment Fund”), which own of record 9,842,297 and 212,149 shares of Common Stock, respectively. In
connection with the 2009 loan transaction entered into between the Company and Fund IV and Co-Investment Fund, as described
under “Related Party Transactions — Bay City Capital Relationship,” the Company issued to Fund IV and Co-Investment Fund
warrants (the “2009 Warrants”) to purchase up to an aggregate of 81,575,000 and 1,758,333 shares of the Company’s Common Stock,
respectively (collectively, the “2009 Warrant Shares”), at an exercise price of $0.12 per share. Based on the $10,000,000 in
borrowings by the Company, the aggregate number of Warrant Shares that have vested and become exercisable by Fund IV and
Co-Investment Fund are 83,333,333 shares. In connection with the 2010 loan transaction entered into between the Company and
Fund IV and Co-Investment Fund, as described under “Related Party Transactions — Bay City Capital Relationship,” the Company
issued to Fund IV and Co-Investment Fund warrants (the “2010 Warrants”) to purchase up to an aggregate of 17,274,706 and 372,353
shares of the Company’s Common Stock, respectively (collectively, the “2010 Warrant Shares”), at an exercise price of $0.17 per
share. Based on the $3,000,000 in borrowings by the Company, the aggregate number of Warrant Shares that have vested and become
exercisable by Fund IV and Co-Investment Fund are 17,647,059 shares. In connection with the 2010 loan amendment entered into
between the Company and Fund IV and Co-Investment Fund, as described under “Related Party Transactions — Bay City Capital
Relationship,” the Company issued to Fund IV and Co-Investment Fund warrants (the “2010 Additional Warrants”) to purchase up to
an aggregate of 41,361,972 and 891,549 shares of the Company’s Common Stock, respectively (collectively, the “2010 Additional
Warrant Shares”), at an exercise price of $0.071 per share. The number of 2010 Additional Warrant Shares is equal to the
$3,000,000 maximum aggregate principal amount that may be borrowed under the 2010 loan amendment, divided by the $0.071 per
share exercise price of the 2010 Additional Warrants. The 2010 Additional Warrant Shares vest based on the amount of borrowings
under the amended and restated promissory notes issued under the 2010 Loan Amendment. Based on the $1,001,397 of borrowings,
14,104,183 2010 Additional Warrant Shares are vested and are exercisable as of December 31, 2010. At each subsequent closing,
the 2010 Additional Warrants will vest with respect to the additional amount borrowed by the Company. The 2010 Additional
Warrant Shares, to the extent they are vested and exercisable, are exercisable at any time until November 15, 2015. BCC has
sole voting and investment power over the shares held of record by Fund IV and Co-Investment Fund. BCC is managed by a board of
managers currently comprised of four managers, none of whom, acting individually, has voting control or investment discretion
with respect to the securities owned. Fred B. Craves, a member of the Company’s Board of Directors, is the founder, chairman of
and a manager of BCC. Dr. Craves also owns approximately 22% of the membership interests in BCC. Douglass Given, the chairman of
the Company’s Board, is a partner of BCC. Each of Drs. Craves and Given disclaims beneficial ownership of the shares held by
Fund IV and Co-Investment Fund, except to the extent of their respective proportionate pecuniary interests therein. The address
of BCC is 750 Battery Street, Suite 400, San Francisco, CA 94111.
|
|
|
|
(2)
|
|
Represents options to purchase 35,575 shares of Common Stock which are exercisable within 60 days of March 1, 2011.
|
|
|
|
(3)
|
|
Dr. Cohen was appointed President and Chief Executive Officer of the Company on June 5, 2007 following the consummation of the
Merger. The information included in the beneficial ownership table is based in part on a Schedule 13G filed by Dr. Cohen on
February 11, 2011. The share number includes options to purchase 781,098 shares of Common Stock which are exercisable within 60
days of March 1, 2011.
|
|
|
|
(4)
|
|
Represents 122,867 shares of Common Stock held of record by the Douglass and Kim Given Revocable Trust, for which Douglass Given
serves as trustee.
|
|
|
|
(5)
|
|
Represents options to purchase 35,575 shares of Common Stock which are exercisable within 60 days of March 1, 2011.
|
|
|
|
(6)
|
|
Includes (i) 2,342 shares owned of record by Clique Capital, LLC, for which Mr. Larson serves as Managing Director and (ii)
options to purchase 50,952 shares of Common Stock which are exercisable within 60 days of March 1, 2011.
|
|
|
|
(7)
|
|
Ms. Wright was appointed Vice President, Controller (Principal Financial Officer) of the Company on April 30, 2010 following the
restructuring. The share number includes options to purchase 48,549 shares of Common Stock which are exercisable within 60 days
of March 1, 2011.
|
|
|
|
(8)
|
|
Dr. Taub was hired and appointed Senior Vice President, Research & Development on January 14, 2008. The share number includes
options to purchase 190,937 shares of Common Stock which are exercisable within 60 days of March 1, 2011.
|
|
|
|
(9)
|
|
Includes options to purchase 1,142,686 shares of Common Stock which are exercisable within 60 days of March 1, 2011.
|
64
|
|
|
|
|
ITEM 13.
|
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
Review and Approval of Related Party Transactions
Pursuant to a written policy adopted on June 5, 2007 following the completion of the Merger,
the Company reviews all transactions, arrangements or relationships (or any series of similar
transactions, arrangements or relationships) in excess of $50,000 in which the Company (including
any of its subsidiaries) was, is or will be a participant and the amount involved exceeds $50,000,
and in which any Related Party had, has or will have a direct or indirect interest (each, a
“Related Party Transaction”). For purposes of the policy, a “Related Party” means:
|
|
1.
|
|
any person who is, or at any time since the beginning of the Company’s last fiscal year
was, a director or executive officer of the Company or a nominee to become a director of the
Company;
|
|
|
2.
|
|
any person who is known to be the beneficial owner of more than 5% of any class of the
Company’s voting securities;
|
|
|
3.
|
|
any immediate family member of any of the foregoing persons; and
|
|
|
4.
|
|
any firm, corporation or other entity in which any of the foregoing persons is employed
or is a general partner or principal or in a similar position or in which such person has a
5% or greater beneficial ownership interest.
|
The Audit Committee reviews the relevant facts and circumstances of each Related Party
Transaction, including if the transaction is on terms comparable to those that could be obtained in
arm’s length dealings with an unrelated third party and the extent of the Related Party’s interest
in the transaction, takes into account the conflicts of interest and corporate opportunity
provisions of the Company’s Code of Business Conduct and Ethics, and either approves or disapproves
the Related Party Transaction.
Management presents to the Audit Committee each proposed Related Party Transaction, including
all relevant facts and circumstances relating thereto and updates the Audit Committee as to any
material changes to any approved or ratified Related Party Transaction and provides a status report
at least annually at a regularly scheduled meeting of the Audit Committee of all then current
Related Party Transactions. No director may participate in approval of a Related Party Transaction
for which he or she is a Related Party.
Related Party Transactions
Baxter Healthcare Relationship
Baxter Healthcare owns all 2,000 shares of our outstanding Series C Preferred Stock. Each
share of Series C Preferred Stock became convertible into common stock on June 13, 2010. The Series
C Preferred Stock is convertible into common stock in an amount equal to (a) the quotient of (i)
the liquidation preference (adjusted for recapitalizations), divided by (ii) one hundred and ten
percent (110%) of the per share “fair market value” (as defined in the Amended and Restated
Certificate of Designation of Preferences and Rights of Series C Preferred Stock of the Company) of
the Company’s common stock multiplied by (b) the number of shares of converted Series C Preferred
Stock. As of December 31, 2010, the Series C Preferred Stock is convertible into 13,986,013 shares
of the Company’s Common Stock. As of December 31, 2010, Baxter Healthcare has not initiated the
conversion of the Series C Preferred Stock into the Company’s common stock.
Bay City Capital Relationship
From the date of the founding of privately-held VIA Pharmaceuticals, Inc. in June 2004 through
February 7, 2007, privately-held VIA Pharmaceuticals, Inc. entered into a number of financing
transactions with its principal stockholder, Bay City Capital. On February 7, 2007, privately-held
VIA Pharmaceuticals, Inc. received $5,000,000 in additional borrowings pursuant to the terms of a
promissory note with Bay City Capital. Immediately following the receipt of such borrowings,
privately-held VIA Pharmaceuticals, Inc. fully extinguished all of its outstanding debt obligations
to Bay City Capital after converting the previously issued notes and $334,222 of unpaid accrued
interest to $13,334,222 of Series A Preferred Stock of privately-held VIA Pharmaceuticals, Inc. All
of the Series A Preferred Stock of privately-held VIA Pharmaceuticals, Inc. owned by Bay City
Capital was converted into common stock of the Company in connection with the consummation of the
Merger on June 5, 2007.
On March 12, 2009, the Company entered into a note and warrant purchase agreement (the “2009
Loan Agreement”) with Bay City Capital (through its Bay City Capital Fund IV, L.P. and affiliate
Bay City Capital Fund IV Co-Investment Fund, L.P.) pursuant to which Bay City Capital agreed to
lend to the Company in the aggregate up $10,000,000, pursuant to the terms of promissory notes
(collectively, the “2009 Notes”) issued under the 2009 Loan Agreement (the “2009 Loan
Transaction”). On March 12, 2009, the Company borrowed an initial amount of $2,000,000 and as of
September 11, 2009, the Company had drawn down the remaining $8,000,000 from the debt facility.
The 2009 Notes are secured by a first priority lien on all of the assets of the Company. Amounts
borrowed under the Notes accrue interest at the rate of 15% per annum, which increases to 18% per
annum following an event of default. Unless earlier paid in accordance with the terms of the 2009
Notes, all unpaid principal and accrued interest shall become fully due and payable on the earliest
to occur of (i) April 1, 2010, (ii) the closing of a debt, equity or combined debt/equity financing
resulting in gross proceeds or available credit to the Company of not less than $20,000,000, and
(iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise
disposes of a majority of its assets or is acquired by way of a merger,
65
consolidation,
reorganization or other transaction or series of transactions pursuant to which stockholders of the
Company prior to such acquisition own less than fifty percent of the voting interests in the
surviving or resulting entity. The Company was not able to repay the loan on April 1, 2010 and is
currently in default under the 2009 Loan Agreement. Pursuant to the 2009 Loan Agreement,
the Company issued to Bay City Capital warrants (the “2009 Warrants”) to purchase up to an
aggregate of 83,333,333 shares (the “2009 Warrant Shares”) of Common Stock of the Company, at $0.12
per share. The number of 2009 Warrant Shares is equal to the $10,000,000 aggregate principal
amount borrowed under the 2009 Loan Agreement, divided by the $0.12 per share exercise price of the
Warrants. As set forth in the 2009 Warrants, the 2009 Warrant Shares vest based on the amount of
borrowings under the Notes and the passage of time. Based on the aggregate $10,000,000 of
borrowings, 83,333,333 2009 Warrant Shares are vested and are exercisable at any time until 5:00
p.m. (Pacific Time) on March 12, 2014. In connection with the 2009 Loan Transaction and 2009
Warrants, the Company also entered into a Second Amended and Restated Registration Rights Agreement
(the “2009 Registration Rights Agreement”) with Bay City Capital and certain stockholders of the
Company, pursuant to which the Company has granted certain demand, shelf and “piggyback”
registration rights to Bay City Capital and the certain stockholders of the Company to register
their shares of Common Stock (including the 2009 Warrant Shares) with the SEC so that such shares
become freely tradeable without restriction under the Securities Act of 1933, as amended.
On March 26, 2010, the Company entered into a note and warrant purchase agreement (the “2010
Loan Agreement”) with Bay City Capital (through its Bay City Capital Fund IV, L.P. and affiliate
Bay City Capital Fund IV Co-Investment Fund, L.P.) pursuant to which Bay City Capital agreed to
lend to the Company in the aggregate up to $3,000,000, pursuant to the terms of promissory notes
issued under the 2010 Loan Agreement (the “2010 Loan Transaction”). On March 29, 2010, the Company
borrowed an initial amount of $1,250,000 and as of September 28, 2010, the Company had drawn down
the remaining $1,750,000 from the debt facility. The 2010 Loan Agreement notes are secured by a
lien on all of the assets of the Company. Amounts borrowed under the 2010 Loan Agreement notes
accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event
of default. Unless earlier paid in accordance with the terms of the original 2010 Loan Agreement,
all unpaid principal and accrued interest shall become fully due and payable on the earlier to
occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined debt/equity
financing resulting in gross proceeds or available credit to the Company of not less than
$20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys, licenses
or otherwise disposes of a majority of its assets or is acquired by way of a merger, consolidation,
reorganization or other transaction or series of transactions pursuant to which stockholders of the
Company prior to such acquisition own less than 50% of the voting interests in the surviving or
resulting entity. Pursuant to the 2010 Loan Agreement, the Company issued to the Lenders warrants
(the “2010 Warrants”) to purchase an aggregate of 17,647,059 shares (the “2010 Warrant Shares”) of
common stock at $0.17 per share. The number of 2010 Warrant Shares is equal to the $3,000,000
maximum aggregate principal amount that may be borrowed under the 2010 Loan Agreement, divided by
the $0.17 per share exercise price of the 2010 Warrants. The 2010 Warrant Shares vest based on the
amount of borrowings under the 2010 Loan Agreement notes. Based on the aggregate $3,000,000 of
borrowings, 17,647,059 2010 Warrant Shares are vested and are exercisable at any time until 5:00
p.m. (Pacific Time) on March 26, 2015. In connection with the 2010 Loan Transaction and 2010
Warrants, the Company also amended the Registration Rights Agreement, pursuant to which the Company
has granted certain demand, shelf and “piggyback” registration rights to Bay City Capital and the
certain stockholders of the Company to register their shares of Common Stock (including the 2010
Warrant Shares) with the SEC so that such shares become freely tradeable without restriction under
the Securities Act of 1933, as amended. On January 14, 2011, the Company entered into an amendment
to the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan
Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011
and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
On October 29, 2010, the Company executed a secured promissory note (the “Bridge Note”) in
favor of Bay City Capital Fund IV, L.P., a Delaware limited partnership in the principal sum of
$200,000 for general corporate purposes. By the terms of the Bridge Note, upon execution of the
2010 Loan Amendment (as defined below) the unpaid principal amount and accrued and unpaid interest
under the Bridge Note automatically converted into obligations of the Company under the 2010 Loan
Amendment as advances under the amended and restated promissory notes issued under the 2010 Loan
Amendment The Company accrued $1,397 in unpaid interest for the period October 29, 2010 to
November 15, 2010, which is included in the Company’s statement of operations.
66
On November 15, 2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010
Loan Amendment”) to enable the Company to borrow up to an additional aggregate principal amount of
$3,000,000, pursuant to the terms of amended and restated promissory notes issued under the 2010
Loan Amendment. Subject to the Lenders’ approval, as of December 31, 2010, the Company may borrow
in the aggregate up to an additional $1,998,603 at subsequent closings pursuant to the terms of the
2010 Loan Amendment. On November 15, 2010, the $201,397 outstanding principal and unpaid interest
on the Bridge Note were automatically converted into obligations of the Company under the 2010 Loan
Amendment as advances. During the three months ended December 31, 2010, the Company borrowed an
additional $800,000 on November 22, 2010. The 2010 Loan Amendment notes are secured by a lien on
all of the assets of the Company. Amounts borrowed under the original 2010 Loan Amendment notes
accrue interest at the rate of fifteen percent (15%) per annum, which increases to eighteen percent
(18%) per annum following an event of default. Unless earlier paid in accordance with the terms of
the original 2010 Loan Amendment, all unpaid principal and accrued interest shall become fully due
and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or
combined debt/equity financing
resulting in gross proceeds or available credit to the Company of not less than $20,000,000,
and (iii) the closing of a transaction in which the Company sells, conveys, licenses or otherwise
disposes of a majority of its assets or is acquired by way of a merger, consolidation,
reorganization or other transaction or series of transactions pursuant to which stockholders of the
Company prior to such acquisition own less than 50% of the voting interests in the surviving or
resulting entity. Pursuant to the 2010 Loan Amendment, the Company issued to the Lenders
additional warrants (the “2010 Additional Warrants”) to purchase an aggregate of 42,253,521 shares
(the “2010 Additional Warrant Shares”) of common stock at $0.071 per share. The number of 2010
Additional Warrant Shares is equal to the $3,000,000 maximum aggregate principal amount that may be
borrowed under the 2010 Loan Amendment, divided by the $0.071 per share exercise price of the 2010
Additional Warrants. The 2010 Additional Warrant Shares vest based on the amount of borrowings
under the 2010 Loan Amendment notes. Based on the $1,001,397 of borrowings, 14,104,183 2010
Additional Warrant Shares are vested and are exercisable as of December 31, 2010. At each
subsequent closing, the 2010 Additional Warrants will vest with respect to the additional amount
borrowed by the Company. The 2010 Additional Warrant Shares, to the extent they are vested and
exercisable, are exercisable at any time until November 15, 2015. In connection with the 2010 Loan
Amendment and 2010 Additional Warrants, the Company also amended the Registration Rights Agreement,
pursuant to which the Company has granted certain demand, shelf and “piggyback” registration rights
to Bay City Capital and certain stockholders of the Company to register their shares of Common
Stock (including the 2010 Additional Warrant Shares) with the SEC so that such shares become freely
tradeable without restriction under the Securities Act of 1933, as amended. On January 14, 2011,
the Company entered into an amendment to the 2010 Loan Agreement and 2010 Loan Amendment to extend
the maturity date under the 2010 Loan Agreement and 2010 Loan Amendment from December 31, 2010 to
June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
Fred B. Craves, a member of the Company’s Board of Directors, is the founder, chairman, and a
manager of Bay City Capital. Douglass B. Given, the chairman of the Company’s Board of Directors
is an investment partner of Bay City Capital.
Director Independence
Although the Company’s common stock is no longer listed on NASDAQ, our Corporate Governance
Principles require that at least fifty percent (50%) of the Board of Directors be comprised of
directors who qualify as independent directors under the listing standards of The NASDAQ Stock
Market. The NASDAQ independence criteria include various objective standards and a subjective test.
A member of the Board is not considered independent under the objective standards if, for example,
he or she is employed by the Company or if the Company paid his or her family member more than
$120,000 during any period of twelve consecutive months within the past three years. For example,
Dr. Cohen is not independent because he is employed by the Company. The subjective test requires
that each independent director not have a relationship which, in the opinion of the Board, would
interfere with the exercise of independent judgment in carrying out the responsibilities of a
director, and the subjective test is made in the context of the objective standards. In making its
independence determinations, the Board generally considers commercial, financial services,
charitable, and other transactions and other relationships between the Company and each director
and his or her family members and affiliated entities. For example, with regard to the independence
determination for Mr. Bagnall, the Board considered his position with a portfolio company of Bay
City Capital, a significant stockholder of the Company, and concluded he is not an affiliated
person under applicable SEC and NASDAQ rules. Based on its review, the Board has determined that
each of the Company’s directors, except for Drs. Cohen, Craves and Given, are independent as
defined by the applicable NASDAQ Stock Market listing standards and under applicable law. As of
January 4, 2010, the Company’s common stock is no longer listed on The NASDAQ Stock Market and the
Company is no longer subject to the NASDAQ listing standards, including NASDAQ listing rule 5605
which requires, among other things, that the Company’s board of directors be comprised of at least
a majority of independent directors and that the Company’s audit committee be comprised of at least
three independent directors.
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|
|
|
|
ITEM 14.
|
|
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
Deloitte & Touche LLP (“Deloitte”) has been the Company’s independent registered public
accounting firm since the completion of the Merger in June 2007 and had previously served as
privately-held VIA Pharmaceuticals, Inc.’s independent registered public accounting firm since the
date of privately-held VIA Pharmaceuticals, Inc.’s formation in 2004. The appointment of Deloitte
as the Company’s independent registered public accounting firm was approved by the Audit Committee
on June 5, 2007. Deloitte completed its client approval procedures and accepted the appointment as
the Company’s independent registered public accounting firm as of June 19, 2007.
67
The accountant’s report issued by Deloitte on the financial statements of the Company for the
fiscal year ended December 31, 2009 expressed an unqualified opinion and included an explanatory
paragraph describing conditions that raise substantial doubt about the Company’s ability to
continue as a going concern. The accountant’s report issued by Deloitte on the financial statements
of the Company for the fiscal year ended December 31, 2010 expressed an unqualified opinion and
included an explanatory paragraph
describing conditions that raise substantial doubt about the Company’s ability to continue as
a going concern. From January 1, 2009 through December 31, 2010, there were no disagreements with
Deloitte on any matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure. There were no reportable events, as described in Item 304(a)(1)(v) of
Regulation S-K, during the Company’s two most recent fiscal years (ended December 31, 2010 and
2009).
Audit and Non Audit Fees
Aggregate fees for professional services rendered by Deloitte for the fiscal years ended
December 31, 2010 and 2009 are set forth below. The aggregate fees included in the Audit Fee
category are fees billed for each of these fiscal years for the audit of our annual financial
statements and review of financial statements included in the Company’s Quarterly Reports on Form
10-Q and for services provided in connection with statutory and regulatory filings or engagements.
The aggregate fees included in each of the other categories are fees billed in the fiscal years.
Aggregate fees incurred by Deloitte for professional services rendered to the Company from
January 1, 2009 through December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
Fiscal Year
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Audit Fees
|
|
$
|
246,300
|
|
|
$
|
207,700
|
|
|
Audit-Related Fees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Tax Fees
|
|
$
|
41,690
|
|
|
$
|
—
|
|
|
All Other Fees
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
287,990
|
|
|
$
|
207,700
|
|
|
|
|
|
|
|
|
|
Audit Fees
for the fiscal years ended December 31, 2010 and 2009 were for professional
services rendered for the audits of the annual financial statements of the Company included in the
Company’s Form 10-K and quarterly review of the financial statements included in the Company’s
Quarterly Reports on Form 10-Q.
Audit Fees
for the fiscal year ended December 31, 2009 also
included services provided by Deloitte related to the filing of a Form S-8 in March 2009.
Tax Fees
for the fiscal year ended December 31, 2010 consisted of professional services
provided by Deloitte related to the Company’s “Qualifying Therapeutic Discovery Project” tax credit
application. There were no fees for services rendered by Deloitte that fall into the
classification of
Tax Fees
for the fiscal year ended December 31, 2009.
There were no fees for services rendered by Deloitte that fall into the classification of
Audit-Related Fees
for the fiscal years ended December 31, 2010 or 2009.
There were no
fees for services rendered by Deloitte that fall into the classification of
All
Other Fees
for the fiscal years ended December 31, 2010 or 2009.
Policy on Audit Committee Preapproval of Audit and Permissible Nonaudit Services of the Independent
Registered Public Accounting Firm
As specified in the Audit Committee charter, the Audit Committee pre-approves all audit and
nonaudit services provided by the independent registered public accounting firm prior to the
receipt of such services. Thus, the Audit Committee approved 100% of the services set forth in the
above table prior to the receipt of such services and no services were provided under the permitted
de minimus
threshold provisions.
The Audit Committee of the Board of Directors determined that the provision of such services
was compatible with the maintenance of the independence of Deloitte.
68
PART IV
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|
|
ITEM 15.
|
|
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
1.
Financial Statements and Financial Statement Schedules
The Company’s Financial Statements included in Item 8 include:
2.
Financial Statement Schedules
All other schedules not listed above have been omitted, because they are not applicable or not
required, or because the required information is included in the financial statements or notes
thereto.
3.
Exhibits required to be filed by Item 601 of Regulation S-K
|
|
|
|
|
|
|
Exhibit
|
|
|
|
|
Number
|
|
Description
|
|
|
2.1
|
|
|
Agreement and Plan of Merger and Reorganization, dated February 7, 2007, as amended, by and among
Corautus Genetics Inc., Resurgens Merger Corp., and VIA Pharmaceuticals, Inc. (filed as Exhibit 2.1 to
the Form 8-K filed on February 8, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.1
|
|
|
Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Form 10-K filed on March 22, 2005
and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.2
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.1 to the
Form 10-KSB filed on March 30, 2000 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.3
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.3 to the
Form 10-K filed on March 28, 2003 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.4
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.4 to the
Form 10-K filed on March 28, 2003 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.5
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (filed as Exhibit 3.5 to the
Form 10-K filed on March 28, 2003 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.6
|
|
|
Amended and Restated Certificate of Designation of Preferences and Rights of Series C Preferred Stock
(filed as Annex H to the Form S-4/A filed on December 19, 2002 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.7
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (Increase in Authorized Shares)
(filed as Exhibit 3.7 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.8
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (Reverse Stock Split) (filed as
Exhibit 3.8 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.9
|
|
|
Certificate of Amendment to the Restated Certificate of Incorporation (Name Change) (filed as Exhibit
3.9 to the Form 10-Q filed on August 14, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
3.10
|
|
|
Fourth Amended and Restated Bylaws (filed as Exhibit 3.1 to the Form 8-K filed on April 17, 2008 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.1
|
|
|
Warrant issued to Trout Partners LLC, dated July 31, 2007 (filed as Exhibit 99.1 to the Form 8-K filed
on August 6, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.2
|
|
|
Warrant issued to Redington, Inc., dated March 1, 2008 (filed as Exhibit 4.2 to the Form 10-K filed on
March 28, 2008 and incorporated herein by reference)
|
69
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
Description
|
|
|
4.3
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund,
L.P., dated March 12, 2009 (filed as Exhibit 4.1 to the Form 8-K filed on March 12, 2009 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.4
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV
Co-Investment Fund, L.P., dated March 12, 2009 (filed as Exhibit 4.2 to the Form 8-K filed on March
12, 2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.5
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund,
L.P., dated March 26, 2010 (filed as Exhibit 4.5 to the Form 10-K filed on March 31, 2010 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.6
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV
Co-Investment Fund, L.P., dated March 26, 2010 (filed as Exhibit 4.6 to the Form 10-K filed on March
31, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.7
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV Fund,
L.P., dated November 15, 2010 (filed as Exhibit 4.7 to the Form 10-Q filed on November 15, 2010 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.8
|
|
|
Warrant to Purchase Common Stock of VIA Pharmaceuticals, Inc. issued to Bay City Capital Fund IV
Co-Investment Fund, L.P., dated November 15, 2010 (filed as Exhibit 4.8 to the Form 10-Q filed on
November 15, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.9
|
|
|
Second Amended and Restated Registration Rights Agreement, dated as of March 12, 2009, by and among
VIA Pharmaceuticals, Inc. and the parties named therein (filed as Exhibit 4.3 to the Form 8-K filed on
March 12, 2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.10
|
|
|
Amendment No. 1 to the Second Amended and Restated Registration Rights Agreement, dated as of March
26, 2010, by and among VIA Pharmaceuticals, Inc. and the parties named therein (filed as Exhibit 4.8
to the Form 10-K filed on March 31, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
4.11
|
|
|
Amendment No. 2 to the Second Amended and Restated Registration Rights Agreement, dated as of November
15, 2010, by and among VIA Pharmaceuticals, Inc. and the parties named therein (filed as Exhibit 4.11
to the Form 10-Q filed on November 15, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.1
|
|
|
Note and Warrant Purchase Agreement, dated as of March 12, 2009 by and among VIA Pharmaceuticals,
Inc., Bay City Capital Fund IV, L.P. and Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as
Exhibit 10.1 to the Form 8-K filed on March 12, 2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.2
|
|
|
Note and Warrant Purchase Agreement, dated as of March 26, 2010 by and among VIA Pharmaceuticals,
Inc., Bay City Capital Fund IV, L.P. and Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as
Exhibit 10.2 to the Form 10-K filed on March 31, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.3
|
|
|
Promissory Note, dated as of March 12, 2009, by VIA Pharmaceuticals, Inc. and payable to Bay City
Capital Fund IV, L.P. (filed as Exhibit 10.2 to the Form 8-K filed on March 12, 2009 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.4
|
|
|
Promissory Note, dated as of March 12, 2009, by VIA Pharmaceuticals, Inc. and payable to Bay City
Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.3 to the Form 8-K filed on March 12,
2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.5
|
|
|
First Amendment to Promissory Note, dated as of September 11, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on September 11, 2009 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.6
|
|
|
First Amendment to Promissory Note, dated as of September 11, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.2 to the Form 8-K filed on
September 11, 2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
|
|
10.7
|
|
|
Second Amendment to
Promissory Note, dated as of October 30, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on October 30, 2009 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.8
|
|
|
Second Amendment to
Promissory Note, dated as of October 30, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.2 to the Form 8-K filed on
October 30, 2009 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.9
|
|
|
Third Amendment to
Promissory Note, dated as of December 22, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on December 22, 2009 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.10
|
|
|
Third Amendment to
Promissory Note, dated as of December 22, 2009, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.2 to the Form 8-K filed on
December 22, 2009 and incorporated herein by reference)
|
|
|
70
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
Description
|
|
|
10.11
|
|
|
Promissory Note, dated as of March 26, 2010, by VIA Pharmaceuticals, Inc. and payable to Bay City
Capital Fund IV, L.P. (filed as Exhibit 10.11 to the Form 10-K filed on March 31, 2010 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.12
|
|
|
Promissory Note, dated as of March 26, 2010, by VIA Pharmaceuticals, Inc. and payable to Bay City
Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.12 to the Form 10-K filed on March 31,
2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.13
|
|
|
Promissory Note, dated as of October 29, 2010, by VIA Pharmaceuticals, Inc. and Bay City Capital Fund
IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on November 4, 2010 and incorporated herein by
reference)
|
|
|
|
|
|
|
|
|
10.14
|
|
|
Omnibus Amendment, dated as of November 15, 2010 by and among VIA Pharmaceuticals, Inc., Bay City
Capital Fund IV, L.P., Bay City Capital Fund IV Co-Investment Fund, L.P., and Bay City Capital LLC
(filed as Exhibit 10.2 to the Form 10-Q filed on November 15, 2010 and incorporated herein by
reference)
|
|
|
|
|
|
|
|
|
10.15
|
|
|
Amended and Restated Promissory Note, dated as of November 15, 2010, by VIA Pharmaceuticals, Inc. and
payable to Bay City Capital Fund IV, L.P. (filed as Exhibit 10.3 to the Form 10-Q filed on November
15, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.16
|
|
|
Amended and Restated Promissory Note, dated as of November 15, 2010, by VIA Pharmaceuticals, Inc. and
payable to Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.4 to the Form 10-Q
filed on November 15, 2010 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.17
|
|
|
Amendment to Amended and Restated Promissory Note, dated January 14, 2011, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV, L.P. (filed as Exhibit 10.1 to the Form 8-K filed on January 18, 2011 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.18
|
|
|
Amendment to Amended and Restated Promissory Note, dated January 14, 2011, by VIA Pharmaceuticals, Inc. and
Bay City Capital Fund IV Co-Investment Fund, L.P. (filed as Exhibit 10.2 to the Form 8-K filed on January 18, 2011
and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.19
|
*
|
|
Second Amendment to Amended and Restated Promissory Note, dated March 24, 2011, by VIA Pharmaceuticals, Inc. and Bay City Capital Fund IV, L.P.
|
|
|
|
|
|
|
|
|
10.20
|
*
|
|
Second Amendment to Amended and Restated Promissory Note, dated March 24, 2011, by VIA Pharmaceuticals, Inc. and Bay City Capital Fund IV Co-Investment Fund, L.P.
|
|
|
|
|
|
|
|
|
10.21
|
|
|
Form of Securities Purchase Agreement, dated June 29, 2007, by and among VIA Pharmaceuticals, Inc. and
the Investors named therein (filed as Exhibit 10.1 to the Form 8-K filed on July 3, 2007 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.22
|
|
|
Exclusive License Agreement, effective August 10, 2005, between VIA Pharmaceuticals, Inc. and Abbott
Laboratories (filed as Exhibit 10.4 to the Form 10-Q filed on August 14, 2007 and incorporated herein
by reference)
|
|
|
|
|
|
|
|
|
10.23
|
|
|
Research, Development and Commercialization Agreement, dated as of December 18, 2008, by and between
Hoffmann-La Roche Inc., F. Hoffmann-La Roche Ltd and VIA Pharmaceuticals, Inc. (filed as Exhibit 10.1
to the Form 8-K filed on December 23, 2008 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.24
|
|
|
Research, Development and Commercialization Agreement, dated as of December 18, 2008, by and between
Hoffmann-La Roche Inc., F. Hoffmann-La Roche Ltd and VIA Pharmaceuticals, Inc. (filed as Exhibit 10.2
to the Form 8-K filed on December 23, 2008 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.25
|
|
|
Employment Agreement, dated as of August 10, 2004, by and between VIA Pharmaceuticals, Inc. and
Lawrence K. Cohen (filed as Exhibit 10.2 to the Form 8-K filed on June 11, 2007 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.26
|
|
|
Letter Agreement, dated as of October 13, 2006, by and between VIA Pharmaceuticals, Inc. and Karen S.
Wright (filed as Exhibit 10.1 to the Form 8-K filed on May 6, 2010 and incorporated herein by
reference)
|
|
|
|
|
|
|
|
|
10.27
|
|
|
Amendment to Employment Agreement, dated as of June 4, 2007, by and between VIA Pharmaceuticals, Inc.
and Lawrence K. Cohen (filed as Exhibit 10.3 to the Form 8-K filed on June 11, 2007 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.28
|
|
|
Letter Agreement, dated as of October 3, 2006, between VIA Pharmaceuticals, Inc. and James G. Stewart
(filed as Exhibit 10.6 to the Form 8-K filed on June 11, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.29
|
|
|
Amendment to Letter Agreement, dated as of June 4, 2007, by and between VIA Pharmaceuticals, Inc. and
James G. Stewart (filed as Exhibit 10.7 to the Form 8-K filed on June 11, 2007 and incorporated herein
by reference)
|
|
|
|
|
|
|
|
|
10.30
|
|
|
Letter Agreement, dated as of December 21, 2007, between VIA Pharmaceuticals, Inc. and Rebecca Taub
(filed as Exhibit 10.15 to the Form 10-K filed on March 28, 2008 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.31
|
|
|
Consulting Agreement, dated as of January 29, 2009, by and between VIA Pharmaceuticals, Inc. and
Adeoye Olukotun (filed as Exhibit 10.1 to the Form 8-K filed on February 3, 2009 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.32
|
|
|
VIA Pharmaceuticals, Inc. 2004 Stock Plan (filed as Exhibit 10.8 to the Form 8-K filed on June 11,
2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.33
|
|
|
VIA Pharmaceuticals, Inc. standard form of stock option agreement (filed as Exhibit 10.9 to the Form
8-K filed on June 11, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.34
|
|
|
VIA Pharmaceuticals, Inc. early exercise form of stock option agreement (filed as Exhibit 10.10 to the
Form 8-K filed on June 11, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.35
|
|
|
Standard Director Form of Option Agreement (filed as Exhibit 10.18 to the Form 10-Q filed on August
14, 2007 and incorporated herein by reference)
|
71
|
|
|
|
|
|
|
Exhibit
|
|
|
|
Number
|
|
Description
|
|
|
10.36
|
|
|
Conversion Agreement, dated as of May 11, 2007, between Corautus Genetics Inc. and Boston Scientific
Corporation (filed as Exhibit 10.19 to the Form 10-Q filed on August 14, 2007 and incorporated herein
by reference)
|
|
|
|
|
|
|
|
|
10.37
|
|
|
Change in Control Agreement by and between VIA Pharmaceuticals, Inc and Lawrence K. Cohen, Ph.D.,
dated December 21, 2007 (filed as Exhibit 10.1 to the Form 8-K/A filed on December 21, 2007 and
incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.38
|
|
|
Change in Control Agreement by and between VIA Pharmaceuticals, Inc and James G. Stewart, dated
December 21, 2007 (filed as Exhibit 10.2 to the Form 8-K/A filed on December 21, 2007 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.39
|
|
|
Change in Control Agreement by and between VIA Pharmaceuticals, Inc and Rebecca Taub, M.D., dated
January 14, 2008 (filed as Exhibit 10.25 to the Form 10-K filed on March 28, 2008 and incorporated
herein by reference)
|
|
|
|
|
|
|
|
|
10.40
|
|
|
VIA Pharmaceuticals, Inc. Form of Stock Option Agreement (filed as Exhibit 10.1 to the Form 8-K filed
on December 19, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.41
|
|
|
VIA Pharmaceuticals, Inc. 2007 Incentive Award Plan (filed as Exhibit A to the Definitive Proxy
Statement filed on November 5, 2007 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.42
|
|
|
Office Lease, dated October 13, 2005, between VIA Pharmaceuticals, Inc. and James P. Edmondson, as
amended by Lease Amendment No. One, dated January 15, 2008 (filed as Exhibit 10.28 to the Form 10-K
filed on March 28, 2008 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
10.43
|
|
|
Lease, dated July 24, 2006, between VIA Pharmaceuticals, Inc. and 100 & RW CRA LLC, as amended by
First Extension and Modification of Lease, dated January 15, 2008 (filed as Exhibit 10.29 to the Form
10-K filed on March 28, 2008 and incorporated herein by reference)
|
|
|
|
|
|
|
|
|
21.1
|
*
|
|
Subsidiaries of VIA Pharmaceuticals, Inc.
|
|
|
|
|
|
|
|
|
31.1
|
*
|
|
Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
31.2
|
*
|
|
Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
|
|
32.1
|
*
|
|
Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).
|
|
|
|
|
|
|
|
|
32.2
|
*
|
|
Certification Pursuant to 18 U.S.C. § 1350 (Section 906 of Sarbanes-Oxley Act of 2002).
|
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
|
|
VIA PHARMACEUTICALS, INC.
|
|
|
|
By:
|
/s/ Lawrence K. Cohen
|
|
|
|
|
Lawrence K. Cohen
|
|
|
|
|
President, Chief Executive Officer
|
|
|
|
Date: March 24, 2011
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons, on behalf of the registrant in the capacities indicated.
|
|
|
|
|
|
|
Signatures
|
|
Titles
|
|
Date
|
|
|
|
|
|
|
/s/ Lawrence K. Cohen
Lawrence K. Cohen
|
|
President, Chief Executive Officer and
Director
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ Karen S. Wright
Karen S. Wright
|
|
Vice President, Controller
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ Douglass B. Given
Douglass B. Given
|
|
Chairman of the Board of Directors
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ Mark N.K. Bagnall
Mark N.K. Bagnall
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ Fred B. Craves
Fred B. Craves
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ David T. Howard
David T. Howard
|
|
Director
|
|
March 24, 2011
|
|
|
|
|
|
|
/s/ John R. Larson
John R. Larson
|
|
Director
|
|
March 24, 2011
|
73
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
VIA Pharmaceuticals, Inc.
San Francisco, CA
We have audited the accompanying balance sheets of VIA Pharmaceuticals, Inc. (a development
stage company) (the “Company”), as of December 31, 2010 and 2009, and the related statements of
operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period
ended December 31, 2010, and for the period from June 14, 2004 (date of inception) to December 31,
2010. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2010 and 2009, and the results of its
operations and its cash flows for each of the two years in the period ended December 31, 2010, and
for the period from June 14, 2004 (date of inception) to December 31, 2010, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. The Company is a development stage enterprise engaged in the research
and development of cardiovascular disease. As discussed in Note 1 to the financial statements, the
deficiency in working capital at December 31, 2010 and Company’s operating losses since inception
raise substantial doubt about its ability to continue as a going concern. Management’s plans
concerning these matters are also discussed in Note 1 to the financial statements. The financial
statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Deloitte & Touche LLP
San Francisco, California
March 24, 2011
F-1
VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,001
|
|
|
$
|
2,189,742
|
|
|
Prepaid expenses and other current assets
|
|
|
360,324
|
|
|
|
155,361
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
444,325
|
|
|
|
2,345,103
|
|
|
Property and equipment-net
|
|
|
23,357
|
|
|
|
170,617
|
|
|
Other non-current assets
|
|
|
32,289
|
|
|
|
40,374
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
499,971
|
|
|
$
|
2,556,094
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
793,534
|
|
|
$
|
705,887
|
|
|
Accrued expenses and other liabilities
|
|
|
1,297,838
|
|
|
|
2,226,720
|
|
|
Accrued restructuring costs
|
|
|
104,675
|
|
|
|
—
|
|
|
Interest payable — affiliate
|
|
|
2,791,629
|
|
|
|
789,041
|
|
|
Notes payable — affiliate — net of
discount of $0 and $4,374 as of December
31, 2010 and 2009, respectively
|
|
|
14,001,397
|
|
|
|
9,995,626
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
18,989,073
|
|
|
|
13,717,274
|
|
|
Deferred rent
|
|
|
8,400
|
|
|
|
37,450
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
18,997,473
|
|
|
|
13,754,724
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value-200,000,000
shares authorized at December 31, 2010 and
December 31, 2009, respectively; 20,558,446
and 20,646,374 shares issued and
outstanding at December 31, 2010 and
December 31, 2009, respectively
|
|
|
20,559
|
|
|
|
20,646
|
|
|
Preferred stock Series A, $0.001 par
value-5,000,000 shares authorized at
December 31, 2010 and December 31, 2009,
respectively; 0 shares issued and
outstanding at December 31, 2010 and
December 31, 2009, respectively
|
|
|
—
|
|
|
|
—
|
|
|
Convertible preferred stock Series C,
$0.001 par value-17,000 shares authorized
at December 31, 2010 and December 31, 2009,
respectively; 2,000 shares issued and
outstanding at December 31, 2010 and
December 31, 2009, respectively;
liquidation preference of $2,000,000
|
|
|
2
|
|
|
|
2
|
|
|
Additional paid-in capital
|
|
|
72,687,817
|
|
|
|
70,385,287
|
|
|
Deficit accumulated in the development stage
|
|
|
(91,205,880
|
)
|
|
|
(81,604,565
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders’ equity (deficit)
|
|
|
(18,497,502
|
)
|
|
|
(11,198,630
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
499,971
|
|
|
$
|
2,556,094
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-2
VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
1,817,462
|
|
|
|
6,055,215
|
|
|
|
42,723,640
|
|
|
General and administration
|
|
|
4,096,520
|
|
|
|
7,198,320
|
|
|
|
33,142,573
|
|
|
Merger transaction costs
|
|
|
—
|
|
|
|
—
|
|
|
|
3,824,090
|
|
|
Restructuring costs
|
|
|
106,959
|
|
|
|
—
|
|
|
|
106,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
6,020,941
|
|
|
|
13,253,535
|
|
|
|
79,797,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(6,020,941
|
)
|
|
|
(13,253,535
|
)
|
|
|
(79,797,262
|
)
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
—
|
|
|
|
—
|
|
|
|
914,628
|
|
|
Interest expense
|
|
|
(3,562,483
|
)
|
|
|
(7,733,390
|
)
|
|
|
(12,300,966
|
)
|
|
Other income (expense)-net
|
|
|
(17,891
|
)
|
|
|
8,601
|
|
|
|
(22,280
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(3,580,374
|
)
|
|
|
(7,724,789
|
)
|
|
|
(11,408,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(9,601,315
|
)
|
|
$
|
(20,978,324
|
)
|
|
$
|
(91,205,880
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share of common stock-basic and diluted
|
|
$
|
(0.47
|
)
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding-basic and diluted
|
|
|
20,398,472
|
|
|
|
19,939,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-3
VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the Period June 14, 2004 (Date of Inception) To December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
|
|
|
Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Series A
|
|
|
Series C
|
|
|
Common Stock
|
|
|
Treasury Stock
|
|
|
Additional
|
|
|
Deferred
|
|
|
in the
|
|
|
Other
|
|
|
Total
|
|
|
Total
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
Paid-in
|
|
|
Stock
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
Comprehensive
|
|
|
|
|
Issued
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Capital
|
|
|
Compensation
|
|
|
Stage
|
|
|
Income
|
|
|
Equity (Deficit)
|
|
|
Income (Loss)
|
|
|
BALANCE — June 14, 2004 (date of inception)
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Issuance of common stock — net of issuance
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
371,721
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
—
|
|
|
Stock-based compensation — net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,360
|
|
|
|
(4,675
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
1,685
|
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,084,924
|
)
|
|
|
—
|
|
|
|
(1,084,924
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2004
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
371,721
|
|
|
|
1,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,360
|
|
|
|
(4,675
|
)
|
|
|
(1,084,924
|
)
|
|
|
—
|
|
|
|
(1,082,239
|
)
|
|
|
—
|
|
|
Issuance of common stock — net of issuance
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
37,172
|
|
|
|
100
|
|
|
|
—
|
|
|
|
—
|
|
|
|
900
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,000
|
|
|
|
—
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,965
|
|
|
|
30
|
|
|
|
—
|
|
|
|
—
|
|
|
|
266
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
296
|
|
|
|
—
|
|
|
Stock-based compensation — net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,124
|
|
|
|
4,568
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,692
|
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,804,220
|
)
|
|
|
—
|
|
|
|
(8,804,220
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2005
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
419,858
|
|
|
|
1,130
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,650
|
|
|
|
(107
|
)
|
|
|
(9,889,144
|
)
|
|
|
—
|
|
|
|
(9,879,471
|
)
|
|
|
—
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,181
|
|
|
|
67
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,360
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,427
|
|
|
|
—
|
|
|
Issuance of series A preferred stock
|
|
|
3,234,900
|
|
|
|
8,703
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,174,797
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,183,500
|
|
|
|
—
|
|
|
Stock-based compensation — net
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
|
—
|
|
|
|
107
|
|
|
|
—
|
|
|
Stock based compensation — stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,837
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
434,837
|
|
|
|
—
|
|
|
Unrealized gain from foreign currency hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,582
|
|
|
|
12,582
|
|
|
|
12,582
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(8,626,887
|
)
|
|
|
—
|
|
|
|
(8,626,887
|
)
|
|
|
(8,626,887
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(8,614,305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2006
|
|
|
3,234,900
|
|
|
$
|
8,703
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
445,039
|
|
|
$
|
1,197
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
12,619,644
|
|
|
$
|
—
|
|
|
$
|
(18,516,031
|
)
|
|
$
|
12,582
|
|
|
$
|
(5,873,905
|
)
|
|
|
|
|
|
Issuance of common stock — net of issuance
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,288,065
|
|
|
|
10,288
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,130,072
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,140,360
|
|
|
|
—
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
317,369
|
|
|
|
854
|
|
|
|
—
|
|
|
|
—
|
|
|
|
41,469
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,323
|
|
|
|
—
|
|
|
Repurchase and retirement of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(42,283
|
)
|
|
|
(95
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,654
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,749
|
)
|
|
|
—
|
|
|
Issuance of series A preferred stock
|
|
|
3,540,435
|
|
|
|
9,524
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,324,698
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13,334,222
|
|
|
|
—
|
|
|
Merger
|
|
|
(6,775,335
|
)
|
|
|
(18,227
|
)
|
|
|
2,000
|
|
|
|
2
|
|
|
|
8,699,067
|
|
|
|
7,463
|
|
|
|
(2,014
|
)
|
|
|
(10,276
|
)
|
|
|
10,818,077
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,797,039
|
|
|
|
—
|
|
|
Stock-based compensation — warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,954
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
21,954
|
|
|
|
—
|
|
|
Stock based compensation — stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
926,574
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
926,574
|
|
|
|
—
|
|
|
Unrealized gain from foreign currency hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,302
|
|
|
|
4,302
|
|
|
|
4,302
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,835,382
|
)
|
|
|
—
|
|
|
|
(21,835,382
|
)
|
|
|
(21,835,382
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(21,831,080
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2007
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
19,707,257
|
|
|
$
|
19,707
|
|
|
|
(2,014
|
)
|
|
$
|
(10,276
|
)
|
|
$
|
60,876,834
|
|
|
$
|
—
|
|
|
$
|
(40,351,413
|
)
|
|
$
|
16,884
|
|
|
$
|
20,551,738
|
|
|
|
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
32,711
|
|
|
|
33
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,247
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,280
|
|
|
|
—
|
|
|
Repurchase and retirement of treasury stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,014
|
|
|
|
10,276
|
|
|
|
(10,276
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Issuance of restricted common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
852,750
|
|
|
|
853
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1674
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,527
|
|
|
|
—
|
|
|
Stock-based compensation — warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,525
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
47,525
|
|
|
|
—
|
|
|
Stock based compensation — stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,251,526
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,251,526
|
|
|
|
—
|
|
|
Unrealized gain from foreign currency hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(16,884
|
)
|
|
|
(16,884
|
)
|
|
|
(16,884
|
)
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,274,828
|
)
|
|
|
—
|
|
|
|
(20,274,828
|
)
|
|
|
(20,274,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,291,712
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2008
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
20,592,718
|
|
|
$
|
20,593
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
62,169,530
|
|
|
$
|
—
|
|
|
$
|
(60,626,241
|
)
|
|
$
|
—
|
|
|
$
|
1,563,884
|
|
|
|
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,615
|
|
|
|
57
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,875
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,932
|
|
|
|
—
|
|
|
Retirement of restricted common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(3,959
|
)
|
|
|
(4
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
Stock-based compensation — restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,389
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
63,389
|
|
|
|
—
|
|
|
Stock based compensation — stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,201,766
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,201,766
|
|
|
|
—
|
|
|
Issuance of warrants — affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,948,723
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6,948,723
|
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(20,978,324
|
)
|
|
|
—
|
|
|
|
(20,978,324
|
)
|
|
|
(20,978,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(20,978,324
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2009
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
20,646,374
|
|
|
$
|
20,646
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
70,385,287
|
|
|
$
|
—
|
|
|
$
|
(81,604,565
|
)
|
|
$
|
—
|
|
|
$
|
(11,198,630
|
)
|
|
|
|
|
|
Exercise of common stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
43,057
|
|
|
|
43
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,249
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,292
|
|
|
|
—
|
|
|
Purchase & retirement of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(5,451
|
)
|
|
|
(5
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(758
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(763
|
)
|
|
|
—
|
|
|
Retirement of restricted common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(125,534
|
)
|
|
|
(125
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
125
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Stock-based compensation — restricted stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,572
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
42,572
|
|
|
|
—
|
|
|
Stock based compensation — stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
705,218
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
705,218
|
|
|
|
—
|
|
|
Issuance of warrants — affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,554,124
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,554,124
|
|
|
|
—
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9,601,315
|
)
|
|
|
—
|
|
|
|
(9,601,315
|
)
|
|
|
(9,601,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(9,601,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE — December 31, 2010
|
|
|
—
|
|
|
$
|
—
|
|
|
|
2,000
|
|
|
$
|
2
|
|
|
|
20,558,446
|
|
|
$
|
20,559
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
72,687,817
|
|
|
$
|
—
|
|
|
$
|
(91,205,880
|
)
|
|
$
|
—
|
|
|
$
|
(18,497,502
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-4
VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(9,601,315
|
)
|
|
$
|
(20,978,324
|
)
|
|
$
|
(91,205,880
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
74,882
|
|
|
|
136,360
|
|
|
|
604,755
|
|
|
Amortization of discount on notes payable — affiliate
|
|
|
1,558,498
|
|
|
|
6,944,349
|
|
|
|
8,502,847
|
|
|
Excess facility lease costs — net
|
|
|
104,675
|
|
|
|
—
|
|
|
|
104,675
|
|
|
Disposal of property and equipment
|
|
|
72,378
|
|
|
|
450
|
|
|
|
76,991
|
|
|
Stock compensation expense
|
|
|
747,790
|
|
|
|
1,265,155
|
|
|
|
4,705,372
|
|
|
Deferred rent
|
|
|
(29,050
|
)
|
|
|
6,813
|
|
|
|
8,400
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
(196,878
|
)
|
|
|
448,719
|
|
|
|
(417,613
|
)
|
|
Accounts payable
|
|
|
87,647
|
|
|
|
(47,937
|
)
|
|
|
790,045
|
|
|
Accrued expenses and other liabilities
|
|
|
(928,882
|
)
|
|
|
(425,738
|
)
|
|
|
1,397,839
|
|
|
Interest payable — affiliate
|
|
|
2,003,985
|
|
|
|
789,041
|
|
|
|
3,785,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(6,106,270
|
)
|
|
|
(11,861,112
|
)
|
|
|
(71,646,821
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
—
|
|
|
|
(16,155
|
)
|
|
|
(664,175
|
)
|
|
Sale of property and equipment
|
|
|
—
|
|
|
|
532
|
|
|
|
532
|
|
|
Cash provided in the Merger
|
|
|
—
|
|
|
|
—
|
|
|
|
11,147,160
|
|
|
Capitalized merger transaction costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(350,069
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities
|
|
|
—
|
|
|
|
(15,623
|
)
|
|
|
10,133,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from convertible promissory notes — affiliate
|
|
|
—
|
|
|
|
—
|
|
|
|
24,425,000
|
|
|
Proceeds from notes payable — affiliate
|
|
|
4,000,000
|
|
|
|
10,000,000
|
|
|
|
14,000,000
|
|
|
Capital lease payments
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,973
|
)
|
|
Issuance of common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
23,141,360
|
|
|
Exercise of stock options for the issuance of common stock
|
|
|
1,292
|
|
|
|
1,932
|
|
|
|
49,550
|
|
|
Repurchase and retirement of common stock
|
|
|
(763
|
)
|
|
|
—
|
|
|
|
(6,563
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,000,529
|
|
|
|
10,001,932
|
|
|
|
61,597,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(2,105,741
|
)
|
|
|
(1,874,803
|
)
|
|
|
84,001
|
|
|
Cash and cash equivalents-beginning of period
|
|
|
2,189,742
|
|
|
|
4,064,545
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents-end of period
|
|
$
|
84,001
|
|
|
$
|
2,189,742
|
|
|
$
|
84,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of noncash activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of warrant and related discount on notes payable — affiliate
|
|
$
|
1,554,124
|
|
|
$
|
6,948,723
|
|
|
$
|
8,502,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on convertible debt converted to notes payable — affiliate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
992,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on debt converted to notes payable — affiliate
|
|
$
|
1,397
|
|
|
$
|
—
|
|
|
$
|
1,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of notes to preferred stock Series A — affiliate
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
25,517,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued compensation converted to notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equipment acquired under capital lease
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issuance for license acquisition
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid (refunded)
|
|
$
|
(548
|
)
|
|
$
|
(2,834
|
)
|
|
$
|
36,067
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes
F-5
VIA PHARMACEUTICALS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
1. ORGANIZATION
Overview
—
VIA Pharmaceuticals, Inc. (“VIA,” the “Company,” “we,” “our,” or “us”),
incorporated in Delaware in June 2004 and headquartered in San Francisco, California, is a
development stage biotechnology company focused on the development of compounds for the treatment
of cardiovascular and metabolic disease. The Company is building a pipeline of small molecule drugs
that target the underlying causes of cardiovascular and metabolic disease, including vascular
inflammation, high cholesterol, high triglycerides and insulin sensitization/diabetes. During 2005,
the Company in-licensed a small molecule compound, VIA-2291, which targets an unmet medical need of
reducing atherosclerotic plaque inflammation, an underlying cause of atherosclerosis and its
complications, including heart attack and stroke. Atherosclerosis, depending on its severity and
the location of the artery it affects, may result in major adverse cardiovascular events (“MACE”),
such as heart attack and stroke. During 2006, the Company initiated two Phase 2 clinical trials of
VIA-2291 in patients undergoing a carotid endarterectomy (“CEA”), and in patients at risk for acute
coronary syndrome (“ACS”). During 2007, the Company initiated a third Phase 2 clinical trial where
ACS patients undergo Positron Emission Tomography with flurodeoxyglucose tracer (“FDG-PET”), an
experimental non-invasive imaging technique to measure the effect of treatment of VIA-2291 on
uptake of FDG into the vascular wall. Effective during the first quarter of 2009, the Company
licensed from Hoffman-LaRoche Inc. and Hoffmann-LaRoche Ltd. (collectively “Roche”) the exclusive
worldwide rights to two sets of compounds. The first license is for Roche’s thyroid hormone
receptor beta agonist, a clinically ready candidate for the control of cholesterol, triglyceride
levels and potential in insulin sensitization/diabetes. The second license is for multiple
compounds from Roche’s preclinical diacylglycerol acyl transferase 1 metabolic disorders program.
Through December 31, 2010, the Company has been primarily engaged in developing initial
procedures and product technology, screening and in-licensing of target compounds, clinical trial
activity, and raising capital. To fund operations, VIA has been raising cash through debt, a merger
and equity financings. The Company is organized and operates as one operating segment.
On March 21, 2006, the Company formed VIA Pharma UK Limited, a private corporation, in the
United Kingdom to enable clinical trial activities in Europe. VIA Pharma UK Limited did not engage
in operations from June 14, 2004 (date of inception) to December 31, 2010. The Company has a
wholly-owned subsidiary Vascular Genetics Inc. (“VGI”) that was involved in Corautus clinical
trials. VGI has not been active since the Corautus clinical trials ceased in 2006.
Merger
—
On June 5, 2007, Corautus completed a merger (the “Merger”) with privately-held VIA
Pharmaceuticals, Inc. pursuant to the Agreement and Plan of Merger and Reorganization (the “Merger
Agreement”), dated February 7, 2007, by and among Corautus, Resurgens Merger Corp., a Delaware
corporation and a wholly owned subsidiary of Corautus (“Resurgens”), and privately-held VIA
Pharmaceuticals, Inc. Pursuant to the Merger Agreement, Resurgens merged with and into
privately-held VIA Pharmaceuticals, Inc., which continued as the surviving company as a
wholly-owned subsidiary of Corautus. Immediately following the effectiveness of the Merger on June
5, 2007, privately-held VIA Pharmaceuticals, Inc. merged (the “Parent-Subsidiary Merger”) with and
into Corautus, pursuant to which Corautus continued as the surviving corporation. Immediately
following the Parent-Subsidiary Merger, Corautus changed its corporate name from “Corautus Genetics
Inc.” to “VIA Pharmaceuticals, Inc.” Unless otherwise specified, as used throughout these financial
statements, the “Company,” “we,” “us,” and “our” refers to the business of the combined company
after the merger (the “Merger”) with Corautus Genetics Inc. (“Corautus”) on June 5, 2007 and the
business of privately-held VIA Pharmaceuticals, Inc. prior to the Merger. Unless specifically noted
otherwise, as used throughout these financial statements, “Corautus Genetics Inc.” or “Corautus”
refers to the business of Corautus prior to the Merger.
Going
Concern Uncertainty
—
The Company has incurred losses since inception as it
has devoted substantially all of its
resources to research and development, including early-stage clinical trials. As of
December 31,
2010, the Company’s accumulated deficit was approximately $91.2 million. The Company
had $84,001 in cash at December 31, 2010. In connection with the loan amendments discussed
below, the Company borrowed an additional $500,000 on January 14, 2011 and $1,498,603 on
March 24, 2011. Management does not believe that existing cash resources will be sufficient to
enable the Company to meet its ongoing working capital requirements for the next twelve months and
the Company will need to raise substantial additional funding in the near term to repay amounts
owed under the 2009 Loan Agreement, the 2010 Loan Agreement, and the
2010 Loan Amendment (which loan agreements and amendments are
described below), and to
meet its ongoing working capital requirements. Moreover, in connection with these loans, the
Company must also satisfy certain conditions and comply with covenants, including covenants
relating to the Company’s ability to incur additional indebtedness, make future acquisitions,
consummate asset dispositions, grant liens and pledge assets, pay dividends or make other
distributions, incur capital expenditures and make restricted payments. These restrictions may
limit the Company’s ability to pursue its business strategies and obtain additional funds.
As a
result, there are substantial doubts that the Company will be able to continue as a going concern
and, therefore, may be unable to realize its assets and discharge its liabilities in the normal
course of business. The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or to amounts and classifications of
liabilities that may be necessary should the Company be unable to continue as a going concern.
The Company cannot guarantee to its stockholders that the Company’s efforts to raise
additional private or public funding will be successful. If adequate funds are not available in the
near term, the Company may be required to:
|
|
•
|
|
terminate or delay clinical trials or studies of VIA-3196 and the DGAT1 compounds;
|
|
|
•
|
|
terminate or delay the preclinical development of one or more of its other preclinical
candidates;
|
|
|
•
|
|
curtail its licensing activities that are designed to identify molecular targets and
small molecules for treating cardiovascular disease;
|
|
|
•
|
|
relinquish rights to product candidates, development programs, or discovery development
programs that it may otherwise seek to develop or commercialize on its own; and
|
|
|
|
|
•
|
|
delay, reduce the scope of, or eliminate one or more of its research and development
programs, or ultimately cease operations.
|
F-6
On March 26, 2010, the Company’s Board of Directors approved a restructuring of the Company to
reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce
decreased total employees by approximately 63% to a total of six employees and increased the focus
of future operating expense or research and development activities.
The Company has not generated revenue since June 14, 2004, the inception of the Company. The
Company does not expect to generate any revenues from licensing, achievement of milestones or
product sales until it is able to commercialize product candidates or execute a collaboration
arrangement. The Company cannot estimate the actual amounts necessary to successfully complete the
successful development and commercialization of its product candidates or whether, or when, it may
achieve profitability. The Company expects to incur substantial and increasing losses as
it continues to expend substantial resources seeking to successfully research, develop,
manufacture, obtain regulatory approval for, and commercialize its product candidates.
Until the Company can establish profitable operations to finance its cash requirements, the
Company’s ability to meet its obligations in the ordinary course of business is dependent upon its
ability to raise substantial additional capital through public or private equity or debt
financings, the establishment of credit or other funding facilities, collaborative or other
strategic arrangements with corporate sources or other sources of financing, the availability of
which cannot be assured. On June 5, 2007, the Company raised $11.1 million through the Merger with
Corautus to cover existing obligations and provide operating cash flows. In July 2007, the Company
entered into a securities purchase agreement that provided for issuance of 10,288,065 shares of
common stock for approximately $25.0 million in gross proceeds.
As more fully described in Note 6 in the notes to the financial statements, in March 2009, the
Company entered into a Note and Warrant Purchase Agreement (the “2009 Loan Agreement”) with its
principal stockholder and one of its affiliates (the “Lenders”) whereby the Lenders agreed to lend
to the Company in the aggregate up to $10.0 million. The Company secured the 2009 Loan Agreement
with all of its assets, including the Company’s intellectual property. On March 12, 2009, the
Company borrowed the initial $2.0 million available under the 2009 Loan Agreement. Subsequently,
the Company made $2.0 million borrowings under the 2009 Loan Agreement on May 19, 2009, June 29,
2009, August 14, 2009, respectively, and the Company borrowed the final $2.0 million available
under the 2009 Loan Agreement on September 11, 2009. According to the terms of the original Loan
2009 Agreement, the aggregate loan amount was due to the Lenders on September 14, 2009. The parties
agreed to extend the repayment terms on various dates in 2009, and on February 26, 2010, the
Lenders agreed to modify the 2009 Loan Agreement to further extend the repayment terms to April 1,
2010. The Lenders did not modify the interest rate or offer any concessions in the amendments to
the 2009 Loan Agreement. The Company failed to repay the debt and all related interest to the
Lenders due on April 1, 2010. As a result, the Company is now accruing interest at the higher rate
of 18% per annum beginning April 1, 2010.
As more fully described in Note 6 in the notes to the financial statements, in March 2010, the
Company entered into a second Note and Warrant Purchase Agreement (the “2010 Loan Agreement”) with
the Lenders whereby the Lenders agreed to lend to the Company in the aggregate up to $3.0 million,
pursuant to the terms of promissory notes (collectively, the “2010 Loan Agreement notes”) issued
under the 2010 Loan Agreement. The Company secured the original 2010 Loan Agreement with all of its
assets, including the Company’s intellectual property. On March 29, 2010, the Company borrowed the
initial $1.25 million available under the 2010 Loan Agreement. Subsequently, the Company made
$100,000, $200,000, $300,000, $100,000, and $750,000 borrowings under the 2010 Loan Agreement on
May 26, 2010, June 4, 2010, June 29, 2010, July 15, 2010, July 27, 2010, respectively, and the
Company borrowed the final $300,000 available under the 2010 Loan Agreement on September 28, 2010.
The original 2010 Loan Agreement notes are secured by a lien on all of the assets of the Company.
Amounts borrowed under the original 2010 Loan Agreement notes accrue interest at the rate of
fifteen percent (15%) per annum, which increases to eighteen percent (18%) per annum following an
event of default. Unless earlier paid in accordance with the terms of the original 2010 Loan
Agreement notes, all unpaid principal and accrued interest shall become fully due and payable on
the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or combined
debt/equity financing resulting in gross proceeds or available credit to the Company of not less
than $20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys,
licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger,
consolidation, reorganization or other transaction or series of transactions pursuant to which
stockholders of the Company prior to such acquisition own less than 50% of the voting interests in
the surviving or resulting entity. The Company failed to repay the debt and all related interest
to the Lenders due on December 31, 2010. On January 14, 2011, the Company entered into an
amendment to the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date under the
2010 Loan Agreement and 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
F-7
As more fully described in Note 6 in the notes to the financial statements, on October 29,
2010, the Company executed a secured promissory note (the “Bridge Note”) in favor of Bay City
Capital Fund IV, L.P., a Delaware limited partnership in the principal sum
of $200,000 for general corporate purposes. By the terms of the Bridge Note, upon execution of
the 2010 Loan Amendment (as defined below) the unpaid principal amount and accrued and unpaid
interest under the Bridge Note automatically converted into obligations of the Company under the
2010 Loan Amendment as advances under the 2010 Loan Amendment. The Company accrued $1,397 in
unpaid interest for the period October 29, 2010 to November 15, 2010, which is included in the
Company’s statement of operations.
As more fully described in Note 6 in the notes to the financial statements, on November 15,
2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010 Loan Amendment”) to
enable the Company to borrow up to an additional aggregate principal amount of $3,000,000, pursuant
to the terms of amended and restated promissory notes issued under the 2010 Loan Amendment. Subject
to the Lenders’ approval, as of December 31, 2010, the Company may borrow in the aggregate up to an
additional $1,998,603 at subsequent closings pursuant to the terms of the 2010 Loan Amendment
notes. On November 15, 2010, the $201,397 outstanding principal and unpaid interest on the Bridge
Note were automatically converted into obligations of the Company under the 2010 Loan Amendment as
advances. During the three months ended December 31, 2010, the Company borrowed an additional
$800,000 on November 22, 2010. The original 2010 Loan Amendment notes are secured by a lien on all
of the assets of the Company. Amounts borrowed under the 2010 Loan Amendment notes accrue interest
at the rate of fifteen percent (15%) per annum, which increases to eighteen percent (18%) per annum
following an event of default. Unless earlier paid in accordance with the terms of the original
2010 Loan Amendment notes, all unpaid principal and accrued interest shall become fully due and
payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt, equity or
combined debt/equity financing resulting in gross proceeds or available credit to the Company of
not less than $20,000,000, and (iii) the closing of a transaction in which the Company sells,
conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of a
merger, consolidation, reorganization or other transaction or series of transactions pursuant to
which stockholders of the Company prior to such acquisition own less than 50% of the voting
interests in the surviving or resulting entity. The Company failed to repay the debt and all
related interest to the Lenders due on December 31, 2010. On January 14, 2011, the Company entered
into an amendment to the 2010 Loan Agreement and 2010 Loan Amendment to extend the maturity date
under the 2010 Loan Agreement and 2010 Loan Amendment from December 31, 2010 to
June 30, 2011 and on March 24, 2011, the Company entered into a second amendment to further
extend the maturity date to September 30, 2011.
In November 2010, the Company was notified by the Internal Revenue Service that it has been
awarded $244,479 in grants under the Qualifying Therapeutic Discovery Project (“QTDP”) program
established under Section 48D of the Internal Revenue Code as part of the Patient Protection and
Affordable Care Act of 2010. The Company submitted the grant application in July 2010 for qualified
2009 and 2010 investments in the VIA-2291 program. The Company received the full amount of the
grant on January 19, 2011.
F-8
All outstanding principal and accrued interest under the 2009 Loan Agreement was due on April
1, 2010. All outstanding principal and accrued interest under the 2010 Loan Agreement and 2010 Loan
Amendment was originally due on December 31, 2010. The Company was not able to repay the loans on
the respective due dates. On January 14, 2011, the Company entered into an amendment to the 2010
Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan Agreement
and 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
The Lenders may terminate the
2009 Loan Agreement, demand immediate payment of all amounts borrowed by the Company and take
possession of all collateral securing the loan, which consists of all of our assets, including our
intellectual property rights.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
—
The preparation of the financial statements in conformity with GAAP
requires management to make judgments, assumptions and estimates that affect the amounts reported
in our financial statements and accompanying notes. Actual results could differ materially from
those estimates.
Cash and Cash Equivalents
—
Cash equivalents are included with cash and consist of short
term, highly liquid investments with original maturities of three months or less.
Property and Equipment
—
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is calculated using the straight-line method over the estimated useful
lives of the assets, ranging from three to five years. Computers, lab and office equipment have
estimated useful lives of three years; office furniture and equipment have estimated useful lives
of five years; and leasehold improvements are amortized using the straight-line method over the
shorter of the useful lives or the lease term.
Long-Lived Assets
—
Long-lived assets include property and equipment and certain purchased
licensed patent rights that are included in other assets in the balance sheet. The Company reviews
long-lived assets, including property and equipment, for impairment annually or whenever events or
changes in circumstances indicate that the carrying amount of the assets may not be recoverable. As
more fully discussed in Note 12 in the notes to the financial statements, on March 31, 2010, the
Company wrote-off $110,000 of certain computer equipment and leasehold improvements associated with
the March 2010 restructuring resulting in $65,000 in losses on the disposal of property and
equipment, which are included in restructuring costs in the Statement of Operations. Through
December 31, 2010, there have been no other such impairments.
Incentive Award Accruals —
The Company accrues for liabilities under discretionary employee
and executive incentive award plans. These estimated liabilities are based upon progress against
corporate objectives approved by the Board of Directors, compensation levels of eligible
individuals, and target bonus percentage level of employees. The Board of Directors and the
Compensation Committee of the Board of Directors review and evaluate the performance against these
objectives and ultimately determine what discretionary payments are made. At December 31, 2010 and
December 31, 2009, the Company has accrued $767,185 and $1,308,043, respectively, for liabilities
associated with these employee and executive incentive award plans. As described in Note 12 in the
notes to the financial statements, in March 2010, the Company reversed approximately $531,000 of
previously recorded incentive award accruals related to the restructuring of the Company and
reduction in workforce.
Research and Development Expenses
—
Research and development (“R&D”) expenses are charged to
operations as incurred in accordance with accounting guidance for the accounting for research and
development costs. R&D expenses include salaries, contractor and consultant fees; external clinical
trial expenses performed by contract research organizations (“CROs”) and contracted investigators,
licensing fees and facility allocations. In addition, the Company funds R&D at third-party research
institutions under agreements that are generally cancelable at the Company’s option. Research costs
typically consist of applied research, preclinical and toxicology work. Pharmaceutical
manufacturing development costs consist of product formulation, chemical analysis and the transfer
and scale-up of manufacturing at our contract manufacturers. Clinical costs include the costs of
Phase 2 clinical trials. These costs, along with the manufacturing scale-up costs, are a
significant component of R&D expenses.
The Company accrues costs for clinical trial activities performed by CROs and other third
parties based upon the estimated amount of work completed on each study as provided by the vendors.
These estimates may or may not match the actual services performed by the organizations as
determined by patient enrollment levels and related activities. The Company monitors patient
enrollment levels and related activities using available information; however, if the Company
underestimates activity levels associated with various studies at a given point in time, the
Company could record significant R&D expenses in future periods when the actual activity level
becomes known. The Company charges all such costs to R&D expenses.
F-9
Fair Value of Financial and Derivative Instruments
—
The Company values its financial
instruments in accordance with new accounting guidance on fair value measurements which, for
certain financial assets and liabilities, requires that assets and liabilities carried at fair
value be classified and disclosed in one of the following three categories:
|
|
•
|
|
Level 1 — Quoted prices in active markets for identical assets or liabilities.
|
|
|
•
|
|
Level 2 — Inputs other than quoted prices included in Level 1, such as quoted prices for
similar assets and liabilities in active markets; quoted prices for identical or similar
assets and liabilities in markets that are not active; or other inputs that are observable
or can be corroborated by observable market data.
|
|
|
•
|
|
Level 3 — Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities. This includes certain
pricing models, discounted cash flow methodologies and similar techniques that use
significant unobservable inputs.
|
In March 2009, the Company entered into the 2009 Loan Agreement with the Lenders, as more
fully described in Note 6 in the notes to the financial statements. At the date of each borrowing
under the 2009 Loan Agreement, the Company valued and reported the freestanding warrants issued in
connection with the financing of notes payable to affiliates as paid-in-capital in the
Stockholders’ Equity (Deficit) section of the Company’s balance sheets in accordance with the
following accounting guidance:
|
|
•
|
|
Derivative financial instruments indexed to and potentially settled in a company’s own
stock;
|
|
|
•
|
|
Accounting for derivative instruments and hedging activities; and
|
|
|
•
|
|
Accounting for convertible debt and debt issued with stock purchase warrants.
|
The Company made separate $2.0 million borrowings under the $10.0 million 2009 Loan Agreement
on March 12, 2009, May 19, 2009, June 29, 2009, August 14, 2009, and a final borrowing on September
11, 2009, with warrants vesting at the time of each draw as described more fully in Note 6 in the
notes to the financial statements. The Company estimated the fair value of the warrants issued on
the date of each draw using the Black-Scholes pricing model methodology. This methodology requires
significant judgments in the estimation of fair value based on certain assumptions, including the
market value and the estimated volatility of the Company’s common stock, a risk-free interest rate
applicable to the facts and circumstances of the transaction, and the estimated life of the
warrant. The freestanding warrant is classified within Level 3 of the fair value hierarchy.
In March 2010, the Company entered into the 2010 Loan Agreement with the Lenders, as more
fully described in Note 6 in the notes to the financial statements, whereby the Lenders agreed to
lend to the Company in the aggregate up to $3.0 million. At the date of each borrowing under the
2010 Loan Agreement, the Company valued and reported the freestanding warrants issued in connection
with the financing of notes payable to affiliates as paid-in-capital in the Stockholders’ Equity
(Deficit) section of the Company’s balance sheets in accordance with the following accounting
guidance:
|
|
•
|
|
Derivative financial instruments indexed to and potentially settled in a company’s own
stock;
|
|
|
•
|
|
Accounting for derivative instruments and hedging activities; and
|
|
|
•
|
|
Accounting for convertible debt and debt issued with stock purchase warrants.
|
The Company made separate borrowings of $1.25 million on March 29, 2010, $100,000 on May 26,
2010, $200,000 on June 4, 2010, $300,000 on June 29, 2010, $100,000 on July 15, 2010, $750,000 on
July 27, 2010, and a final $300,000 borrowing on September 28, 2010 under the 2010 Loan Agreement,
with warrants vesting at the time of the draw as described more fully in Note 6 in the notes to the
financial statements. The Company estimated the fair value of the warrants issued on the date of
each draw using the Black-Scholes pricing model methodology. This methodology requires significant
judgments in the estimation of fair value based on certain assumptions, including the market value
and the estimated volatility of the Company’s common stock, a risk-free interest rate applicable to
the facts and circumstances of the transaction, and the estimated life of the warrant. The
freestanding warrant is classified within Level 3 of the fair value hierarchy.
F-10
On November 15, 2010, the Company entered into the 2010 Loan Amendment to enable the Company
to borrow up to an additional aggregate principal amount of $3.0 million, pursuant to the terms of
the amended and restated promissory notes issued under the 2010 Loan Amendment. At the date of each
borrowing under the 2010 Loan Amendment, the Company valued and reported the freestanding warrants
issued in connection with the financing of notes payable to affiliates as paid-in-capital in the
Stockholders’ Equity (Deficit) section of the Company’s balance sheets in accordance with the
following accounting guidance:
|
|
•
|
|
Derivative financial instruments indexed to and potentially settled in a company’s own
stock;
|
|
|
•
|
|
Accounting for derivative instruments and hedging activities; and
|
|
|
•
|
|
Accounting for convertible debt and debt issued with stock purchase warrants.
|
The Company made separate borrowings of $201,397 on November 15, 2010 and $800,000 on November
22, 2010, under the 2010 Loan Amendment, with warrants vesting at the time of the draw as described
more fully in Note 6 in the notes to the financial statements. The Company estimated the fair value
of the warrants issued on the date of each draw using the Black-Scholes pricing model methodology.
This methodology requires significant judgments in the estimation of fair value based on certain
assumptions, including the market value and the estimated volatility of the Company’s common stock,
a risk-free interest rate applicable to the facts and circumstances of the transaction, and the
estimated life of the warrant. The freestanding warrant is classified within Level 3 of the fair
value hierarchy.
Changes in Level 3 Recurring Fair Value Measurements —
The following is a rollforward of
balance sheet amounts as of December 31, 2010 (including the change in fair value when applicable),
for financial instruments classified as Level 3. The Company has no financial instruments
classified as Level 1 and Level 2 as of December 31, 2010. When a determination is made to classify
a financial instrument within Level 3, the determination is based upon the significance of the
unobservable parameters to the overall fair value measurement. However, Level 3 financial
instruments typically include, in addition to the unobservable components, observable components
(that is, components that are actively quoted and can be validated to external sources).
Accordingly, the gains and losses in the table below include changes in fair value (when
applicable) due in part to observable factors that are part of the methodology.
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
Fair value — December 31, 2009
|
|
$
|
6,948,723
|
|
|
Warrants (1)
|
|
|
1,554,124
|
|
|
Change in unrealized gains related to financial instruments at December 31, 2010 (2)
|
|
|
—
|
|
|
|
|
|
|
|
Fair value — December 31, 2010
|
|
$
|
8,502,847
|
|
|
|
|
|
|
|
Total unrealized gains (losses) (2)
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The Warrants are included in additional paid in capital in the Stockholders’ Equity section
of the Balance Sheet.
|
|
|
|
(2)
|
|
The Warrants are not revalued at the reporting dates and do not result in gains and losses.
|
Income Taxes
—
The Company accounts for income taxes using an asset and liability approach.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income
tax purposes, and operating loss and tax credit carryforwards measured by applying currently
enacted tax laws. A valuation allowance is provided to reduce net deferred tax assets to an amount
that is more likely than not to be realized. The amount of the valuation allowance is based on the
Company’s best estimate of the recoverability of its deferred tax assets. On January 1, 2007, the
Company adopted new accounting guidance for the accounting for uncertainty in income tax positions.
This guidance seeks to reduce the diversity in practice associated with certain aspects of
measurement and recognition in accounting for income taxes and provide guidance on de-recognition,
classification, interest and penalties, and accounting in interim periods and requires expanded
disclosure with respect to the uncertainty in income taxes. The accounting guidance requires that
the Company recognize in its financial statements the impact of a tax position if that position is
more likely than not to be sustained on audit, based on the technical merits of the position.
Segment Reporting
—
Accounting guidance on disclosures about segments of an enterprise and
related information requires the use of a management approach in identifying segments of an
enterprise. Management has determined that the Company operates in one business segment —
scientific research and development activities.
F-11
Earnings (Loss) Per Share of Common Stock
—
Basic earnings (loss) per share of common stock
is computed by dividing net income (loss) by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share of common stock is computed by
dividing net income (loss) by the weighted-average number of shares of common stock and potentially
dilutive shares of common stock equivalents outstanding during the period.
The following table presents the calculation of basic and diluted net loss per common share
for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Net loss
|
|
$
|
(9,601,315
|
)
|
|
$
|
(20,978,324
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share: Weighted-average shares of common stock outstanding
|
|
|
20,574,957
|
|
|
|
20,634,380
|
|
|
Less: Weighted-average shares of common stock subject to repurchase
|
|
|
(176,485
|
)
|
|
|
(694,532
|
)
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing basic net loss per share
|
|
|
20,398,472
|
|
|
|
19,939,848
|
|
|
Dilutive effect of common share equivalents
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares used in computing diluted net loss per share
|
|
|
20,398,472
|
|
|
|
19,939,848
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share
|
|
$
|
(0.47
|
)
|
|
$
|
(1.05
|
)
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share of common stock reflects the potential dilution that could
occur if options or warrants to purchase shares of common stock were exercised, or shares of
preferred stock were converted into shares of common stock. The following table details potentially
dilutive shares of common stock equivalents that have been excluded from diluted net loss per share
for the years ended December 31, 2010 and 2009 because their inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Common stock equivalents (in shares):
|
|
|
|
|
|
|
|
|
|
Shares of common stock subject to outstanding options
|
|
|
1,847,588
|
|
|
|
2,740,686
|
|
|
Shares of common stock subject to outstanding warrants
|
|
|
143,297,261
|
|
|
|
83,403,348
|
|
|
Shares of common stock subject to conversion from series C preferred stock
|
|
|
13,986,013
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock equivalents
|
|
|
159,130,862
|
|
|
|
86,144,034
|
|
|
|
|
|
|
|
|
|
As described in Note 7 in the notes to the financial statements, the Series C Preferred Stock
became convertible on June 13, 2010 and shares are convertible upon delivery of notice of
conversion. The number of shares of common stock into which Series C Preferred Stock will be
converted is based in part on the “fair market value” (as defined in the Amended and Restated
Certificate of Designation of Preferences and Rights of Series C Preferred Stock of the Company) of
the Company’s common stock on June 13, 2010. Accordingly, we have not included any Series C
Preferred Stock in the table above for the years ended December 31, 2009. As of December 31, 2010,
the Series C Preferred Stock is convertible into 13,986,013 shares of the Company’s Common Stock.
As of December 31, 2010, the Series C Preferred Stock stockholder has not initiated the conversion
of the Series C Preferred Stock into the Company’s Common Stock.
Comprehensive Income (Loss)
—
Comprehensive income (loss) generally represents all changes in
stockholders’ equity except those resulting from investments or contributions by stockholders.
Amounts reported in other comprehensive income (loss) include derivative financial instruments
designated and effective as hedges of underlying foreign currency denominated transactions.
The following table presents the calculation of total comprehensive income (loss) for the
years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Net loss
|
|
$
|
(9,601,315
|
)
|
|
$
|
(20,978,324
|
)
|
|
Change in unrealized gain on foreign currency cash flow hedges
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
$
|
(9,601,315
|
)
|
|
$
|
(20,978,324
|
)
|
|
|
|
|
|
|
|
|
F-12
Derivative Instruments
—
From time to time, the Company uses derivatives to manage its market
exposure to fluctuations in foreign currencies. The Company records these derivatives on the
balance sheet at fair value in accordance with accounting guidance for derivatives. To receive
hedge accounting treatment, all hedging relationships are formally documented at the inception of
the hedge and the hedges must be highly effective in offsetting changes to future cash flows on
hedged transactions. For derivative
instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure
to variability in expected future cash flows that is attributable to a particular risk), the
effective portion of the gain or loss on the derivative instrument is reported as a component of
other comprehensive income (loss) and in the Company’s statement of operations in the same period
or periods during which the hedged transaction affects earnings. The gain or loss on the derivative
instruments in excess of the cumulative change in the present value of future cash flows of the
hedged transaction, if any, is recognized in the Company’s statement of operations during the
period of change. The Company does not use derivative instruments for speculative purposes.
As of December 31, 2010 and 2009, the Company does not have any outstanding forward foreign
exchange contracts. All foreign currency purchased under forward foreign exchange contracts has
been expended in the purchase of clinical trial services and, as a result, the Company does not
have any outstanding unrealized gains or losses on forward foreign exchange contracts and also does
not have any related accumulated other comprehensive income on the Company’s December 31, 2010 and
2009 Balance Sheets.
New Accounting Pronouncements
—
In October 2009, the FASB issued ASU No. 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements (a consensus of the FASB
Emerging Issues Task Force), which amends ASC 605-25, Revenue Recognition: Multiple-Element
Arrangements. ASU No. 2009-13 addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting and how to allocate consideration to each
unit of accounting in the arrangement. This ASU replaces all references to fair value as the
measurement criteria with the term selling price and establishes a hierarchy for determining the
selling price of a deliverable. ASU No. 2009-13 also eliminates the use of the residual value
method for determining the allocation of arrangement consideration. Additionally, ASU No. 2009-13
requires expanded disclosures. This ASU will become effective for revenue arrangements entered into
or materially modified after the fiscal year 2010. Earlier application is permitted with required
transition disclosures based on the period of adoption. The Company is currently evaluating the
application date and does not believe this standard will have a material impact on our financial
statements.
On April 29, 2010, the FASB issued ASU 2010-17, which establishes a revenue recognition model
for contingent consideration that is payable upon the achievement of an uncertain future event,
referred to as a milestone. The scope of the ASU is limited to research or development arrangements
and requires an entity to record the milestone payment in its entirety in the period received if
the milestone meets all the necessary criteria to be considered substantive. However, entities
would not be precluded from making an accounting policy election to apply another appropriate
accounting policy that results in the deferral of some portion of the arrangement consideration.
The ASU is effective for fiscal years (and interim periods within those fiscal years) beginning on
or after June 15, 2010. Early application is permitted. Entities can apply this guidance
prospectively to milestones achieved after adoption. However, retrospective application to all
prior periods is also permitted. The Company does not believe this standard will have in
immediate impact on our financial statements.
3. STOCK-BASED COMPENSATION
On January 1, 2006, the Company adopted new accounting guidance for accounting for stock-based
compensation. Under the fair value recognition provisions of this accounting guidance, stock-based
compensation cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service period, which is the
vesting period. The Company elected the modified-prospective method, under which prior periods are
not revised for comparative purposes. The valuation provisions of the accounting guidance apply to
new grants and to grants that were outstanding as of the effective date and are subsequently
modified. Estimated compensation for grants that were outstanding as of the effective date of this
new guidance are now being recognized over the remaining service period using the compensation cost
estimated for the required pro forma disclosures.
The Company uses the Black-Scholes option pricing model to estimate the fair value of
stock-based awards. The determination of the fair value of stock-based awards on the date of grant
using an option-pricing model is affected by the value of the Company’s stock price as well as
assumptions regarding a number of complex and subjective variables. These variables include
expected stock price volatility over the term of the awards, actual and projected employee stock
option exercise behaviors, risk-free interest rate and expected dividends.
Prior to June 5, 2007, the Company was a privately-held company and its common stock was not
publicly traded. The fair value of stock options granted from January 2006 through June 5, 2007
(date of completion of the Merger with Corautus), and related stock-based compensation expense,
were determined based upon quoted stock prices of Corautus, the exchange ratio of shares in the
Merger, and a private company 10% discount for grants prior to March 31, 2007, as this represented
the best estimate of market value to use in measuring compensation. Subsequent to the Merger, the
Company, now publicly held, uses the closing stock price of the Company’s common stock on the date
the options are granted to determine the fair market value of each option. The Company
revalues each non-employee option quarterly based on the closing stock price of the Company’s
common stock on the last day of the quarter. The Company also revalues options when there is a
change in employment status.
F-13
The Company estimates the expected term of options granted by taking the average of the
vesting term and the contractual term of the option. As of December 31, 2010, the Company estimates
common stock price volatility using a hybrid approach consisting of the weighted-average of actual
historical volatility using a look back period of approximately three years, representing the
period of time the Company’s stock has been publicly traded, blended with an average of selected
peer group volatility for approximately six years, consistent with the expected life from grant
date. The volatility for the Company and the selected peer group was approximately 127% and 105%,
respectively, as of December 31, 2010, and 130% and 104%, respectively as of December 31, 2009. The
blended volatility rate was approximately a range from 115% to 116% as of December 31, 2010 and
114% as of December 31, 2009. The Company will continue to incrementally increase the look back
period of the Company’s common stock and percent of actual historical volatility until historical
data meets or exceeds the estimated term of the options. Prior to the year ended December 31, 2009,
the Company used peer group calculated volatility as the Company is a development stage company
with limited stock price history from which to forecast stock price volatility. The risk-free
interest rates used in the valuation model are based on U.S. Treasury issues with remaining terms
similar to the expected term on the options. The Company does not anticipate paying any dividends
in the foreseeable future and therefore used an expected dividend yield of zero.
The Company calculated an annualized forfeiture rate of 4.77% and 2.82% as of December 31,
2010 and 2009, respectively, using the Company’s historical data. These rates were used to exclude
future forfeitures in the calculation of stock-based compensation expense as of December 31, 2010
and 2009, respectively.
The assumptions used to value option and restricted stock award grants for the years ended
December 31, 2010 and 2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Expected life from grant date
|
|
|
6.59 – 6.96
|
|
|
|
6.08 – 7.96
|
|
|
Expected volatility
|
|
|
115% – 116
|
%
|
|
|
105% – 114
|
%
|
|
Risk free interest rate
|
|
|
2.56% – 2.70
|
%
|
|
|
2.89% – 3.07
|
%
|
|
Dividend yield
|
|
|
—
|
|
|
|
—
|
|
The following table summarizes stock-based compensation expenses related to stock options and
warrants for the years ended December 31, 2010 and 2009, and for the period from June 14, 2004
(date of inception) to December 31, 2010, which were included in the statements of operations in
the following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
163,612
|
|
|
$
|
260,226
|
|
|
$
|
1,243,038
|
|
|
General and administrative expense
|
|
|
541,606
|
|
|
|
941,540
|
|
|
|
3,346,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
705,218
|
|
|
$
|
1,201,766
|
|
|
$
|
4,589,506
|
|
|
|
|
|
|
|
|
|
|
|
|
If all of the remaining non-vested and outstanding stock option awards that have been granted
became vested, we would recognize approximately $473,000 in compensation expense over a weighted
average remaining period of 0.84 years. However, no compensation expense will be recognized for any
stock option awards that do not vest.
F-14
The following table summarizes stock-based compensation expense related to employee restricted
stock awards for the years ended December 31, 2010 and 2009, and for the period from June 14, 2004
(date of inception) to December 31, 2010, which was included in the statements of operations in the
following captions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
13,675
|
|
|
$
|
15,734
|
|
|
$
|
30,043
|
|
|
General and administrative expense
|
|
|
28,897
|
|
|
|
47,655
|
|
|
|
78,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,572
|
|
|
$
|
63,389
|
|
|
$
|
108,488
|
|
|
|
|
|
|
|
|
|
|
|
|
All of the restricted stock awards that have been granted became fully vested in 2010.
4. RESEARCH AND DEVELOPMENT
The Company’s research and development expenses include expenses related to Phase 2 clinical
development of the Company’s lead compound VIA-2291, regulatory activities, and preclinical
development costs for additional assets in the Company’s product pipeline. R&D expenses include
salaries, contractor and consultant fees, external clinical trial expenses performed by CROs and
contracted investigators, licensing fees and facility allocations. In addition, the Company funds
R&D at third-party research institutions under agreements that are generally cancelable at the
Company’s option. Research costs typically consist of applied research, preclinical and toxicology
work. Pharmaceutical manufacturing development costs consist of product formulation, chemical
analysis and the transfer and scale-up of manufacturing at our contract manufacturers. Clinical
costs include the costs of Phase 2 clinical trials. These costs, along with the manufacturing
scale-up costs, are a significant component of research and development expenses.
The following reflects the breakdown of the Company’s research and development expenses
generated internally versus externally for the years ended December 31, 2010 and 2009, and for the
period from June 14, 2004 (date of inception) to December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Externally generated research and development expense
|
|
$
|
361,725
|
|
|
$
|
3,639,215
|
|
|
$
|
29,066,916
|
|
|
Internally generated research and development expense
|
|
|
1,455,737
|
|
|
|
2,416,000
|
|
|
|
13,656,724
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,817,462
|
|
|
$
|
6,055,215
|
|
|
$
|
42,723,640
|
|
|
|
|
|
|
|
|
|
|
|
|
Externally generated research and development expenses consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Externally generated research and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-licensing expenses
|
|
$
|
—
|
|
|
$
|
400,000
|
|
|
$
|
5,270,000
|
|
|
CRO and investigator expenses
|
|
|
21,068
|
|
|
|
1,090,115
|
|
|
|
10,770,407
|
|
|
Consulting expenses
|
|
|
181,088
|
|
|
|
1,120,131
|
|
|
|
6,599,757
|
|
|
Qualifying therapeutic discovery grant
|
|
|
(138,640
|
)
|
|
|
—
|
|
|
|
(138,640
|
)
|
|
Other
|
|
|
298,209
|
|
|
|
1,028,969
|
|
|
|
6,565,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
361,725
|
|
|
$
|
3,639,215
|
|
|
$
|
29,066,916
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
Internally generated research and development expenses consist primarily of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Internally generated research and development expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel and related expenses
|
|
$
|
1,051,915
|
|
|
$
|
1,693,205
|
|
|
$
|
9,559,074
|
|
|
Stock-based compensation expense
|
|
|
177,287
|
|
|
|
275,961
|
|
|
|
1,273,081
|
|
|
Travel and entertainment expense
|
|
|
63,737
|
|
|
|
170,249
|
|
|
|
1,219,356
|
|
|
Qualifying therapeutic discovery grant
|
|
|
(105,839
|
)
|
|
|
—
|
|
|
|
(105,839
|
)
|
|
Other
|
|
|
268,637
|
|
|
|
276,585
|
|
|
|
1,711,052
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,455,737
|
|
|
$
|
2,416,000
|
|
|
$
|
13,656,724
|
|
|
|
|
|
|
|
|
|
|
|
|
5. PROPERTY AND EQUIPMENT
Property and equipment — net, at December 31, 2010 and 2009 consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Property and equipment at cost:
|
|
|
|
|
|
|
|
|
|
Computer equipment and software
|
|
$
|
281,822
|
|
|
$
|
308,467
|
|
|
Furniture and fixtures
|
|
|
113,363
|
|
|
|
113,363
|
|
|
Office equipment
|
|
|
21,048
|
|
|
|
38,282
|
|
|
Leasehold Improvements
|
|
|
24,794
|
|
|
|
129,740
|
|
|
|
|
|
|
|
|
|
|
Total property and equipment at cost
|
|
|
441,027
|
|
|
|
589,852
|
|
|
Less: accumulated depreciation
|
|
|
(417,670
|
)
|
|
|
(419,235
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
23,357
|
|
|
$
|
170,617
|
|
|
|
|
|
|
|
|
|
Depreciation expense on property and equipment was $74,882 and $136,360 in the years ended
December 31, 2010 and 2009, respectively, and $578,755 for the period from June 14, 2004 (date of
inception) to December 31, 2010, and was included in the statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
12,980
|
|
|
$
|
22,292
|
|
|
$
|
144,908
|
|
|
General and administrative expense
|
|
|
61,902
|
|
|
|
114,068
|
|
|
|
433,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,882
|
|
|
$
|
136,360
|
|
|
$
|
578,755
|
|
|
|
|
|
|
|
|
|
|
|
|
6. NOTES PAYABLE
—
AFFILIATES
Notes Payable — Affiliates consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Issued March 12, 2009 — 18% — due April 1, 2010 (2009 Loan Agreement)
|
|
$
|
10,000,000
|
|
|
$
|
10,000,000
|
|
|
Less: Unamortized discount
|
|
|
—
|
|
|
|
(4,374
|
)
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$
|
10,000,000
|
|
|
$
|
9,995,626
|
|
|
|
|
|
|
|
|
|
|
Issued March 26, 2010 — 15% — due December 31, 2010 (2010 Loan Agreement)
|
|
$
|
3,000,000
|
|
|
$
|
—
|
|
|
Less: Unamortized discount
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$
|
3,000,000
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Issued November 15, 2010 — 15% — due December 31, 2010 (2010 Loan Amendment)
|
|
$
|
1,001,397
|
|
|
$
|
—
|
|
|
Less: Unamortized discount
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Balance
|
|
$
|
1,001,397
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
14,001,397
|
|
|
$
|
9,995,626
|
|
|
|
|
|
|
|
|
|
F-16
Notes Payable Issued March 12, 2009 — due April 1, 2010 (2009 Loan Agreement)
In March 2009, the Company entered into the 2009 Loan Agreement whereby the Lenders agreed to
lend to the Company in the aggregate up to $10.0 million, pursuant to the terms of promissory notes
(collectively, the “2009 Notes”) issued under the Loan Agreement.
On March 12, 2009, the Company borrowed an initial amount of $2.0 million under the 2009 Loan
Agreement. During the three months ended June 30, 2009, the Company borrowed $2.0 million on May
19, 2009, and another $2.0 million on June 29, 2009. During the three months ended September 30,
2009, the Company borrowed $2.0 million on August 14, 2009, and borrowed the final $2.0 million on
September 11, 2009. The 2009 Notes are secured by a first priority lien on all of the assets of the
Company, including the Company’s intellectual property. Amounts borrowed under the 2009 Notes
accrue interest at the rate of 15% per annum, which increases to 18% per annum following an event
of default. Unless earlier paid in accordance with the terms of the 2009 Notes, all unpaid
principal and accrued interest became fully due and payable on April 1, 2010. While the Lenders
have not declared an event of default, the Company failed to repay the aggregate loan amount and
all related interest to the Lenders due on April 1, 2010. As a result, the Company is now accruing
interest at the higher 18% per annum beginning April 1, 2010. On September 11, 2009, the Lenders
agreed to extend the repayment terms from September 14, 2009 to October 31, 2009; on October 30,
2009, the Lenders agreed to further extend the repayment terms from October 31, 2009 to December
31, 2009; on December 22, 2009, the Lenders agreed to again further extend the repayment terms from
December 31, 2009 to February 28, 2010; and on February 26, 2010, the Lenders agreed to further
extend the repayment terms from February 28, 2010 to April 1, 2010. There were no other significant
changes to any of the terms and conditions of the original 2009 Notes in the September 11, 2009,
October 30, 2009, December 22, 2009 or February 26, 2010 amendments and the Lenders did not give
any loan concessions. As a result of the loan amendments, and because the Company did not repay the
debt on April 1, 2010, total interest expense on the note and the note discount amortization
increased $2,135,343 from anticipated interest expense based on the original due date of the 2009
Notes of $7,328,449 to actual interest after the loan amendments of $9,463,792 from the inception
of the 2009 Notes to December 31, 2010.
Pursuant to the terms of the Loan Agreement, the Company issued to the Lenders warrants (the
“2009 Warrants”) to purchase an aggregate of up to 83,333,333 shares (the “2009 Warrant Shares”) of
common stock at $0.12 per share as more fully described below. The number of 2009 Warrant Shares is
equal to the $10.0 million maximum aggregate principal amount that may be borrowed under the 2009
Loan Agreement, divided by the $0.12 per share exercise price of the 2009 Warrants. The 2009
Warrant Shares vest based on the amount of borrowings under the 2009 Notes and based on the passage
of time. For each $2.0 million borrowing, 8,333,333 2009 Warrant Shares vested and became
exercisable immediately on the date of grant, and 8,333,333 vested and became exercisable 45 days
thereafter as the Company meets certain conditions provided for in the 2009 Warrants, including
that the Company did not complete a $20.0 million financing, as defined in the 2009 Loan Agreement,
within 45 days of the borrowing. Based on the aggregate $10.0 million of borrowings at December 31,
2010, all 83,333,333 2009 Warrant Shares are vested and are exercisable at December 31, 2010. The
2009 Warrant Shares are exercisable at any time until March 12, 2014.
On March 12, 2009, the fair value of the note and of the 16,666,666 2009 Warrant Shares
related to the $2.0 million borrowed under the 2009 Loan Agreement was $2.0 million and
approximately $1.6 million, respectively. This resulted in the Company allocating the relative fair
value of approximately $1.1 million of the $2.0 million in proceeds to the note and approximately
$900,000 to the 2009 Warrants. The Company has recorded the $900,000 freestanding 2009 Warrants as
permanent equity under accounting guidance for accounting for derivative financial instruments
indexed to, and potentially settled in, a company’s own stock, and accounting guidance for
determining whether an instrument (or embedded feature) is indexed to an entity’s own stock
.
The
$900,000 discount on the note payable — affiliate is netted against the $2.0 million note and is
being amortized to interest expense using the interest method from March 12, 2009 through April 1,
2010, the maturity date of the note payable. At December 31, 2010, the balance of notes payable —
affiliate net of discount was $2,000,000 and the unamortized discount was $0. At December 31,
2009, the balance of notes payable — affiliate net of discount was $1,999,964 and the unamortized
discount was $36.
Interest expenses on the $2.0 million March 12, 2009 borrowing for the years ended December
31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were
included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 12, 2009 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
345,206
|
|
|
$
|
242,466
|
|
|
$
|
587,672
|
|
|
Discount amortization
|
|
|
36
|
|
|
|
900,008
|
|
|
|
900,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
345,242
|
|
|
$
|
1,142,474
|
|
|
$
|
1,487,716
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
The Company estimated the fair value of the 2009 Warrants of approximately $1.6 million at
March 12, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below.
The assumptions used to value the 2009 Warrants at March 12, 2009 (date of inception) are:
|
|
|
|
|
|
|
|
|
March 12, 2009
|
|
|
Expected life from grant date — in years
|
|
|
5.0
|
|
|
Expected volatility
|
|
|
116.79
|
%
|
|
Risk free interest rate
|
|
|
2.10
|
%
|
|
Dividend yield
|
|
|
—
|
|
On May 19, 2009, the Company borrowed an additional $2.0 million under the 2009 Loan Agreement
and the fair value of the note and of the 16,666,666 2009 Warrant Shares related was $2.0 million
and approximately $6.6 million, respectively. This resulted in the Company allocating the relative
fair value of approximately $500,000 of the $2.0 million in proceeds to the note and approximately
$1.5 million to the 2009 Warrants. The Company has recorded the $1.5 million freestanding 2009
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $1.5 million discount on the note payable — affiliate is netted against the $2.0 million note
and is being amortized to interest expense using the interest method from May 19, 2009 through
April 1, 2010, the maturity date of the note payable. At December 31, 2010, the balance of notes
payable — affiliate net of discount was $2,000,000 and the unamortized discount was $0. At
December 31, 2009, the balance of notes payable — affiliate net of discount was $1,999,904 and the
unamortized discount was $96.
Interest expenses on the $2.0 million May 19, 2009 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 19, 2009 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
345,206
|
|
|
$
|
186,575
|
|
|
$
|
531,781
|
|
|
Discount amortization
|
|
|
96
|
|
|
|
1,532,796
|
|
|
|
1,532,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
345,302
|
|
|
$
|
1,719,371
|
|
|
$
|
2,064,673
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2009 Warrants of approximately $1.5 million at May
19, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2009 Warrants at May 19, 2009 (date of inception) are:
|
|
|
|
|
|
|
|
|
May 19, 2009
|
|
|
Expected life from grant date — in years
|
|
|
4.81
|
|
|
Expected volatility
|
|
|
108.63
|
%
|
|
Risk free interest rate
|
|
|
2.05
|
%
|
|
Dividend yield
|
|
|
—
|
|
On June 29, 2009, the Company borrowed an additional $2.0 million under the 2009 Loan
Agreement and the fair value of the note and of the 16,666,666 2009 Warrant Shares related was $2.0
million and approximately $8.7 million, respectively. This resulted in the Company allocating the
relative fair value of approximately $400,000 of the $2.0 million in proceeds to the note and
approximately $1.6 million to the 2009 Warrants. The Company has recorded the $1.6 million
freestanding 2009 Warrants as permanent equity under accounting guidance for accounting for
derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and
accounting guidance for determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock. The $1.6 million discount on the note payable — affiliate is netted against
the $2.0 million note and is being amortized to interest expense using the interest method from
June 29, 2009 through April 1, 2010, the maturity date of the note payable. At December 31, 2010,
the balance of notes payable — affiliate net of discount was $2,000,000 and the unamortized
discount was $0. At December 31, 2009, the balance of notes payable — affiliate net of discount
was $1,999,843 and the unamortized discount was $157.
F-18
Interest expenses on the $2.0 million June 29, 2009 borrowing for the years ended December 31,
2010 and 2009, and for the period
from inception (June 14, 2004) to December 31, 2010 were included in the statement of
operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 29, 2009 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
345,205
|
|
|
$
|
152,877
|
|
|
$
|
498,082
|
|
|
Discount amortization
|
|
|
157
|
|
|
|
1,625,778
|
|
|
|
1,625,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
345,362
|
|
|
$
|
1,778,655
|
|
|
$
|
2,124,017
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2009 Warrants of approximately $1.6 million at
June 29, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below.
The assumptions used to value the 2009 Warrants at June 29, 2009 (date of inception) are:
|
|
|
|
|
|
|
|
|
June 29, 2009
|
|
|
Expected life from grant date — in years
|
|
|
4.7
|
|
|
Expected volatility
|
|
|
112.03
|
%
|
|
Risk free interest rate
|
|
|
2.40
|
%
|
|
Dividend yield
|
|
|
—
|
|
On August 14, 2009, the Company borrowed an additional $2.0 million under the 2009 Loan
Agreement and the fair value of the note and of the 16,666,666 2009 Warrant Shares related was $2.0
million and approximately $4.4 million, respectively. This resulted in the Company allocating the
relative fair value of approximately $600,000 of the $2.0 million in proceeds to the note and
approximately $1.4 million to the 2009 Warrants. The Company has recorded the $1.4 million
freestanding 2009 Warrants as permanent equity under accounting guidance for accounting for
derivative financial instruments indexed to, and potentially settled in, a company’s own stock, and
accounting guidance for determining whether an instrument (or embedded feature) is indexed to an
entity’s own stock. The $1.4 million discount on the note payable — affiliate is netted against
the $2.0 million note and is being amortized to interest expense using the interest method from
August 14, 2009 through April 1, 2010, the maturity date of the note payable. At December 31, 2010
and 2009, the balance of notes payable — affiliate net of discount was $2,000,000 and the
unamortized discount was $0. At December 31, 2009, the balance of notes payable — affiliate net
of discount was $1,999,671 and the unamortized discount was $329.
Interest expenses on the $2.0 million August 14, 2009 borrowing for the years ended December
31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were
included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
August 14, 2009 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
345,205
|
|
|
$
|
115,069
|
|
|
$
|
460,274
|
|
|
Discount amortization
|
|
|
329
|
|
|
|
1,372,712
|
|
|
|
1,373,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
345,534
|
|
|
$
|
1,487,781
|
|
|
$
|
1,833,315
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2009 Warrants of approximately $1.4 million at
August 14, 2009 using the Black-Scholes pricing model methodology with assumptions outlined below.
The assumptions used to value the 2009 Warrants at August 14, 2009 (date of inception) are:
|
|
|
|
|
|
|
|
|
August 14, 2009
|
|
|
Expected life from grant date — in years
|
|
|
4.58
|
|
|
Expected volatility
|
|
|
115.22
|
%
|
|
Risk free interest rate
|
|
|
2.32
|
%
|
|
Dividend yield
|
|
|
—
|
|
F-19
On September 11, 2009, the Company borrowed the final $2.0 million under the 2009 Loan
Agreement and the fair value of the note and of the 16,666,666 2009 Warrant Shares related was $2.0
million and approximately $6.3 million, respectively. This resulted in the Company allocating the
relative fair value of approximately $500,000 of the $2.0 million in proceeds to the note and
approximately $1.5 million to the 2009 Warrants. The Company has recorded the $1.5 million
freestanding 2009 Warrants as permanent equity under accounting guidance for accounting for
derivative financial instruments indexed to, and potentially settled in,
a company’s own stock, and accounting guidance for determining whether an instrument (or
embedded feature) is indexed to an entity’s own stock. The $1.5 million discount on the note
payable — affiliate is netted against the $2.0 million note and is being amortized to interest
expense using the interest method from September 11, 2009 through April 1, 2010, the maturity date
of the note payable. At December 31, 2010, the balance of notes payable — affiliate net of
discount was $2,000,000 and the unamortized discount was $0. At December 31, 2009, the balance of
notes payable — affiliate net of discount was $1,996,244 and the unamortized discount was $3,756.
Interest expenses on the $2.0 million September 11, 2009 borrowing for the years ended
December 31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010
were included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 11, 2009 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
345,205
|
|
|
$
|
92,054
|
|
|
$
|
437,259
|
|
|
Discount amortization
|
|
|
3,756
|
|
|
|
1,513,055
|
|
|
|
1,516,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
348,961
|
|
|
$
|
1,605,109
|
|
|
$
|
1,954,070
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2009 Warrants of approximately $1.5 million at
September 11, 2009 using the Black-Scholes pricing model methodology with assumptions outlined
below. The assumptions used to value the 2009 Warrants at September 11, 2009 (date of inception)
are:
|
|
|
|
|
|
|
|
|
September 11, 2009
|
|
|
Expected life from grant date — in years
|
|
|
4.50
|
|
|
Expected volatility
|
|
|
115.41
|
%
|
|
Risk free interest rate
|
|
|
2.07
|
%
|
|
Dividend yield
|
|
|
—
|
|
Interest expenses on the aggregate $10.0 million 2009 Loan Agreement for the years ended
December 31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010
were included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
1,726,027
|
|
|
$
|
789,041
|
|
|
$
|
2,515,068
|
|
|
Discount amortization
|
|
|
4,374
|
|
|
|
6,944,349
|
|
|
|
6,948,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,730,401
|
|
|
$
|
7,733,390
|
|
|
$
|
9,463,791
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 the aggregate balance of the notes payable — affiliate net of discount
was $10,000,000 and the aggregate unamortized discount was $0. At December 31, 2009 the aggregate
balance of the notes payable — affiliate net of discount was $9,995,626 and the aggregate
unamortized discount was $4,374. The Company had accrued interest of $2,515,068 and $789,041 as of
December 31, 2010 and December 31, 2009, respectively, which is included in the Balance Sheet.
|
|
|
Notes Payable Issued March 26, 2010 — 15% — due December 31, 2010 (2010 Loan Agreement)
|
In March 2010, the Company entered into the 2010 Loan Agreement whereby the Lenders agreed to
lend to the Company in the aggregate up to $3.0 million, pursuant to the terms of the 2010 Loan
Agreement notes.
On March 29, 2010, the Company borrowed an initial amount of $1,250,000. During the three
months ended June 30, 2010, the Company borrowed $100,000 on May 26, 2010, $200,000 on June 4,
2010, and another $300,000 on June 29, 2010. During the three months ended September 30, 2010, the
Company borrowed $100,000 on July 15, 2010, $750,000 on July 27, 2010 and a final $300,000 on
September 28, 2010. The original 2010 Loan Agreement notes are secured by a lien on all of the
assets of the Company. Amounts borrowed under the 2010 Loan Agreement notes accrue interest at the
rate of 15% per annum, which increases to 18% per annum following an event of default. Unless
earlier paid in accordance with the terms of the 2010 Loan Agreement notes, all unpaid principal
and accrued interest shall become fully due and payable on the earlier to occur of (i) December 31,
2010, (ii) the closing of a debt, equity or combined debt/equity financing resulting in gross
proceeds or available credit to the Company of not less than
$20,000,000, and (iii) the closing of a transaction in which the Company sells, conveys,
licenses or otherwise disposes of a majority of its assets or is acquired by way of a merger,
consolidation, reorganization or other transaction or series of transactions pursuant to which
stockholders of the Company prior to such acquisition own less than 50% of the voting interests in
the surviving or resulting entity. On January 14, 2011, as more fully described in Note 14 in the
notes to the financial statements, the Company entered into amendments to the 2010 Loan Agreement
and the 2010 Loan Amendment to extend the maturity date under the 2010 Loan Agreement and 2010 Loan
Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
F-20
Pursuant to the 2010 Loan Agreement, the Company issued to the Lenders warrants (the “2010
Warrants”) to purchase an aggregate of 17,647,059 shares (the “2010 Warrant Shares”) of common
stock at $0.17 per share. The number of 2010 Warrant Shares is equal to the $3,000,000 maximum
aggregate principal amount that may be borrowed under the 2010 Loan Agreement, divided by the $0.17
per share exercise price of the 2010 Warrants. The 2010 Warrant Shares vest based on the amount of
borrowings under the 2010 Loan Agreement notes. Based on the $3,000,000 borrowings as of December
31, 2010, all 17,647,059 of the 2010 Warrant Shares are vested and are exercisable at December 31,
2010. The Warrant Shares are exercisable at any time until March 26, 2015.
On March 29, 2010, the fair value of the 2010 Loan Agreement notes and of the 7,352,941 2010
Warrant Shares related to the $1.25 million borrowed under the 2010 Loan Agreement was $1.25
million and approximately $904,000, respectively. This resulted in the Company allocating the
relative fair value of approximately $726,000 of the $1.25 million in proceeds to the 2010 Loan
Agreement notes and approximately $524,000 to the 2010 Warrants. The Company has recorded the
$524,000 freestanding 2010 Warrants as permanent equity under accounting guidance for accounting
for derivative financial instruments indexed to, and potentially settled in, a company’s own stock,
and accounting guidance for determining whether an instrument (or embedded feature) is indexed to
an entity’s own stock. The $524,000 discount on the note payable — affiliate is netted against the
$1.25 million 2010 Loan Agreement notes and is being amortized to interest expense using the
interest method from March 29, 2010 through December 31, 2010, the maturity date of the note
payable. At December 31, 2010, the balance of notes payable — affiliate net of discount was
$1,250,000 and the unamortized discount was $0.
Interest expenses on the $1.25 million March 29, 2010 borrowing for the years ended December
31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were
included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
March 29, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
142,808
|
|
|
$
|
—
|
|
|
$
|
142,808
|
|
|
Discount amortization
|
|
|
524,496
|
|
|
|
—
|
|
|
|
524,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
667,304
|
|
|
$
|
—
|
|
|
$
|
667,304
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $524,000 at March
29, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at March 29, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
March 29, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.99
|
|
|
Expected volatility
|
|
|
119.82
|
%
|
|
Risk free interest rate
|
|
|
2.60
|
%
|
|
Dividend yield
|
|
|
—
|
|
On May 26, 2010, the Company borrowed an additional $100,000 under the 2010 Loan Agreement and
the fair value of the note and of the 588,235 2010 Warrant Shares related was $100,000 and
approximately $71,000, respectively. This resulted in the Company allocating the relative fair
value of approximately $58,000 of the $100,000 in proceeds to the 2010 Loan Agreement notes and
approximately $42,000 to the 2010 Warrants. The Company has recorded the $42,000 freestanding 2010
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $42,000 discount on the note payable — affiliate is netted against the $100,000 note and is
being amortized to interest expense using the interest method from May 26, 2010 through December
31, 2010, the maturity date of the note payable. At December 31, 2010, the balance of notes payable
— affiliate net of discount was $100,000 and the unamortized discount was $0.
F-21
Interest expenses on the $100,000 May 26, 2010 borrowing for the years ended December 31, 2010
and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included in
the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
May 26, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
9,041
|
|
|
$
|
—
|
|
|
$
|
9,041
|
|
|
Discount amortization
|
|
|
41,621
|
|
|
|
—
|
|
|
|
41,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
50,662
|
|
|
$
|
—
|
|
|
$
|
50,662
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $42,000 at May 26,
2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at May 26, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
May 26, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.83
|
|
|
Expected volatility
|
|
|
119.48
|
%
|
|
Risk free interest rate
|
|
|
1.99
|
%
|
|
Dividend yield
|
|
|
—
|
|
On June 4, 2010, the Company borrowed an additional $200,000 under the 2010 Loan Agreement and
the fair value of the note and of the 1,176,471 2010 Warrant Shares related was $200,000 and
approximately $101,000, respectively. This resulted in the Company allocating the relative fair
value of approximately $133,000 of the $200,000 in proceeds to the 2010 Loan Agreement notes and
approximately $67,000 to the 2010 Warrants. The Company has recorded the $67,000 freestanding 2010
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $67,000 discount on the note payable — affiliate is netted against the $200,000 note and is
being amortized to interest expense using the interest method from June 4, 2010 through December
31, 2010, the maturity date of the note payable. At December 31, 2010, the balance of notes payable
— affiliate net of discount was $200,000 and the unamortized discount was $0.
Interest expenses on the $200,000 June 4, 2010 borrowing for the years ended December 31, 2010
and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included in
the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 4, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
17,343
|
|
|
$
|
—
|
|
|
$
|
17,343
|
|
|
Discount amortization
|
|
|
66,928
|
|
|
|
—
|
|
|
|
66,928
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
84,271
|
|
|
$
|
—
|
|
|
$
|
84,271
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $67,000 at June 4,
2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at June 4, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
June 4, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.81
|
|
|
Expected volatility
|
|
|
119.88
|
%
|
|
Risk free interest rate
|
|
|
1.90
|
%
|
|
Dividend yield
|
|
|
—
|
|
On June 29, 2010, the Company borrowed an additional $300,000 under the 2010 Loan Agreement
and the fair value of the note and of the 1,764,706 2010 Warrant Shares related was $300,000 and
approximately $135,000, respectively. This resulted in the Company allocating the relative fair
value of approximately $207,000 of the $300,000 in proceeds to the 2010 Loan Agreement notes and
approximately $93,000 to the 2010 Warrants. The Company has recorded the $93,000 freestanding 2010
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s
own stock. The $93,000 discount on the note payable — affiliate is netted against the
$300,000 note and is being amortized to interest expense using the interest method from June 29,
2010 through December 31, 2010, the maturity date of the note payable. At December 31, 2010, the
balance of notes payable — affiliate net of discount was $300,000 and the unamortized discount was
$0.
F-22
Interest expenses on the $300,000 June 29, 2010 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
June 29, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
22,932
|
|
|
$
|
—
|
|
|
$
|
22,932
|
|
|
Discount amortization
|
|
|
92,935
|
|
|
|
—
|
|
|
|
92,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
115,867
|
|
|
$
|
—
|
|
|
$
|
115,867
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $93,000 at June 29,
2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at June 29, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
June 29, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.74
|
|
|
Expected volatility
|
|
|
120.12
|
%
|
|
Risk free interest rate
|
|
|
1.68
|
%
|
|
Dividend yield
|
|
|
—
|
|
On July 15, 2010, the Company borrowed an additional $100,000 under the 2010 Loan Agreement
and the fair value of the note and of the 588,235 2010 Warrant Shares related was $100,000 and
approximately $30,000, respectively. This resulted in the Company allocating the relative fair
value of approximately $77,000 of the $100,000 in proceeds to the 2010 Loan Agreement notes and
approximately $23,000 to the 2010 Warrants. The Company has recorded the $23,000 freestanding 2010
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $23,000 discount on the note payable — affiliate is netted against the $100,000 note and is
being amortized to interest expense using the interest method from July 15, 2010 through December
31, 2010, the maturity date of the note payable. At December 31, 2010, the balance of notes payable
— affiliate net of discount was $100,000 and the unamortized discount was $0.
Interest expenses on the $100,000 July 15, 2010 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
July 15, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
6,986
|
|
|
$
|
—
|
|
|
$
|
6,986
|
|
|
Discount amortization
|
|
|
22,902
|
|
|
|
—
|
|
|
|
22,902
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,888
|
|
|
$
|
—
|
|
|
$
|
29,888
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $23,000 at July 15,
2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at July 15, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
July 15, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.70
|
|
|
Expected volatility
|
|
|
120.71
|
%
|
|
Risk free interest rate
|
|
|
1.64
|
%
|
|
Dividend yield
|
|
|
—
|
|
F-23
On July 27, 2010, the Company borrowed an additional $750,000 under the 2010 Loan Agreement
and the fair value of the note and of the 4,411,765 2010 Warrant Shares related was $750,000 and
approximately $259,000, respectively. This resulted in the
Company allocating the relative fair value of approximately $557,000 of the $750,000 in
proceeds to the 2010 Loan Agreement notes and approximately $193,000 to the 2010 Warrants. The
Company has recorded the $193,000 freestanding 2010 Warrants as permanent equity under accounting
guidance for accounting for derivative financial instruments indexed to, and potentially settled
in, a company’s own stock, and accounting guidance for determining whether an instrument (or
embedded feature) is indexed to an entity’s own stock. The $193,000 discount on the note payable —
affiliate is netted against the $750,000 note and is being amortized to interest expense using the
interest method from July 27, 2010 through December 31, 2010, the maturity date of the note
payable. At December 31, 2010, the balance of notes payable — affiliate net of discount was
$750,000 and the unamortized discount was $0.
Interest expenses on the $750,000 July 27, 2010 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
July 27, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
48,699
|
|
|
$
|
—
|
|
|
$
|
48,699
|
|
|
Discount amortization
|
|
|
192,745
|
|
|
|
—
|
|
|
|
192,745
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
241,444
|
|
|
$
|
—
|
|
|
$
|
241,444
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Warrants of approximately $193,000 at July
27, 2010 using the Black-Scholes pricing model methodology with assumptions outlined below. The
assumptions used to value the 2010 Warrants at July 27, 2010 (date of inception) are:
|
|
|
|
|
|
|
|
|
July 27, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.66
|
|
|
Expected volatility
|
|
|
120.64
|
%
|
|
Risk free interest rate
|
|
|
1.69
|
%
|
|
Dividend yield
|
|
|
—
|
|
On September 28, 2010, the Company borrowed the final $300,000 under the 2010 Loan Agreement
and the fair value of the note and of the 1,764,706 2010 Warrant Shares related was $300,000 and
approximately $165,000, respectively. This resulted in the Company allocating the relative fair
value of approximately $193,000 of the $300,000 in proceeds to the 2010 Loan Agreement notes and
approximately $107,000 to the 2010 Warrants. The Company has recorded the $107,000 freestanding
2010 Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $107,000 discount on the note payable — affiliate is netted against the $300,000 note and is
being amortized to interest expense using the interest method from September 28, 2010 through
December 31, 2010, the maturity date of the note payable. At September 30, 2010, the balance of
notes payable — affiliate net of discount was $300,000 and the unamortized discount was $0.
Interest expenses on the $300,000 September 28, 2010 borrowing for the years ended December
31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were
included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
September 28, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
11,712
|
|
|
$
|
—
|
|
|
$
|
11,712
|
|
|
Discount amortization
|
|
|
106,599
|
|
|
|
—
|
|
|
|
106,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
118,311
|
|
|
$
|
—
|
|
|
$
|
118,311
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
The Company estimated the fair value of the 2010 Warrants of approximately $107,000 at
September 28, 2010 using the Black-Scholes pricing model methodology with assumptions outlined
below. The assumptions used to value the 2010 Warrants at September 28, 2010 (date of inception)
are:
|
|
|
|
|
|
|
|
|
September 28, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.49
|
|
|
Expected volatility
|
|
|
123.90
|
%
|
|
Risk free interest rate
|
|
|
1.09
|
%
|
|
Dividend yield
|
|
|
—
|
|
Aggregate interest expenses on the $3,000,000 2010 Loan Agreement debt for the years ended
December 31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010
were included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
259,521
|
|
|
$
|
—
|
|
|
$
|
259,521
|
|
|
Discount amortization
|
|
|
1,048,226
|
|
|
|
—
|
|
|
|
1,048,226
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,307,747
|
|
|
$
|
—
|
|
|
$
|
1,307,747
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 the aggregate balance of the 2010 Loan Agreement notes payable —
affiliate net of discount was $3,000,000 and the aggregate unamortized discount was $0. The Company
has accrued interest of $259,521 as of December 31, 2010, which is included in the Balance Sheet.
|
|
|
Notes Payable Issued November 15, 2010 — 15% — due December 31, 2010 (2010 Loan Amendment)
|
On October 29, 2010, the Company executed a secured promissory note (the “Bridge Note”) in
favor of Bay City Capital Fund IV, L.P., a Delaware limited partnership in the principal sum of
$200,000 for general corporate purposes. By the terms of the Bridge Note, upon execution of the
2010 Loan Amendment (as defined below) the unpaid principal amount and accrued and unpaid interest
under the Bridge Note automatically converted into obligations of the Company under the 2010 Loan
Amendment as advances under the amended and restated promissory notes issued under the 2010 Loan
Amendment. The Company accrued $1,397 in unpaid interest for the period October 29, 2010 to
November 15, 2010, which is included in the Company’s statement of operations.
On November 15, 2010, the Company entered into an amendment to the 2010 Loan Agreement (“2010
Loan Amendment”) to enable the Company to borrow up to an additional aggregate principal amount of
$3,000,000, pursuant to the terms of amended and restated promissory notes issued under the 2010
Loan Amendment. On November 15, 2010, the $201,397 outstanding principal and unpaid interest on the
Bridge Note were automatically converted into obligations of the Company under the 2010 Loan
Amendment as advances. During the three months ended December 31, 2010, the Company borrowed an
additional $800,000 on November 22, 2010. The original 2010 Loan Amendment notes are secured by a
lien on all of the assets of the Company. Amounts borrowed under the 2010 Loan Amendment notes
accrue interest at the rate of fifteen percent (15%) per annum, which increases to eighteen percent
(18%) per annum following an event of default. Unless earlier paid in accordance with the terms of
the original 2010 Loan Amendment notes, all unpaid principal and accrued interest shall become
fully due and payable on the earlier to occur of (i) December 31, 2010, (ii) the closing of a debt,
equity or combined debt/equity financing resulting in gross proceeds or available credit to the
Company of not less than $20,000,000, and (iii) the closing of a transaction in which the Company
sells, conveys, licenses or otherwise disposes of a majority of its assets or is acquired by way of
a merger, consolidation, reorganization or other transaction or series of transactions pursuant to
which stockholders of the Company prior to such acquisition own less than 50% of the voting
interests in the surviving or resulting entity. On January 14, 2011, as more fully described in
Note 14 in the notes to the financial statements, the Company entered into amendments to the 2010
Loan Agreement and 2010 Loan Amendment to extend the maturity date under the 2010 Loan Agreement
and 2010 Loan Amendment from December 31, 2010 to June 30, 2011 and on March 24, 2011,
the Company entered into a second amendment to further extend the maturity date to September 30, 2011.
Pursuant to the 2010 Loan Amendment, the Company issued to the Lenders additional warrants
(the “2010 Additional Warrants”) to purchase an aggregate of 42,253,521 shares (the “2010
Additional Warrant Shares”) of common stock at $0.071 per share. The number of 2010 Additional
Warrant Shares is equal to the $3,000,000 maximum aggregate principal amount that may be borrowed
under the 2010 Loan Amendment, divided by the $0.071 per share exercise price of the 2010
Additional Warrants. The 2010 Additional Warrant Shares vest based on the amount of borrowings
under the 2010 Loan Amendment notes. Based on the $1,001,397 of borrowings, 14,104,183 2010
Additional Warrant Shares are vested and are exercisable as of December 31, 2010. At each
subsequent closing, the 2010 Additional Warrants will vest with respect to the additional
amount borrowed by the Company. The 2010 Additional Warrant Shares, to the extent they are vested
and exercisable, are exercisable at any time until November 15, 2015.
F-25
On November 15, 2010, the fair value of the $201,397 of bridge loans converted under the terms
of the 2010 Loan Amendment and of the 2,836,577 2010 Additional Warrant Shares related to the
$201,397 borrowed under the 2010 Loan Amendment was $201,397 and approximately $165,000,
respectively. This resulted in the Company allocating the relative fair value of approximately
$110,000 of the $201,397 in proceeds to the 2010 Loan Amendment notes and approximately $91,000 to
the 2010 Additional Warrants. The Company has recorded the $91,000 freestanding 2010 Additional
Warrants as permanent equity under accounting guidance for accounting for derivative financial
instruments indexed to, and potentially settled in, a company’s own stock, and accounting guidance
for determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.
The $91,000 discount on the note payable — affiliate is netted against the $201,397 2010 Loan
Amendment notes and is being amortized to interest expense using the interest method from November
15, 2010 through December 31, 2010, the maturity date of the note payable. At December 31, 2010,
the balance of notes payable — affiliate net of discount was $201,397 and the unamortized discount
was $0.
Interest expenses on the $201,397 November 15, 2010 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
November 15, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
3,889
|
|
|
$
|
—
|
|
|
$
|
3,889
|
|
|
Discount amortization
|
|
|
90,722
|
|
|
|
—
|
|
|
|
90,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
94,611
|
|
|
$
|
—
|
|
|
$
|
94,611
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company estimated the fair value of the 2010 Additional Warrants of approximately $91,000
at November 15, 2010 using the Black-Scholes pricing model methodology with assumptions outlined
below. The assumptions used to value the 2010 Additional Warrants at November 15, 2010 (date of
inception) are:
|
|
|
|
|
|
|
|
|
November 15, 2010
|
|
|
Expected life from grant date — in years
|
|
|
5.00
|
|
|
Expected volatility
|
|
|
121.67
|
%
|
|
Risk free interest rate
|
|
|
1.51
|
%
|
|
Dividend yield
|
|
|
—
|
|
On November 22, 2010, the Company borrowed an additional $800,000 under the 2010 Loan
Amendment and the fair value of the note and of the 11,267,606 2010 Additional Warrant Shares
related was $800,000 and approximately $863,000, respectively. This resulted in the Company
allocating the relative fair value of approximately $385,000 of the $800,000 in proceeds to the
2010 Loan Amendment notes and approximately $415,000 to the 2010 Additional Warrants. The Company
has recorded the $415,000 freestanding 2010 Additional Warrants as permanent equity under
accounting guidance for accounting for derivative financial instruments indexed to, and potentially
settled in, a company’s own stock, and accounting guidance for determining whether an instrument
(or embedded feature) is indexed to an entity’s own stock. The $415,000 discount on the note
payable — affiliate is netted against the $800,000 note and is being amortized to interest expense
using the interest method from November 22, 2010 through December 31, 2010, the maturity date of
the note payable. At December 31, 2010, the balance of notes payable — affiliate net of discount
was $800,000 and the unamortized discount was $0.
Interest expenses on the $800,000 November 22, 2010 borrowing for the years ended December 31,
2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010 were included
in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
November 22, 2010 Borrowing
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
13,151
|
|
|
$
|
—
|
|
|
$
|
13,151
|
|
|
Discount amortization
|
|
|
415,176
|
|
|
|
—
|
|
|
|
415,176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
428,327
|
|
|
$
|
—
|
|
|
$
|
428,327
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
The Company estimated the fair value of the 2010 Additional Warrants of approximately $415,000
at November 22, 2010 using the Black-Scholes pricing model methodology with assumptions outlined
below. The assumptions used to value the 2010 Additional Warrants at November 22, 2010 (date of
inception) are:
|
|
|
|
|
|
|
|
|
November 22, 2010
|
|
|
Expected life from grant date — in years
|
|
|
4.98
|
|
|
Expected volatility
|
|
|
121.57
|
%
|
|
Risk free interest rate
|
|
|
1.43
|
%
|
|
Dividend yield
|
|
|
—
|
|
Aggregate interest expenses on the $1,001,397 2010 Loan Amendment debt for the years ended
December 31, 2010 and 2009, and for the period from inception (June 14, 2004) to December 31, 2010
were included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
17,040
|
|
|
$
|
—
|
|
|
$
|
17,040
|
|
|
Discount amortization
|
|
|
505,898
|
|
|
|
—
|
|
|
|
505,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
522,938
|
|
|
$
|
—
|
|
|
$
|
522,938
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 the aggregate balance of the 2010 amended notes payable — affiliate net
of discount was $1,001,397 and the aggregate unamortized discount was $0. The Company has accrued
interest of $17,040 as of December 31, 2010, which is included in the Balance Sheet.
Interest expenses in aggregate on the outstanding $14,001,397 debt, including interest on the
Bridge Note, for the years ended December 31, 2010 and 2009, and for the period from inception
(June 14, 2004) to December 31, 2010 were included in the statement of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(date of inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Interest expense
|
|
$
|
2,003,985
|
|
|
$
|
789,041
|
|
|
$
|
2,793,026
|
|
|
Discount amortization
|
|
|
1,558,498
|
|
|
|
6,944,349
|
|
|
|
8,502,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,562,483
|
|
|
$
|
7,733,390
|
|
|
$
|
11,295,873
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 the aggregate balance of the notes payable — affiliate net of discount
was $14,001,397 and the aggregate unamortized discount was $0. The Company has accrued interest
payable of $2,791,629 and $789,041 at December 31, 2010 and 2009, respectively, which is included
in the Balance Sheet.
7. EQUITY
On June 5, 2007, in connection with the Merger, the Certificate of Incorporation of Corautus
became the Certificate of Incorporation of the Company, and the Company further amended and
restated its Certificate of Incorporation to increase the number of authorized shares of common
stock from 100,000,000 shares to 200,000,000 shares. The Certificate of Incorporation of the
Company provides that the total number of authorized shares of preferred stock of the Company is
5,000,000 shares. Significant components of the Company’s stock are as follows:
Common Stock
—
The Company’s authorized common stock was 200,000,000 shares at December 31,
2010 and 2009. Common stockholders are entitled to dividends if and when declared by the Board of
Directors, subject to preferred stockholder dividend rights.
F-27
At December 31, 2010 and 2009, the Company had reserved the following shares of common stock
for issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2007 Incentive Award Plan — outstanding and available to grant
|
|
|
3,916,326
|
|
|
|
3,328,398
|
|
|
Shares of common stock subject to outstanding warrants
|
|
|
143,297,261
|
|
|
|
83,403,348
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares of common stock subject to conversion from series C preferred stock
|
|
|
13,986,013
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares of common stock equivalents
|
|
|
161,199,600
|
|
|
|
86,731,746
|
|
|
|
|
|
|
|
|
|
As noted below, the Series C Preferred Stock became convertible on June 13, 2010 and shares
are convertible upon delivery of notice of conversion. The number of shares of common stock into
which Series C Preferred Stock will be converted is based in part on the “fair market value” (as
defined in the Amended and Restated Certificate of Designation of Preferences and Rights of Series
C Preferred Stock of the Company) of the Company’s common stock. Accordingly, we have not included
any Series C Preferred Stock in the table above for the period ended December 31, 2009.
Preferred Stock
—
The Company’s authorized Series A Preferred Stock was 5,000,000 shares at
December 31, 2010 and 2009. There were no issued and outstanding shares of Series A Preferred Stock
at December 31, 2010 and 2009.
The Company’s authorized Series C Preferred Stock was 17,000 shares at December 31, 2010 and
2009. There were 2,000 shares of Series C Preferred Stock issued and outstanding at December 31,
2010 and 2009. The Series C Preferred Stock is not entitled to receive dividends, has a liquidation
preference amount of one thousand dollars ($1,000.00) per share, and has no voting rights, except
as to the issuance of additional Series C Preferred Stock. Each share of Series C Preferred Stock
became convertible into common stock on June 13, 2010. The Series C Preferred Stock is convertible
into common stock in an amount equal to (a) the quotient of (i) the liquidation preference
(adjusted for recapitalizations), divided by (ii) one hundred and ten percent (110%) of the per
share “fair market value” (as defined in the Amended and Restated Certificate of Designation of
Preferences and Rights of Series C Preferred Stock of the Company) of the Company’s common stock
multiplied by (b) the number of shares of converted Series C Preferred Stock. As of December 31,
2010, the Series C Preferred Stock is convertible into 13,986,013 shares of the Company’s Common
Stock. As of December 31, 2010, the Series C Preferred Stock stockholder has not initiated the
conversion of the Series C Preferred Stock into the Company’s Common Stock
2002 Stock Option Plans
—
In November 2002, the Corautus Board of Directors adopted the 2002
Stock Plan, which was approved by Corautus stockholders in February 2003 and was amended by
Corautus stockholder approval in May 2004. Under the 2002 Stock Plan, the Board of Directors or a
committee of the Board of Directors has the authority to grant options and rights to purchase
common stock to officers, key employees, consultants and certain advisors to the Company. Options
granted under the 2002 Stock Plan may be either incentive stock options or non-qualified stock
options, as determined by the Board of Directors or a committee. The 2002 Stock Plan, as amended in
May 2004, reserved an additional 233,333 shares for issuance under the 2002 Stock Plan plus (a) any
shares of common stock which have been reserved but not issued under the 1999 Stock Plan, the 1995
Stock Plan and the 1995 Directors’ Option Plan as of the date of stockholder approval of the 2002
Stock Plan, (b) any shares of common stock returned to the 1999 Stock Plan, the 1995 Stock Plan and
the 1995 Directors’ Option Plan as a result of the termination of options or repurchase of shares
of common stock issued under those plans and (c) an annual increase on the first day of each year
by the lesser of (i) 20,000 shares, (ii) the number of shares equal to two percent of the total
outstanding common shares or (iii) a lesser amount determined by the Board of Directors. Generally,
options are granted with vesting periods from one to two years and expire ten years from date of
grant or three months after termination of employment or service, if sooner. Under the 2002 Stock
Plan, the Company had 0 shares available for future grant as of December 31, 2007. In December
2007, the Company incorporated the outstanding options and shares available for grant into the 2007
Incentive Award Plan.
2004 Stock Option Plans
—
In 2004, the Company’s Board of Directors adopted the 2004 Stock
Plan. Under the 2004 Stock Plan, up to 427,479 shares of the Company’s common stock, in the form of
both incentive and non-qualified stock options, may be granted to eligible employees, directors,
and consultants. In September 2006, the Company’s Board of Directors authorized an increase of
743,442 shares to the 2004 Stock Plan for a total of 1,170,921 authorized shares available for
grant from the 2004 Stock Plan. The 2004 Stock Plan provides that grants of incentive stock options
will be made at no less than the estimated fair value of the Company’s common stock, as determined
by the Board of Directors at the date of grant. If, at the time the Company grants an option, the
holder owns more than ten percent of the total combined voting power of all the classes of stock of
the Company, the option price shall be at least 110% of the fair value. Vesting and exercise
provisions are determined by the Board of Directors at the time of grant. Option vesting ranges
from immediate and full vesting to five year vesting (twenty percent of the shares one year after
the options’ vesting
commencement date and the remainder vesting ratably each month). Options granted under the
2004 Stock Plan have a maximum term of ten years. Options can only be exercised upon vesting,
unless the option specifies that the shares can be early exercised. The Company retains the right
to repurchase exercised and unvested shares. Under the 2004 Stock Plan, the Company had 0 shares
available for future grant as of December 31, 2007. In December of 2007, the Company incorporated
the outstanding options and shares available for grant into the 2007 Incentive Award Plan.
F-28
2007 Incentive Award Plan
—
In December 2007, the Company’s Board of Directors adopted the
2007 Incentive Award Plan. The Company combined the 2002 and 2004 Stock Plan into the 2007
Incentive Award Plan, and added 2.0 million shares available for grant in the form of both
incentive and non-qualified stock options which may be granted to eligible employees, directors,
and consultants. Only employees are entitled to receive grants of incentive stock options. The 2007
Incentive Award Plan provides that grants of incentive stock options will be made at no less than
the estimated fair market value of the Company’s common stock on the date of grant. If, at the time
the Company grants an option, the holder owns more than ten percent of the total combined voting
power of all the classes of stock of the Company, the option price shall be at least 110% of the
fair value. Vesting and exercise provisions are determined by the Board of Directors at the time of
grant. Option vesting ranges from immediate and full vesting to five year vesting (twenty percent
of the shares one year after the options’ vesting commencement date and the remainder vesting
ratably each month). Options granted under the 2007 Incentive Award Plan have a maximum term of ten
years. Options can only be exercised upon vesting, unless the option specifies that the shares can
be early exercised. The Company retains the right to repurchase exercised and unvested shares.
Under the 2007 Incentive Award Plan, the Company had 2,068,738 and 587,712 shares available for
future grant at December 31, 2010 and 2009, respectively. Under the 2007 Incentive Award Plan,
there is an annual “evergreen” provision which provides that the plan shares are increased by the
lesser of 500,000 shares or 3% of total common shares outstanding at the Company’s year-end.
Effective January 1, 2010 and 2009, the Company added an additional 500,000 shares to the plan
pursuant to this provision of the plan.
A summary of stock option award activity from December 31, 2007 to December 31, 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Option Shares
|
|
|
Exercise
|
|
|
Stock Option Awards
|
|
Outstanding
|
|
|
Price
|
|
|
2007 Incentive Award Plan Options Outstanding — December 31, 2007
|
|
|
2,642,110
|
|
|
$
|
7.02
|
|
|
Granted
|
|
|
332,750
|
|
|
$
|
2.42
|
|
|
Exercised
|
|
|
(32,711
|
)
|
|
$
|
0.07
|
|
|
Canceled
|
|
|
(134,222
|
)
|
|
$
|
2.72
|
|
|
|
|
|
|
|
|
|
|
2007 Incentive Award Plan Options Outstanding — December 31, 2008
|
|
|
2,807,927
|
|
|
$
|
6.77
|
|
|
Granted
|
|
|
11,000
|
|
|
$
|
0.18
|
|
|
Exercised
|
|
|
(57,615
|
)
|
|
$
|
0.03
|
|
|
Canceled
|
|
|
(20,626
|
)
|
|
$
|
3.79
|
|
|
|
|
|
|
|
|
|
|
2007 Incentive Award Plan Options Outstanding — December 31, 2009
|
|
|
2,740,686
|
|
|
$
|
6.90
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
(43,057
|
)
|
|
$
|
0.03
|
|
|
Canceled
|
|
|
(850,041
|
)
|
|
$
|
2.52
|
|
|
|
|
|
|
|
|
|
|
2007 Incentive Award Plan Options Outstanding — December 31, 2010
|
|
|
1,847,588
|
|
|
$
|
8.91
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, a total of 229,955 shares of stock options were early exercised
before the shares were vested pursuant to provisions of the share grants under the 2007 Incentive
Award Plan, of which 5,793 shares remain unvested and subject to repurchase by the Company in the
event of employee termination.
F-29
The following table summarizes information concerning outstanding and exercisable options
outstanding at December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Vested or Expected to Vest
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
Number
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
Weighted
|
|
|
Range of
|
|
Number of
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercisable or
|
|
|
Remaining
|
|
|
Average
|
|
|
|
|
|
|
Average
|
|
|
Exercise
|
|
Options
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Expected to
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Number
|
|
|
Exercise
|
|
|
Prices
|
|
Outstanding
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Vest
|
|
|
Life (Years)
|
|
|
Price
|
|
|
Exercisable
|
|
|
Price
|
|
|
$0.03
|
|
|
124,897
|
|
|
|
4.41
|
|
|
$
|
0.03
|
|
|
|
124,897
|
|
|
|
4.41
|
|
|
$
|
0.03
|
|
|
|
124,897
|
|
|
$
|
0.03
|
|
|
$0.14
|
|
|
70,992
|
|
|
|
5.78
|
|
|
$
|
0.14
|
|
|
|
70,992
|
|
|
|
5.78
|
|
|
$
|
0.14
|
|
|
|
70,992
|
|
|
$
|
0.14
|
|
|
$0.15
|
|
|
40,000
|
|
|
|
7.96
|
|
|
$
|
0.15
|
|
|
|
40,000
|
|
|
|
7.96
|
|
|
$
|
0.15
|
|
|
|
40,000
|
|
|
$
|
0.15
|
|
|
$2.38
|
|
|
810,000
|
|
|
|
6.96
|
|
|
$
|
2.38
|
|
|
|
801,056
|
|
|
|
6.96
|
|
|
$
|
2.38
|
|
|
|
622,500
|
|
|
$
|
2.38
|
|
|
$2.90
|
|
|
235,000
|
|
|
|
7.04
|
|
|
$
|
2.90
|
|
|
|
231,964
|
|
|
|
7.04
|
|
|
$
|
2.90
|
|
|
|
171,354
|
|
|
$
|
2.90
|
|
|
$3.48
|
|
|
219,400
|
|
|
|
6.59
|
|
|
$
|
3.48
|
|
|
|
217,656
|
|
|
|
6.59
|
|
|
$
|
3.48
|
|
|
|
182,832
|
|
|
$
|
3.48
|
|
|
$5.10
|
|
|
16,725
|
|
|
|
6.43
|
|
|
$
|
5.10
|
|
|
|
16,725
|
|
|
|
6.43
|
|
|
$
|
5.10
|
|
|
|
16,725
|
|
|
$
|
5.10
|
|
|
$5.55
|
|
|
18,586
|
|
|
|
6.42
|
|
|
$
|
5.55
|
|
|
|
18,586
|
|
|
|
6.42
|
|
|
$
|
5.55
|
|
|
|
18,586
|
|
|
$
|
5.55
|
|
|
$11.25—$1023.75
|
|
|
311,988
|
|
|
|
3.90
|
|
|
$
|
42.36
|
|
|
|
311,988
|
|
|
|
4.90
|
|
|
$
|
42.36
|
|
|
|
311,988
|
|
|
$
|
42.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,847,588
|
|
|
|
6.20
|
|
|
$
|
8.91
|
|
|
|
1,833,864
|
|
|
|
6.20
|
|
|
$
|
8.96
|
|
|
|
1,559,874
|
|
|
$
|
10.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair value of options granted was $0.15 in the year ended December
31, 2009. No options were granted in the year ended December 31, 2010. The total intrinsic value
of stock options exercised was $897 and $11,865 for the years ended December 31, 2010 and 2009,
respectively.
See also Note 8 for stock options with Related Parties.
Restricted Stock
—
In December 2008, under the provisions of the 2007 Incentive Award Plan,
the Company granted employees restricted stock awards for 852,750 shares of the Company’s common
stock with a weighted-average fair value of $0.15 per share that vest monthly over a two year
period, with acceleration of vesting in the event of a defined partnering transaction related to
the development of VIA-2291. The Company recognized $42,572 and $63,389 in stock-based compensation
expense in the years ended December 31, 2010 and 2009, respectively, and $108,488 in stock-based
compensation expense in the period from June 14, 2004 (date of inception) to December 31, 2010. As
the restricted stock awards vested through 2010, the Company recognized the related stock-based
compensation expense over the vesting period. Restricted stock awards are shares of common stock
which are forfeited if the employee leaves the Company prior to vesting. These stock awards offer
employees the opportunity to earn shares of our stock over time. In contrast, stock options give
the employee the right to purchase stock at a set price.
A summary of restricted stock activity from December 31, 2007 to December 31, 2010 follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
Restricted Stock Awards
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested at December 31, 2007
|
|
|
—
|
|
|
|
—
|
|
|
Granted
|
|
|
852,750
|
|
|
$
|
0.15
|
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2008
|
|
|
852,750
|
|
|
$
|
0.15
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
(424,916
|
)
|
|
$
|
0.15
|
|
|
Forfeited
|
|
|
(3,959
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2009
|
|
|
423,875
|
|
|
$
|
0.15
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
Vested
|
|
|
(298,341
|
)
|
|
$
|
0.15
|
|
|
Forfeited
|
|
|
(125,534
|
)
|
|
$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2010
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Warrants
—
Affiliates
—
Pursuant to the terms of the 2009 Loan Agreement as more fully
discussed in Note 6 in the notes to the financial statements, the Company issued to the Lenders the
2009 Warrants to purchase an aggregate of up to 83,333,333 shares of
common stock at $0.12 per share, which will become fully exercisable to the extent that the
entire $10.0 million is drawn. The number of 2009 Warrant Shares is equal to the $10.0 million
maximum aggregate principal amount that may be borrowed under the 2009 Loan Agreement, divided by
the $0.12 per share exercise price of the 2009 Warrants, which is fixed on the date of the 2009
Loan Agreement. The 2009 Warrant Shares vest based on the amount of borrowings under the 2009 Notes
and based on the passage of time. For each $2.0 million borrowing, 8,333,333 2009 Warrant Shares
vested and are exercisable immediately on the date of grant, and 8,333,333 vested and are
exercisable 45 days thereafter as the Company had met certain conditions provided for in the 2009
Warrant, including that the Company did not complete a $20.0 million financing, as defined in the
2009 Loan Agreement, within 45 days of the borrowing. At each subsequent closing, the 2009 Warrants
will vest with respect to additional shares in proportion to the additional amount borrowed by the
Company at the same coverage ratio as the initial closing and at the same vesting schedule, such
that one-half of such additional shares will vest on the date of the subsequent closing and the
remaining one-half of such shares will vest 45 days after such closing if certain conditions are
met as provided for in the 2009 Warrants. The 2009 Warrant Shares, to the extent they are vested
and exercisable, are exercisable at any time until March 12, 2014. Based on the $10.0 million of
borrowings, all 83,333,333 2009 Warrant Shares are vested and are exercisable on December 31, 2010.
As described more fully in Note 6 in the notes to the financial statements, at December 31,
2009, the Company computed the fair value of the 83,333,333 2009 Warrant Shares related to the
aggregate $10.0 million of borrowings under the 2009 Loan Agreement utilizing the Black-Scholes
pricing model. In accordance with the provisions of derivative financial instruments indexed to and
potentially settled in a Company’s own stock, accounting for derivative instruments and hedging
activities, and accounting for convertible debt and debt issued with stock purchase warrants, the
relative fair value assigned to the 2009 Warrants of approximately $6.9 million was recorded as
permanent equity in additional paid-in capital in the Stockholders’ Equity (Deficit) section of the
Balance Sheet.
Pursuant to the terms of the 2010 Loan Agreement as more fully discussed in Note 6 in the
notes to the financial statements, the Company issued to the Lenders the 2010 Warrants to purchase
an aggregate of up to 17,647,059 shares of common stock at $0.17 per share, which will become fully
exercisable to the extent that the entire $3.0 million is drawn. The number of 2010 Warrant Shares
is equal to the $3.0 million maximum aggregate principal amount that may be borrowed under the 2010
Loan Agreement, divided by the $0.17 per share exercise price of the 2010 Warrants, which is fixed
on the date of the 2010 Loan Agreement. The 2010 Warrant Shares vest based on the amount of
borrowings under the 2010 Loan Agreement notes. The 2010 Warrant Shares, to the extent they are
vested and exercisable, are exercisable at any time until March 26, 2015. Based on the $3.0 million
of borrowings, 17,647,059 2010 Warrant Shares are vested and are exercisable on December 31, 2010.
As described more fully in Note 6 in the notes to the financial statements, at December 31,
2010, the Company computed the fair value of the 17,647,059 2010 Warrant Shares related to the $3.0
million of borrowings under the 2010 Loan Agreement utilizing the Black-Scholes pricing model. In
accordance with the provisions of derivative financial instruments indexed to and potentially
settled in a Company’s own stock, accounting for derivative instruments and hedging activities, and
accounting for convertible debt and debt issued with stock purchase warrants, the relative fair
value assigned to the 2010 Warrants of approximately $1,048,226 was recorded as permanent equity in
additional paid-in capital in the Stockholders’ Equity (Deficit) section of the Balance Sheet.
Pursuant to the terms of the 2010 Loan Amendment as more fully discussed in Note 6 in the
notes to the financial statements, the Company issued to the Lenders the 2010 Additional Warrants
to purchase an aggregate of up to 42,253,521 shares of common stock at $0.071 per share, which will
become fully exercisable to the extent that the entire additional $3.0 million is drawn. The number
of 2010 Additional Warrant Shares is equal to the additional $3.0 million maximum aggregate
principal amount that may be borrowed under the 2010 Loan Amendment, divided by the $0.071 per
share exercise price of the 2010 Additional Warrants, which is fixed on the date of the 2010 Loan
Amendment. The 2010 Additional Warrant Shares vest based on the amount of borrowings under the 2010
Loan Agreement notes. The 2010 Additional Warrant Shares, to the extent they are vested and
exercisable, are exercisable at any time until November 15, 2015. Based on the $1,001,397 of
borrowings, 14,104,183 2010 Additional Warrant Shares are vested and are exercisable on December
31, 2010.
As described more fully in Note 6 in the notes to the financial statements, at December 31,
2010, the Company computed the fair value of the 14,104,183 2010 Additional Warrant Shares related
to the additional $1,001,397 of borrowings under the 2010 Loan Amendment utilizing the
Black-Scholes pricing model. In accordance with the provisions of derivative financial instruments
indexed to and potentially settled in a Company’s own stock, accounting for derivative instruments
and hedging activities, and accounting for convertible debt and debt issued with stock purchase
warrants, the relative fair value assigned to the 2010 Additional Warrants of approximately
$505,898 was recorded as permanent equity in additional paid-in capital in the Stockholders’ Equity
(Deficit) section of the Balance Sheet.
F-31
Warrants — Other
—
The Company assumed obligations for certain warrants issued by Corautus
in connection with previous financings and consulting engagements. As of December 31, 2010,
outstanding warrants to purchase approximately 9,762 shares of common stock at exercise prices of
$10.05-$19.50 will expire at various dates through February 2013.
In July 2007 the Company granted warrants to its investor relations firm to purchase 18,586
shares of the Company’s common stock at a fixed purchase price of $3.95 per share. The warrants
began vesting 30 days after the issuance date and vested over a twelve month contracted service
period. The warrant expires July 31, 2017. The warrants are expensed as stock-based compensation
expense over the vesting period in the statements of operations. The warrants were fully expensed
in 2008.
In December 2007, the Company granted warrants to a management consultant to purchase 10,000
shares of the Company’s common stock at a fixed purchase price of $2.38 per share. The warrants are
expensed as stock-based compensation expense over the vesting period in the statements of
operations. The warrants were fully expensed in 2007.
In March 2008, the Company granted warrants to a financial communications and investor
relations firm to purchase 125,000 shares of the Company’s common stock at a fixed purchase price
of $3.00 per share. As of March 1, 2008, 25,000 shares immediately vested, 50,000 will vest
immediately upon attaining a Share Price Goal (as defined in the warrant) of $5.00, 25,000 shares
will vest immediately upon attaining a Share Price Goal of $7.50, and 25,000 shares will vest
immediately upon attaining a Share Price Goal of $10.00. The contractual service period and vesting
period within which to attain the performance vesting ended December 31, 2008 and June 30, 2009,
respectively. The 100,000 performance based warrants expired unvested on June 30, 2009. The
remaining vested 25,000 shares expire August 31, 2013. The warrants are expensed as stock-based
compensation expense over the service vesting period in the statements of operations. The warrants
were fully expensed in 2008.
8. RELATED PARTIES
As more fully described in Note 6 in the notes to the financial statements, in March 2009, the
Company entered into the 2009 Loan Agreement with its principal stockholder and one of its
affiliates, as the Lenders, whereby the Lenders agreed to lend to the Company in the aggregate up
to $10.0 million. In March 2010, the Company entered into the 2010 Loan Agreement with its
principal stockholder and one of its affiliates, as the Lenders, whereby the Lenders agreed to lend
to the Company in the aggregate up to $3.0 million. In November 2010, the Company entered into the
2010 Loan Amendment to enable the Company to borrow up to an additional aggregate principal amount
of $3.0 million.
The Company terminated its licensing agreement with Leland Stanford Junior University
(“Stanford”) effective February 2009. The Company’s founding Chief Scientific Officer (“Founder”)
was an affiliate of Stanford and is a stockholder of the Company. The Company paid consulting fees
to the Founder of $0 and $7,500 in the years ended December 31, 2010 and 2009, respectively. While
the Company did not issue any stock options in years ended December 31, 2010 and 2009, the Company
did issue 10,000 and 42,300 stock options to the Founder in the years ended December 31, 2008 and
2007, respectively. Using the Black-Scholes pricing model, the Company valued the 10,000 option
shares granted in 2008 at a fair value of $0.0973 per share or $973 using an expected life of 5.0
years, a 1.5% risk free interest rate, an 81% volatility rate, and the grant date fair market value
of $0.15 per share. The options were fully vested at the grant date, December 17, 2008, and expire
December 17, 2018. Using the Black-Scholes pricing model, the Company valued the 42,300 option
shares granted in 2007 as of December 31, 2010 at fair values ranging from $0.159 per share to
$0.188 per share or an aggregate of $731 using an expected life ranging from 6.59 to 6.96 years, a
risk free interest rate ranging from 2.56% to 2.70%, a volatility rate ranging from 115% to 116%,
and the fair market value stock price at December 31, 2010 of $0.04 per share. The options become
fully vested in the period from August 2, 2011 through December 17, 2011 and expire in the period
from August 2, 2017 through December 17, 2017. The Company expensed the options as stock-based
compensation expense over the vesting period in the statements of operations, resulting in expense
of ($2,622) and $2,706 in the years ended December 31, 2010 and 2009, respectively. The Company
revalues non-employee options quarterly based on the closing stock price of the Company’s common
stock on the last day of the quarter, and does a final valuation on the last option vesting date
based on the closing stock price of the Company’s common stock on the last vesting date.
During 2006, the Company used the services of an employee of the Company’s primary investor to
act as Chief Financial Officer (“CFO”) and granted 18,586 stock option shares to the acting CFO as
compensation for services rendered. The options were fully vested on March 8, 2008, and expire
September 8, 2016. The Company expensed the option as stock-based compensation expense over the
vesting period in the statements of operations.
F-32
From the Company’s inception through February 4, 2010, the Company’s Chief Development Officer
(“Officer”) was also an employee of the Company’s primary investor. The Company paid the Officer
compensation of $44,384 and $60,000 in the years
ended December 31, 2010 and 2009, respectively. The Company did not grant any options to the
Officer in fiscal years ended December 31, 2010 and 2009. However, the Company granted 26,921,
35,685, and 15,611 shares of stock options to the CDO in 2007, 2006, and 2005, respectively. The
options granted in 2005 became fully vested in the period from June 1, 2005 through June 1, 2006
and expire on June 29, 2015. The Company expensed the options as stock-based compensation expense
over the vesting period in the statements of operations. The options granted in 2006 became fully
vested in the period from November 29, 2006 through November 29, 2007 and expire on November 29,
2016. The Company expensed the options as stock-based compensation expense over the vesting period
in the statements of operations. Using the Black-Scholes pricing model, the Company valued the
2007 options at fair values ranging from $2.43 to $5.78 per share or an aggregate fair value of
$95,284 using an expected life of from 5.27 to 6.02 years, a 4.20% to 4.639% risk-free interest
rate, a 67% to 77% volatility rate and the fair market value stock prices of the Company’s common
stock on the grant dates ranging from $3.48 to $5.89 per share. The options become fully vested in
the period from November 29, 2007 through August 2, 2011 and expire in the period from January 23,
2017 through August 2, 2017. The Company expensed the options as stock-based compensation expense
over the vesting period in the statements of operations resulting in expense of $1,135 and $11,195
in the years ended December 31, 2010 and 2009, respectively.
Effective July 1, 2009, the Company sub-leased property in the Company’s office facilities in
its headquarters in San Francisco, California on a month-to-month basis to an affiliate of the
Company’s primary investor for $279 per month. Effective May 17, 2010, the Company sub-leased
additional space within the same premises to the affiliate and the lease was amended to increase
the rent to $907 per month through June 30, 2010 and $930 from July 1, 2010 through June 30, 2011.
The Company received rent from the tenant in the amount of $8,186 and $1,674 in the years ended
December 31, 2010 and 2009, respectively, which were included as a reduction to rent expenses in
the statement of operations for the year ended December 31, 2010.
Effective September 15, 2010, the Company sub-leased property in the Company’s office
facilities in its headquarters in San Francisco, California for one year to an additional affiliate
of the Company’s primary investor for $5,241 per month. The Company received rent from the tenant
in the amount of $18,517 in the year ended December 31, 2010, which was included as a reduction to
rent expenses in the statement of operations for the year ended December 31, 2010.
9. COMMITMENTS
Operating Leases
—
The Company leases its office facilities for various terms under
long-term, non-cancelable operating lease agreements. The leases expire at various dates through
2013. The Company recognizes rent expense on a straight-line basis over the lease period, and
accrues for rent expense incurred but not paid. As more fully discussed in Note 13 in the notes to
the financial statements, on June 1, 2010, the Company abandoned its office space leased in
Princeton, New Jersey. As a result, the Company recorded rent expense of $65,000, which reflects
the cost incurred by the Company, in settlement with the landlord, to vacate the lease for which
the Company will no longer receive any economic benefit.
Rent expense, including lease settlement costs, for the years ended December 31, 2010 and
2009, respectively, and for the period from June 14, 2004 (date of inception) to December 31, 2010,
was included in the statements of operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period from
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2004
|
|
|
|
|
Years Ended
|
|
|
(Date of Inception) to
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
Research and development expense
|
|
$
|
142,365
|
|
|
$
|
121,986
|
|
|
$
|
660,089
|
|
|
General and administrative expense
|
|
|
204,390
|
|
|
|
312,570
|
|
|
|
1,121,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
346,755
|
|
|
$
|
434,556
|
|
|
$
|
1,781,839
|
|
|
|
|
|
|
|
|
|
|
|
|
Future minimum lease payments under non-cancelable operating leases, including lease
commitments entered into subsequent to December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
Amount
|
|
|
2011
|
|
$
|
323,792
|
|
|
2012
|
|
|
331,971
|
|
|
2013
|
|
|
139,742
|
|
|
|
|
|
|
|
Total minimum lease payments
|
|
$
|
795,505
|
|
|
|
|
|
|
Operating lease obligations reflect contractual commitments for the Company’s office
facilities for its headquarters in San Francisco, California.
F-33
10. INCOME TAXES
There is no income tax provision (benefit) for federal or state income taxes as the Company
has incurred operating losses since inception. Deferred income taxes reflect the net tax effects of
net operating loss and tax credit carryovers and temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes.
The following table reconciles the amount of income taxes computed at the federal statutory
rate of 34% for all periods presented, to the amount reflected in the Company’s statement of
operations for the years ended December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Tax provision (benefit) at federal statutory income tax rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
|
State income taxes, net of federal income tax effect
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
Adjustments of deferred tax assets
|
|
|
4
|
|
|
|
—
|
|
|
Other
|
|
|
—
|
|
|
|
1
|
|
|
Valuation allowance
|
|
|
34
|
|
|
|
39
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
0
|
%
|
|
|
0
|
%
|
|
|
|
|
|
|
|
|
The tax effect of temporary differences related to various assets, liabilities and
carryforwards that give rise to deferred tax assets and liabilities at December 31, 2010 and 2009
are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
8,588,541
|
|
|
$
|
6,214,313
|
|
|
Tax credit carryforwards
|
|
|
131,200
|
|
|
|
115,393
|
|
|
Property and equipment and intangibles
|
|
|
12,189,197
|
|
|
|
10,953,858
|
|
|
Other
|
|
|
1,294,510
|
|
|
|
1,638,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,203,448
|
|
|
|
18,922,205
|
|
|
Less valuation allowance
|
|
|
(22,203,448
|
)
|
|
|
(18,922,205
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets and liabilities
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
The net valuation allowance increased by $3,281,243 and $8,271,398 during the periods ended
December 31, 2010 and 2009, respectively, principally related to increased net operating loss
carryforwards.
The Company has federal net operating loss carryforwards of approximately $22,070,552 as of
December 31, 2010 that expire beginning in 2026. The Company has California state net operating
loss carryforwards of approximately $15,693,647 as of December 31, 2010 that expire beginning 2016.
The Company has New Jersey state net operating loss carryforwards of approximately $19,992,088 as
of December 31, 2010 that expire beginning 2013. The Company has Pennsylvania state net operating
loss carryforwards of approximately $1,086,788 that expire beginning 2030. The Company also has
federal, California state, and New Jersey state research and development tax credits of
approximately $327,953, $290,757, and $206,282, respectively. Federal research credits will expire
beginning 2026, California state credits can be carried forward indefinitely, and New Jersey state
credits will expire beginning in the year 2022.
Utilization of the net operating loss and tax credit carryforwards were subject to a
substantial annual limitation due to the ownership change limitations provided by the Internal
Revenue Code of 1986, as amended, and similar state provisions. The Company experienced a change of
control which resulted in a substantial reduction to the previously reported net operating losses
at December 31, 2008. As of December 31, 2010, the net operating loss carryforwards continue to be
fully reserved and any reduction in such amounts as a result of this study would also reduce the
related valuation allowances resulting in no net impact to the financial results of the Company.
At December 31, 2010, the Company had unrecognized tax benefits
of $659,992, all of which would not currently affect the Company’s effective
tax rate if recognized due to the Company’s deferred tax assets being fully offset by a
valuation allowance.
F-34
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as
follows:
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Balance at January 1, 2009
|
|
$
|
274,130
|
|
|
Additions based on tax positions related to current year
|
|
|
310,580
|
|
|
Additions for tax positions of prior year
|
|
|
—
|
|
|
Reductions for tax positions of current year
|
|
|
—
|
|
|
Reductions for tax positions of prior year
|
|
|
—
|
|
|
Settlements
|
|
|
—
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
584,710
|
|
|
Additions based on tax positions related to current year
|
|
|
104,122
|
|
|
Additions for tax positions of prior year
|
|
|
—
|
|
|
Reductions for tax positions of current year
|
|
|
—
|
|
|
Reductions for tax positions of prior year
|
|
|
(28,840
|
)
|
|
Settlements
|
|
|
—
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
659,992
|
|
|
|
|
|
|
The Company would classify interest and penalties related to uncertain tax positions in income
tax expense, if applicable. There was no interest expense or penalties related to unrecognized tax
benefits recorded through December 31, 2010. The tax years 2006 through 2010 remain open to
examination by one or more major taxing jurisdictions to which the Company is subject.
The Company does not anticipate that total unrecognized net tax benefits will significantly
change prior to the end of 2011.
11. EMPLOYEE BENEFIT PLANS
The Company established a defined contribution plan qualified under Section 401(k) of the
Internal Revenue Code. Employees of the Company are eligible to participate in the Company’s 401(k)
plan. Employees participating in the plan are permitted to contribute up to the maximum amount
allowable by law. Company contributions are discretionary and only safe-harbor contributions were
made in 2010 and 2009. The Company made safe-harbor contributions to certain plan participants in
the aggregate amount of $58,869 and $94,529 in the years ended December 31, 2010 and 2009,
respectively, and $208,523 for the period from June 14, 2004 (date of inception) to December 31,
2010.
12. RESTRUCTURING COSTS
On March 26, 2010 the Company’s Board of Directors approved a restructuring of the Company to
reduce its workforce and operating costs effective March 31, 2010. The reduction in workforce
decreased total employees by approximately 63% to a total of six employees and increased the focus
of future operating expense on research and development activities. This decision resulted in
recording a charge to operating expenses of approximately $106,959 and $0 in the years ended
December 31, 2010 and 2009, respectively. This charge includes cash costs of restructuring,
principally related to severance and related medical costs for terminated employees, of
approximately $411,000, and non-cash charges of $227,000 primarily related to costs associated with
excess facilities at the Company’s corporate headquarters, offset by approximately $531,000 related
to the reversal of previously recorded incentive award accruals recorded as of December 31, 2009.
In addition to this restructuring charge, the Company paid terminated employees $178,000 for
amounts accrued for unused vacation and sick pay. The total cash cost of the restructuring costs,
and amounts for accrued COBRA, vacation and sick pay, was $589,000, all of which was paid as of
December 31, 2010. As of December 31, 2010, the Company had a balance of $104,675 in accrued
non-cash restructuring costs, all of which consisted of excess facility lease costs, which is
included as a current obligation on the balance sheet.
13. LEASE ABANDONMENT COSTS
On June 1, 2010, the Company abandoned its office space leased in Princeton, New Jersey.
Previously, the Company had leased approximately 4,979 square feet in Princeton, New Jersey, where
its Senior Vice President, Research and Development, was located. This lease was to have expired on
April 2, 2012. The sublease was to have expired on January 15, 2012. In November 2010, the Company
and the landlord agreed to a settlement whereby the Company paid $65,000 to the landlord in
exchange for vacating the lease. The Company has no other obligations under the settlement
agreement. The Company recorded the $65,000 in research and development operating expense in the
statement of operations in the year ended December 31, 2010.
F-35
14. SUBSEQUENT EVENTS
On
January 14, 2011, the Lenders agreed to modify the 2010 Loan Agreement and the 2010 Loan
Amendment to extend the repayment terms of the aggregate $6.0 million borrowings under the
2010 Loan Agreement and the 2010 Loan Amendment from December 31, 2010 to June 30, 2011.
On this date the Company borrowed an additional $500,000 in principal amounts under the 2010
Loan Amendment. Refer to Note 6.
On
March 24, 2011, the Company entered into a second amendment to further extend the maturity
date to September 30, 2011. On this date the Company borrowed an
additional $1,498,603 which
is the final drawdown on the 2010 Loan Amendment. Refer to Note 6.
15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net loss before extraordinary items
and cumulative effect of any
accounting change
|
|
|
(2,919,753
|
)
|
|
|
(2,092,638
|
)
|
|
|
(2,118,323
|
)
|
|
|
(2,470,601
|
)
|
|
Net loss per share — Basic and diluted
|
|
|
(0.14
|
)
|
|
|
(0.11
|
)
|
|
|
(0.10
|
)
|
|
|
(0.12
|
)
|
|
Net loss
|
|
|
(2,919,753
|
)
|
|
|
(2,092,638
|
)
|
|
|
(2,118,323
|
)
|
|
|
(2,470,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net service revenues
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Gross profit
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Net loss before extraordinary items
and cumulative effect of any
accounting change
|
|
|
(4,302,138
|
)
|
|
|
(4,391,189
|
)
|
|
|
(8,038,046
|
)
|
|
|
(4,246,951
|
)
|
|
Net loss per share — Basic and diluted
|
|
|
(0.22
|
)
|
|
|
(0.22
|
)
|
|
|
(0.40
|
)
|
|
|
(0.21
|
)
|
|
Net loss
|
|
|
(4,302,138
|
)
|
|
|
(4,391,189
|
)
|
|
|
(8,038,046
|
)
|
|
|
(4,246,951
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-36
VIA Pharmaceuticals (CE) (USOTC:VIAP)
過去 株価チャート
から 1 2025 まで 2 2025
VIA Pharmaceuticals (CE) (USOTC:VIAP)
過去 株価チャート
から 2 2024 まで 2 2025
