Registrant’s telephone number, including area code: (310) (310) 826-5648
Securities registered pursuantRegistered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| OTC Market | ||||
| Series B Junior Participating Preferred Stock Purchase Rights |
Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Securities Act Rule 405). Yes £☐ NoR
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. Yes £☐ NoR
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 and (2) has been subject to such filing requirements for the past 90 days. YesR ☒ No £
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YesR ☒ No £
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large“large accelerated filer," "accelerated filer"” “accelerated filer”, "smaller“smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer Non-accelerated filer ☒ | Accelerated filer | ☐ Smaller reporting company | |||
☒ ☐Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. £
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes £☐ NoR
Based on the closing price of the Registrant'sRegistrant’s common stock as reported on The NASDAQ CapitalOTC Market, the aggregate market value of the Registrant'sRegistrant’s common stock held by non-affiliates on June 30, 20172021 (the last business day of the Registrant'sRegistrant’s most recently completed second fiscal quarter) was approximately $94.5$35.4 million. Shares of common stock held by directors and executive officers and any ten percent or greater stockholders and their respective affiliates have been excluded from this calculation, because such stockholders may be deemed to be "affiliates"“affiliates” of the Registrant. This is not necessarily determinative of affiliate status for other purposes. The number of outstanding shares of the Registrant'sRegistrant’s common stock as of March 16, 201823, 2022 was 28,037,501..
CYTRX CORPORATION
2021 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
NOTE ON FORWARD-LOOKING STATEMENTS
References throughout this Annual Report on Form 10-K, the "Company," "CytRx," "we," "us,"“Company,” “CytRx,” “we,” “us,” and "our,"“our,” except where the context requires otherwise, refer to CytRx Corporation.
Some of the information contained in this Annual Report may include forward-looking statements that reflect our current views with respect to our research and development activities, business strategy, business plan, financial performance and other future events. These statements include forward-looking statements both with respect to us, specifically, and the biotechnology sector, in general. We make these statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that include the words "expect," "intend," "plan," "believe," "project," "estimate," "may," "should," "anticipate," "will"“expect,” “intend,” “plan,” “believe,” “project,” “estimate,” “may,” “should,” “anticipate,” “will” and similar statements of a future or forward-looking nature identify forward-looking statements for purposes of the federal securities laws or otherwise.
All forward-looking statements involve inherent risks and uncertainties, and there are or will be important factors that could cause actual results to differ materially from those indicated in these statements. We believe that these factors include, but are not limited to, those factors set forth in the sections entitled "Business," "Risk“Business,” “Risk Factors," "Legal” “Legal Proceedings," "Management's” “Management’s Discussion and Analysis of Financial Condition and Results of Operations," "Quantitative” “Quantitative and Qualitative Disclosures About Market Risk"Risk” and "Controls“Controls and Procedures"Procedures” in this Annual Report, all of which you should review carefully. Please consider our forward-looking statements in light of those risks as you read this Annual Report. We undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.
If one or more of these or other risks or uncertainties materializes, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we anticipate. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this Note.
INDUSTRY DATA
Unless otherwise indicated, information contained in this Annual Report concerning our industry, including our general expectations and market opportunity, is based on information from our own management estimates and research, as well as from industry and general publications and research, surveys and studies conducted by third parties. Management estimates are derived from publicly available information, our knowledge of our industry and assumptions based on such information and knowledge, which we believe to be reasonable. In addition, assumptions and estimates of our and our industry'sindustry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described below in the "Risk Factors"“Risk Factors” section of this Annual Report. These and other factors could cause our future performance to differ materially from our assumptions and estimates.
TRADEMARKS
CytRx, is oneLADR and ACDx are some of our trademarks used in this Annual Report. This Annual Report also includes trademarks, trade names and service marks that are the property of other organizations. Solely for convenience, trademarks and trade names referred to in this Annual Report sometimes appear without the ® and ™ symbols, but those references are not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights, or that the applicable owner will not assert its rights, to these trademarks and trade names.
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PART I
Item 1. BUSINESS
COMPANY OVERVIEW
CytRx Corporation (“CytRx”) is a biopharmaceutical research and development company specializing in oncology. OurThe Company’s focus ishas been on the discovery, research and clinical development of novel anti-cancer drug candidates that employ novel linker technologies to enhance the accumulation and release of cytotoxic anti-cancer agents at the tumor. Since 2008, we have worked to develop aldoxorubicin. In JulyDuring 2017, we entered into an exclusive worldwide license under which NantCell, Inc. took over development of aldoxorubicin, invested in our common stock and agreed to make future milestone and royalty payments upon the successful development and commercialization of aldoxorubicin. We are now actively pursuing new anti-cancer compounds through our drugCytRx’s discovery and research operation at our laboratory, facilitieslocated in Freiburg, Germany, ledsynthesized and tested over 75 rationally designed drug conjugates with highly potent payloads, culminating in the creation of two distinct classes of compounds. Four lead candidates (LADR-7 through LADR-10) were selected based on in vitro and animal studies, in several different cancer models, stability, and manufacturing feasibility. In addition, a novel albumin companion diagnostic, ACDx™, was developed to identify patients with cancer who are most likely to benefit from treatment with these drug candidates.
On June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a private subsidiary, and transferred all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection with said transfer, the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render advisory, consulting, financial and administrative services to Centurion, for which Centurion shall reimburse the Company for the cost of such services plus a 5% service charge. The Management Services Agreement may be terminated by Felix Kratz, Ph.D., Vice Presidenteither party at any time. Centurion is focused on the development of Drug Discoverypersonalized medicine for solid tumor treatment. On December 21, 2018, CytRx announced that Centurion had concluded the pre-clinical phase of development for its four LADR™ drug candidates, and inventorfor its albumin companion diagnostic (ACDx™). As a result of aldoxorubicin.
We are a Delaware corporation, incorporated in 1985. Our corporate offices are located at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049, and our telephone number is (310) 826-5648. Our web site is located at http://www.cytrx.com. We do not incorporate by reference into this Annual Report the information on, or accessible through, our website, and you should not consider it as part of this Annual Report.
LADR Drug Discovery Platform
Centurion’s LADR™ (Linker Activated Drug Release) technology platform is a discovery engine combiningplatform for formulating cytotoxic cancer drugs that offer improved efficacy with reduced side effects. LADR combines our expertise in linker chemistry and albumin biology to create a pipeline of anti-cancer molecules that will avoid unacceptable systemic toxicity while delivering highly potent agents directlydeliver prodrugs to the tumor. We have created a "toolbox" of linker technologies that have the ability to significantly increase the therapeutic index of ultra-high potency drugs (10-1,000 times more potent than traditional chemotherapies) by controlling the release oftumor environment and then activate the drug payloadsinside the tumor. Such a trojan horse strategy reduces off-target side effects outside the tumor, thus allowing 10-1,000 fold higher dosing to be given.
The first-generation (“gen”) product candidate employing our tumor targeting and improving drug-like properties.
Centurion’s postulated mechanism of action for the albumin-binding drug conjugates is as follows:
| ● | after administration, the linker portion of the drug conjugate forms a rapid and specific covalent bond to the cysteine-34 position of circulating albumin; |
| ● | circulating albumin preferentially accumulates at the tumors, bypassing concentration in other non-tumor sites, including the heart, liver and gastrointestinal tract due to a mechanism called |
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| ● | once localized at the tumor, the acid-sensitive linker is cleaved due to the specific conditions within the tumor and in the tumor microenvironment; and |
| ● | free active drug is then |
Centurion’s novel companion diagnostic, ACDx™ (albumin companion diagnostic), was developed to generate additional pre-clinical data that will allow themidentify patients with cancer who are most likely to make informed decisions regardingbenefit from treatment with the selection of onefour LADR lead assets.
On March 9, 2022, Centurion was merged into the Company.
Business Strategy for LADR™ Platform
Currently, the Company continues to work on identifying partnership or both programs for moving into human clinical trials either independently or on a partnered basis.
continue to focus on identifying partnership or financing opportunities.
Aldoxorubicin
Until July 2017, we were focusedconcentrating on the research and clinical development of aldoxorubicin, our modified version ofwhich is the widely-used chemotherapeutic agent, doxorubicin. Aldoxorubicin combines the chemotherapeutic agentcytotoxin doxorubicin, modified with our LADR delivery and concentraction system. Modifying doxorubicin with a novel linker-molecule that binds specifically to albumin in the blood to allowour LADR™ system allows for delivery of higher amounts of doxorubicin (3½ to 4 times) without several of the major dose-limiting toxicities seen with administration of doxorubicin alone.
On July 27, 2017, we entered into an exclusive worldwide license with ImmunityBio, Inc. (formerly known as NantCell, Inc. ("NantCell"(“ImmunityBio”)), granting to NantCellImmunityBio the exclusive rights to develop, manufacture and commercialize aldoxorubicin in all indications, and our companyindications. As a result, the Company is no longer directly working on development of aldoxorubicin.aldoxorubicin (ImmunityBio merged with NantKwest, Inc. in March 2021). As part of the license, NantCellImmunityBio made a strategic investment of $13 million in CytRx common stock at $6.60 per share, (adjusted to reflect our 2017 reverse stock split), a premium of 92% to the market price on that date. We also issued NantCellImmunityBio a warrant to purchase up to 500,000 shares of common stock at $6.60, over the following 18 months.which expired on January 26, 2019. We are entitled to receive up to an aggregate of $343 million in potential milestone payments contingent upon achievement of certain regulatory approvals and commercial milestones. We are also entitled to receive ascending double-digit royalties for net sales for soft tissue sarcomas and mid to high single digit royalties for other indications.
Aldoxorubicin is a conjugate of the commonly prescribed chemotherapeuticcytotoxin agent doxorubicin that binds to circulating albumin in the bloodstream and is believed to concentrate the drug at the site of the tumor. Aldoxorubicin, our lead clinical candidate, has been tested in over 600 patients with various types of cancer. Specifically, it is comprised of (6-maleimidocaproyl) hydrazine, an acid-sensitive molecule that is conjugated to doxorubicin. The initial indication for aldoxorubicin iswas for patients with advanced soft tissue sarcomas (STS).
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Aldoxorubicin has received Orphan Drug Designation (ODD) by the U.S. FDA for the treatment of STS. ODD provides several benefits, including seven years of market exclusivity after approval, certain R&D related tax credits, and protocol assistance by the FDA. European regulators granted aldoxorubicin Orphan designation for STS, which confers ten years of market exclusivity, among other benefits.
ImmunityBio also lists ongoing clinical studies in metastatic pancreatic cancer and in advanced squamous cell carcinoma of the head and neck or non-small cell lung cancer.
Molecular Chaperone Assets
In 2011, we ownedCytRx sold the rights to two drug candidates, arimoclomol and iroxanadine, based on molecular chaperone regulation technology, that were designed to repair or degrade mis-folded proteins associated with disease. On May 13, 2011, we sold all pre-clinical and clinical data, intellectual property rights and other assets relating to those compounds to Orphazyme ApSA/S (formerly Orphazyme ApS) in exchange for a cashone-time, upfront payment of $150,000 and the right to receive various futureup to a total of $120 million in milestone payments that are contingent upon the achievement of specifiedcertain pre-specified regulatory and business milestones, as well as royalty payments based on a specified percentage of any eventual net sales of products derived from arimoclomol. As a result of Orphazyme’s disclosure that the assets.
Orphazyme had also submitted a Marketing Authorization Application (“MAA”) with the European Medicines Agency (the “EMA”). In February 2022, Orphazyme announced that although they had received positive feedback from the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA, they were notified by the CHMP of a negative trend vote on the MAA for arimoclomol for NPC following an oral explanation. The trend vote indicates that the CHMP’s current orientation is to not approve arimoclomol when it convenes by the end of March 2022. Orphazyme has publicly indicated that it considers it unlikely that this position will change before the formal vote is undertaken in March 2022. Orphazyme has publicly indicated that it will assess its strategic options and provide an update to the market at the applicable time.
Innovive Acquisition Agreement
On September 19, 2008, we completed our merger acquisition of Innovive Pharmaceuticals, Inc., or Innovive, and its clinical-stage cancer product candidates, including aldoxorubicin and tamibarotene. Under the merger agreement by which we acquired Innovive, we agreed to pay the former Innovive stockholders up to approximately $18.3 million of future earnout merger consideration, subject to our achievement of specified net sales under the Innovive license agreements. The earnout merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions, or, at our election, in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes of any future earnout merger consideration based upon the trading price of our common stock at the time the earnout merger consideration is paid. The earnout will be accrued if and when earned.
Research and Development
Expenditures for research and development activities related to continuing operations were $19.8 million, $35.9 million$0 for the year ended December 31, 2021 and $43.4$0.8 million for the yearsyear ended December 31, 2017, 2016 and 2015, respectively,2020, or approximately 60%, 68%0% and 68%12%, respectively, of our total expenses. For further information regarding our research and development activities, see "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” below.
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Commercialization and Marketing
We currently have no sales, marketing or commercial product distribution capabilities or experience in marketing products.
We are searching for a development and commercialization partner or a financing for our LADR drug candidates advance through our pipeline, ourand do not currently plan on commercializing them ourselves. Over the past two years, we have been unable to attract a development and commercial plans may change. In particular, some of our pipeline assets target potentially large solid tumor indications. Factors such as clinical data, the size of the development programs, the size of the target market, the size ofpartner nor a commercial infrastructure, and manufacturing needs may influence our strategies in the U.S., the European Union, and other territories.
Patents and Proprietary Technology
We actively seek patent protection for our technologies, processes, uses, and ongoing improvements and consider our patents and other intellectual property to be critical to our business. We regularly evaluate the patentability of new inventions and improvements developed by us or our collaborators, and, whenever appropriate, will endeavor to file U.S. and international patent applications to protect these new inventions and improvements. We cannot be certain that any of the current pending patent applications we have filed or licensed, or any new patent applications we may file or license, will ever be issued in the U.S. or any other country. There also is no assurance that any issued patents will be effective to prevent others from using our products or processes. It is also possible that any patents issued to us, as well as those we have licensed or may license in the future, may be held invalid or unenforceable by a court, or third parties could obtain patents that we would need to either license or to design around, which we may be unable to do. Current and future competitors may have licensed or filed patent applications or received patents and may acquire additional patents and proprietary rights relating to compounds, products or processes that may be competitive with ours.
In addition to patent protection, we attempt to protect our proprietary products, processes and other information by relying on trade secrets and non-disclosure agreements with our employees, consultants and certain other persons who have access to such products, processes and information. Under the agreements, all inventions conceived by employees are our exclusive property, but there is no assurance that these agreements will afford significant protection against misappropriation or unauthorized disclosure of our trade secrets and confidential information.
As of December 31, 2017,2021, we have three pending U.S. patent applications and thirteenthirty-eight pending foreign patent applications and twenty-two granted foreign patents covering our LADRTM-related technology including LADR-7, LADR-8, LADR-9 and DK049.LADR-10. The unextendedun-extended patent term of patents that issue covering our LADRTM-related technology is between June 2036 and November 2038. We also have one pending US patent application and fourteen pending foreign patent applications covering our albumin companion diagnostic (ACDxTM). The un-extended patent term of patents that issue covering our ACDxTM is July 2039. The patents and patent applications covering our LADRTM-related technology, and DK049 is June 2038.ACDxTM are assigned to Centurion BioPharma Corporation. In conjunction with our July 27, 2017 NantCellImmunityBio licensing agreement, we granted NantCellImmunityBio an exclusive license to all our aldoxorubicin-related patents, including the rights in fourthree granted U.S. patents, 72eighteen granted foreign patents two pending U.S. patent applications, and fourteeneight pending foreign patent applications covering aldoxorubicin and related technologies. Our intellectual property holdings relating to aldoxorubicin, and related technologies include an exclusive license from Vergell Medical, S.A. or Vergell, to U.S. and foreign patents and patent applications.Vergell. Patents and applications that cover pharmaceutical compositions ofcomprising aldoxorubicin processes for their production, and their use in treatment methods (e.g.,treating cancer (including glioblastoma), viral diseases, autoimmune diseases, and acute or chronic inflammatory diseases) have unextendedun-extended patent terms expiring between June 2020December 2033 and June 2034.
LICENSE AGREEMENTS
Aldoxorubicin
We are the licensee of patent rights held by KTB Tumorforschungs GmbH (“KTB”) for the worldwide development and commercialization of aldoxorubicin under a license agreement dated April 17, 2006. In February 2017, we received notice that KTB had transferred and assigned its rights and obligations under the license to Vergell Medical, S.A., or Vergell. The license is exclusive and applies to all products that may be subject to the licensed intellectual property in all fields of use. We may sublicense the intellectual property in our sole discretion. Pursuant to an amendment to the license agreement entered into in March 2014, we also have a non-exclusive worldwide license to any additional technology that is claimed or disclosed in the licensed patents and patent applications for use in the field of oncology.
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Under the agreement, we must make payments to Vergell in the aggregate of up to $7.5 million upon meeting clinical and regulatory milestones, and up to and including the product'sproduct’s second final marketing approval. We also agreed to pay:
| ● | commercially reasonable royalties based on a percentage of net sales (as defined in the agreement); |
| ● | a percentage of any non-royalty sub-licensing income (as defined in the agreement); and |
| ● | milestones of $1 million for each additional final marketing approval that we obtain. |
In the event that we must pay a third party in order to exercise our rights to the intellectual property under the agreement, we are entitled to deduct a percentage of those payments from the royalties due Vergell, up to an agreed upon cap.
Under the agreement with Vergell, we must use commercially reasonable efforts to conduct the research and development activities we determine are necessary to obtain regulatory approval to market aldoxorubicin in those countries that we determine are commercially feasible. Under the agreement, Vergell is to use its commercially reasonable efforts to provide us with access to suppliers of the active pharmaceutical ingredient, or API, of aldoxorubicin, on the same terms and conditions as may be provided to Vergell by those suppliers.
The agreement will expire on a product-by-product basis upon the expiration of the subject patent rights. We have the right to terminate the agreement on 30 days'days’ notice, provided we pay a cash penalty to Vergell. Vergell may terminate the agreement if we are in breach and the breach is not cured within a specified cure period, or if we fail to use diligent and commercial efforts to meet specified clinical milestones.
Molecular Chaperone Assets
The agreement relating to our worldwide rights to arimoclomol provides for our payment up to an aggregate of $3.65 million upon receipt of milestone payments from Orphazyme.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our LADR™ technology platform and ultra-high potency albumin-bind drug conjugates provide us with competitive advantages, we face potential competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research institutions. Any drug candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Many competitors and potential competitors have substantially greater scientific, research and product development capabilities, as well as greater financial, marketing and human resources than we do. In addition, many specialized biotechnology firms have formed collaborations with large, established companies to support the research, development and commercialization of products that may be competitive with ours.
There are many companies developing antibody-drug conjugates (ADC) for the treatment of cancer and some that use the same classes of cytotoxic payloads as we are currently using. These include Takeda Pharmaceutical Co. Ltd. and Seattle Genetics Inc. who market Adcetris®, and F. Hoffmann-LaRoche Ltd./Genentech who market Kadcyla®. According to www.clinicaltrials.gov, theremany other major pharmaceutical companies, including Celgene and GlaxoSmithKline are approximately 75 clinical trials testing an ADC that arein either on-going or currently enrolling.enrolling clinical trials. Other companies have created or have programs to create potent cell‑killingcell-killing agents for attachment to antibodies or other targeting agents. These companies may compete with us for technology out‑licenseout-license arrangements.
In addition to ADCs, we face competition from other nanomedicine platforms developing targeted therapies, including platforms focused on nanoparticles and liposomes. Non‑ADCNon-ADC therapies may be in development for the cancer types we or our partners elect to pursue. Further, these companies may also compete with us for technology out‑licenseout-license arrangements.
Continuing development of conventional and targeted chemotherapeuticscytotoxins by large pharmaceutical companies and biotechnology companies may result in new compounds that may compete with our product candidates. More recently, immuno-oncology therapies that stimulate the body'sbody’s own defense system to attack cancers are being developed by certain of these companies and some have been approved for use as cancer therapeutics. In the future, immuno-oncology agents including cell therapies, targeted therapies or cytotoxic treatments may compete with our product candidates. Other companies have created or have programs to create potent cell‑killingcell-killing agents for attachment to tumor targeting agents. These companies may compete with us for technology out‑licenseout-license arrangements.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we obtain approval for ours. In addition, our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of generic products. If our drug candidates achieve marketing approval, we expect that they will be priced at a significant premium over competitive generic products.
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Many companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and facilities that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research and development of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire, through license or otherwise, existing or potential new products, we will be competing with numerous other companies, many of which will have substantially greater financial resources, large acquisition and research and development staffs that may give those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional competitive products are under development and may also include products currently under development that we are not aware of or products that may be developed in the future.
Government Regulation
Regulation of Pharmaceuticals in the United States
The U.S. and other developed countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of drugs and biologic products. TheIn the United States, the FDA, under the Federal Food, Drug, and Cosmetic Act (“FDCA”), the Public Health Service (“PHS”) Act and other federal statutes and regulations, regulates pharmaceutical and biologic products.
To obtain FDA approval of our product candidates from the FDA,for a new drug candidate, we must, among other requirements, submit data supporting the candidate’s safety and efficacy for the intended indicationindication(s), as well as detailed information on the manufacture and composition of the product candidate. In most cases, this will require extensive laboratory tests and preclinical and clinical trials. The collection of these data, as well as the preparation of applications for review by the FDA involve significant time and expense.expense and are inherently complex and uncertain. The FDA may not act quickly or favorably in reviewing these applications, and we (and/or any current or future partners in development) may encounter significant difficulties or costs in our (and/or their) efforts to obtain FDA approvals that could delay or preclude the U.S. commercialization of one or more of our product candidates.
The process required by the FDA before a new drug may be marketed in the U.S. generally involves some or all of the following key steps:
| ● | completion of nonclinical studies, such as laboratory tests, animal studies, and formulation studies, performed in compliance with FDA regulations for good laboratory practices (“GLPs”) and other applicable regulations; | |
| ● | design of a clinical protocol and its submission to the FDA as part of an Investigational New Drug application (“IND”), which must become effective before human clinical trials may begin; | |
| ● | performance of adequate and well-controlled human clinical trials according to good clinical practices (“GCPs”) to establish the safety and efficacy of the product candidate for its intended use; | |
| ● | submission of an NDA to the FDA along with payment of the application user fee and FDA acceptance of that NDA as a complete submission eligible for substantive review; | |
| ● | satisfactory completion of an FDA pre-approval inspection of the manufacturing facilities at which the active pharmaceutical ingredient, or API, and finished drug product are produced and tested to assess readiness for commercial manufacturing and conformance to the manufacturing-related elements of the application, to conduct a data integrity audit, and to assess compliance with current good manufacturing practices (“cGMPs”), in order to assure that the facilities, methods and controls are adequate to preserve the drug candidate’s identity, strength, quality and purity; | |
| ● | possible inspection of selected clinical study sites to confirm compliance with GCP requirements and data integrity; and | |
| ● | FDA substantive review and approval of the NDA, including satisfactory completion of an FDA advisory committee review of the product candidate, if applicable, which must occur prior to any commercial marketing or sale of the drug product in the United States. Preclinical Studies |
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After a therapeutic candidate is identified for development, it enters the preclinical or nonclinical testing stage. Preclinical studies include laboratory evaluation of product chemistry, toxicity and formulation, as well as animal studies to assess potential safety and efficacy. Preclinical tests intended for submission to the FDA to support the safety of a product candidate must be conducted in compliance with GLP regulations and the United States Department of Agriculture’s Animal Welfare Act, if applicable. A drug sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, among other things, to the FDA as part of an IND. Some nonclinical testing may continue after the IND is submitted. In addition to including the results of the nonclinical studies, the IND will include one or more clinical protocols detailing, among other things, the objectives of the clinical trial and the safety and effectiveness criteria to be evaluated.
An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical trials and places the clinical trial on a clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence. A clinical hold may occur at any time during the life of an IND and may affect one or more specific studies or all studies conducted under the IND. Occasionally, clinical holds are imposed due to manufacturing issues that may present safety issues for the clinical study subjects.
Human Clinical Trials in Support of an NDA
The clinical investigation of an investigational new drug is divided into three phases that typically are conducted sequentially but may overlap or be combined. The three phases are as follows:
| ● | Phase 1. Phase 1 includes initial clinical trials introducing an investigational new drug into humans and may be conducted in subjects with the target disease or healthy volunteers. These trials are designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. | |
| ● | Phase 2. Phase 2 includes the controlled clinical trials conducted to evaluate the effectiveness of the drug candidate for a particular indication or indications in subjects with the disease or condition under study and to determine the common short-term side effects and risks associated with the drug. Phase 2 trials are typically well controlled, closely monitored, and conducted in a relatively small number of subjects. | |
| ● | Phase 3. Phase 3 trials are typically large trials performed after preliminary evidence suggesting effectiveness of the drug candidate has been obtained. They are intended to gather additional information about the effectiveness and safety that is needed to evaluate the overall benefit-risk relationship of the drug and to provide an adequate basis for physician labeling and product marketing approval. Phase 3 trials usually are conducted at geographically dispersed clinical study sites. |
A clinical trial may combine the elements of more than one phase and the FDA often requires more than one Phase 3 trial to support marketing approval of a product candidate. A company’s designation of a clinical trial as being of a particular phase is not necessarily indicative that the study will be sufficient to satisfy the FDA requirements of that phase because this determination cannot be made until the protocol and data have been submitted to and reviewed by the FDA. Human clinical trials are inherently uncertain and Phase 1, Phase 2 and Phase 3 testing may not be successfully completed.
A pivotal trial is a clinical trial that is believed to satisfy FDA requirements for the evaluation of a product candidate’s safety and efficacy such that it can be used, alone or with other pivotal or non-pivotal trials, to support regulatory approval. Generally, pivotal trials are Phase 3 trials, but they may be Phase 2 trials if the design provides a well-controlled and reliable assessment of clinical benefit, particularly in an area of unmet medical need.
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Clinical trials must be conducted under the supervision of one or more qualified investigators in accordance with the FDA’s GCP requirements. They must be conducted under protocols detailing the objectives of the trial, dosing procedures, research subject selection and exclusion criteria and the safety and effectiveness criteria to be evaluated. Each protocol, and any subsequent material amendment to the protocol, must be submitted to the FDA as part of the IND, and progress reports detailing the status of the clinical trials must be submitted to the FDA annually. Sponsors also must report to the FDA serious and unexpected adverse reactions in a timely manner, any clinically important increase in the rate of a serious suspected adverse reaction over that listed in the protocol or investigation brochure or any findings from other studies or animal or in vitro testing that suggest a significant risk in humans exposed to the product or therapeutic candidate. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time, via a clinical hold, or impose other sanctions if it believes that the clinical trial is not being conducted in accordance with FDA requirements or that the subjects are being exposed to an unacceptable health risk. An institutional review board (“IRB”), is responsible for ensuring that human subjects in clinical studies are protected from inappropriate study risks. An IRB at each institution participating in the clinical trial must review and approve the protocol before a clinical trial commences at that institution and must also approve the information regarding the trial and the consent form that must be provided to each research subject or the subject’s legal representative, monitor the trial until completed and otherwise comply with IRB regulations. The IRB also may require post-marketinghalt a study, either temporarily or permanently, for failure to comply with GCP or the IRB’s requirements, or if the investigational new drug has been associated with unexpected serious harm to patients.
During the development of a new drug product candidate, sponsors are given opportunities to meet with the FDA at certain points; specifically, prior to the submission of an IND, at the end of Phase 2 and before an NDA is submitted. Meetings at other times may be requested. These meetings can provide an opportunity for the sponsor to share information about the data gathered to date and for the FDA to provide advice on the next phase of development. Sponsors typically use the meeting at the end of Phase 2 to discuss their Phase 2 clinical results and present their plans for the pivotal Phase 3 clinical trial that they believe will support the approval of the new therapeutic.
Post-approval trials, sometimes referred to as “Phase 4” clinical trials, may be conducted after initial marketing approval. These trials are used to gain additional experience from the treatment of patients in the intended therapeutic indication. In certain instances, FDA may mandate the performance of “Phase 4” clinical trials.
Concurrent with clinical trials, sponsors usually complete additional animal safety studies, develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing commercial quantities of the product candidate in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, and purity of the finished drug product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to monitordemonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Marketing Application Submission and FDA Review
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed information on the product candidate is submitted to the FDA in the form of an NDA requesting approval to market the drug for one or more indications. An NDA includes all relevant data available from pertinent nonclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information on the product candidate’s chemistry, manufacturing, and controls, or CMC, and proposed labeling, among other things. To support marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and efficacy of approved products or place conditions on any approvals that could restrict the therapeutic claims and commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems at any time following initial marketing of our products.
Under the Prescription Drug User Fee Act (“PDUFA”), each NDA must be accompanied by a significant user fee. The FDA adjusts the PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee for prescription drug products. Fee waivers or reductions are available in certain circumstances, such as where a waiver is necessary to protect the public health, where the fee would present a significant barrier to innovation, or where the applicant is a small number of patients or healthy volunteers, primarilybusiness submitting its first human therapeutic application for safety at one or more doses. Phase 2 trials, in additionreview.
Under the goals and policies agreed to safety, evaluate the efficacy of the product candidate in a patient population somewhat larger than Phase 1 trials. Phase 3 trials typically involve additional testing for safety and clinical efficacy in an expanded population at multiple test sites. A company must submit toby the FDA under PDUFA, the FDA has ten months from receipt in which to complete its initial review of a clinical protocol, accompaniedstandard NDA for a drug that is not a new molecular entity, and six months from the receipt date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often significantly extended by FDA requests for additional information or clarification and a sponsor’s process to respond to such inquiries. As a result, the approval of the Institutional Review Boards at the institutions participating in the trial, prior to commencement of each clinical trial.
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The FDA may, in some cases, confer upon an investigational product the status of a fast-track product. A fast-track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. The FDA can base approval of an NDA for a fast-track product on an effect on a surrogate endpoint, or on another endpoint that is reasonably likely to predict clinical benefit. Ifconducts a preliminary review of clinical data suggestsall NDAs it receives to ensure that a fast-trackthey are sufficiently complete for substantive review before it accepts them for filing. The FDA may refuse to file any NDA that it deems incomplete or not properly reviewable at the time of submission, and may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application also is subject to review before the FDA accepts it for filing. The FDA has 60 days after submission of an NDA to conduct an initial review to determine whether it is sufficient to accept for filing. If the submission is accepted for filing, the FDA begins an in-depth substantive review of the NDA. The FDA reviews the NDA to determine, among other things, whether the proposed product may beis safe and effective for its intended use, whether it has an acceptable purity profile and whether the product is being manufactured in accordance with cGMPs. During its review of an NDA, the FDA may initiate reviewrefer the application to an advisory committee of entire sections of a marketing applicationindependent experts for a fast-track product beforerecommendation as to whether the application should be approved. An advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendation of an advisory committee, but it typically follows such recommendations. Data from clinical trials are not always conclusive, and the FDA or its advisory committee may interpret data differently than the NDA sponsor completesinterprets the application.
Before approving an NDA, the FDA will typically inspect the facilities at which the product is manufactured andmanufactured. The FDA will not approve the product unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the FDA'sproduct within required specifications. Additionally, before approving the NDA, the FDA will typically inspect one or more clinical sites to assure that the clinical trials were conducted in compliance with IND trial requirements and GCP requirements and to assure the integrity of the clinical data submitted to the FDA. To ensure cGMP and GCP compliance by its employees and third-party contractors, an applicant must incur significant expenditure of time, money and effort in the areas of training, record keeping, production and quality control.
The FDA also may require the submission of a risk evaluation and mitigation strategy, or “REMS,” if it determines that a REMS is necessary to ensure that the benefits of the drug outweigh its risks and to assure the safe use of the product. A REMS could include medication guides, physician communication plans, assessment plans and/or elements to assure safe use, such as restricted distribution methods, patient registries or other risk minimization tools. The FDA determines the requirement for a REMS, as well as the specific REMS provisions, on a case-by-case basis. If the FDA concludes a REMS is needed, the sponsor must include a proposed REMS within its NDA submission.
After evaluating the NDA and all related information, including the advisory committee recommendation, if any, and inspection reports regarding the manufacturing facilities where the drug product or its API will be produced and the clinical trial sites, the FDA will either issue an approval letter or, in some cases, a complete response letter (“CRL”) that describes all of the specific deficiencies that the FDA has identified in the NDA. A CRL indicates that the review cycle of the application is complete but that the application will not be approved in its present form. The deficiencies identified may be minor (e.g., requiring labeling changes) or major (e.g., requiring additional clinical trials and/or other time-consuming and expensive measures to generate the requisite safety and/or efficacy data). After receiving a CRL, an applicant may either resubmit the NDA, addressing all of the deficiencies identified in the letter or withdraw the application. FDA will issue a letter within 30 days of an NDA resubmission acknowledging receipt and informing the applicant as follows. For resubmissions deemed to be complete responses to all deficiencies identified in the CRL, such letter will contain FDA’s designation of the resubmission as Class 1 or Class 2 (based on the nature of information received therein) and the corresponding due date by which it will take action (2 months for Class 1 resubmissions and 6 months for Class 2. If FDA does not find the resubmission to be a complete response to all CRL deficiencies, the FDA will inform the applicant, and the FDA’s “review clock” will not start until a complete response is received.
Even if a drug product receives NDA approval, the approval may be significantly limited to specific indications and dosages and/or subject to limitations, specific labeling requirements, and/or other conditions that must be met to lawfully market the product in the United States, any or all of which could restrict the commercial value of the product. For example, the FDA may require that certain contraindications, warnings, and/or precautions be included in the product’s labeling. The FDA may also impose restrictions and conditions on product distribution, prescribing, or dispensing in the form of a REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as “Phase 4” clinical trials, designed to further assess a product’s safety and effectiveness, and/or testing and surveillance programs to monitor the safety of approved products that have been commercialized.
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Post-Approval Requirements for Prescription Drugs
Following approval of a new drug product, the manufacturer and the approved drug are subject to pervasive and continuing regulation by the FDA, including, among other things, monitoring and recordkeeping activities, reporting of adverse experiences with the product, product sampling and distribution restrictions, and promotion and advertising requirements.
Promotional communications must be carefully crafted to ensure compliance with all applicable FDA regulations pertaining to prescription-drug marketing and labeling. In particular, prescription-drug advertisements must generally (1) not be false or misleading, (2) present a “fair balance” of information describing both the risks and benefits associated with the drug, (3) include facts that governare “material” to the manufacture,product’s advertised uses, and (4) include a “brief summary” that mentions every risk described in the product’s labeling. Further, where the intended use of a prescription drug differs from the intended use approved by FDA, as listed in the product’s approved NDA, FDA has asserted that the product is an unapproved “new drug” and taken enforcement action against sponsors for introducing such unapproved new drugs into interstate commerce in violation of the FDCA. This prohibited practice is also called “off-label” promotion. Although physicians may prescribe legally available products for off-label uses, sponsors may not legally market or promote such uses. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.
To market an approved drug product for a new indication (i.e., beyond and/or differing from that set forth in the approved NDA), the sponsor must submit a new NDA (or NDA supplement), which, in many cases, will require the completion of adequate and well-controlled clinical trials to demonstrate the product’s safety and efficacy in the new indication. There is no guarantee that FDA will approve an NDA seeking an expansion of an approved drug’s labeling and/or indications for use more quickly than an NDA involving a novel product (i.e., that has never been approved for any indication) or ever. Relatedly, if the sponsor (or a contractor, partner, or other affiliated party) makes any post-market modifications to an approved drug or the production thereof, including changes in labeling or manufacturing processes or facilities, among other things, it may be required to submit and obtain FDA approval of a new NDA or an NDA supplement.
In addition, FDA regulations require that products be manufactured in specific approved facilities and in accordance with cGMPs. The cGMP regulations include requirements relating to organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. Drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and some state agencies, and are subject to periodic unannounced inspections by the FDA for compliance with cGMPs and other requirements. Changes to the manufacturing process, specifications or container closure system for an approved drug product are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require, among other things, the investigation and correction of any deviations from cGMPs and the imposition of reporting and documentation requirements upon the NDA sponsor and any third-party manufacturers involved in producing the approved drug product. Accordingly, both sponsors and manufacturers must continue to expend time, money, and effort on systems relating to production and quality control to maintain cGMP compliance and other aspects of quality control and quality assurance, and to ensure ongoing compliance with other statutory requirements the FDCA. We anticipate that the products we may commercialize in the United States (if any) will be manufactured by our strategic partners (including licensees) or contractors (including any third parties who may be engaged by us or one of our partners to conduct any commercialization activities, as well as downstream subcontractors, as applicable) and we may, thus, be subject to enforcement action for any such third parties’ failures to comply with the applicable postmarket regulations or otherwise be adversely affected by any of our partners’ or contractors’ compliance issues.
The FDA may withdraw its approval for a product. Ourdrug product if compliance with regulatory requirements is not maintained or unexpected problems occur after the product reaches the market. Later discovery of previously unknown problems with a drug, including serious and/or unexpected adverse experiences, or with manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies to assess new safety risks; or the imposition of distribution or other restrictions under a REMS.
We and/or our present or future suppliers, contract manufacturers, and/or other affiliates involved in one or more of our current or future U.S. development and/or commercialization activities (if applicable) may not be able to comply with all FDA regulatory requirements. For example, we may believe that all clinical studies are being conducted in accordance with the FDA’s IND regulations and that none of our investigational products are being promoted with claims of safety and/or effectiveness for the intended use(s) for which they are under investigation, but the FDA may determine otherwise, which could subject us to enforcement action and/or delay or prevent the ultimate approval of our applicable product candidate(s). From a postmarket perspective, with regard to any products we may commercialize in the United States in the future, we may believe our manufacturing operations (including that of our partners and/or contractors, as applicable) are fully compliant with cGMPs and that all promotional communications disseminated by or on behalf of us are consistent with FDA’s prescription-drug marketing requirements, but the FDA may disagree and take enforcement action against us. Accordingly, we could be subject to a number of adverse enforcement actions and/or penalties in connection with any failure(s) to comply with the FDCA and/or its implementing regulations at any stage in development and/or commercialization (if applicable), including, but not limited to, the following:
| ● | restrictions on the marketing or manufacturing of approved products, market withdrawal, recalls; |
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| ● | fines, warning letters, untitled letters, public warnings, consumer advisories, “dear doctor” letters, and other similar publications or issuances; | |
| ● | refusal of the FDA to approve pending NDAs or supplements to approved NDAs; | |
| ● | seizure, detention, import alerts; | |
| ● | injunctions or the imposition of civil or criminal penalties; | |
| ● | consent decrees, corporate integrity agreements, debarment, or exclusion from federal healthcare programs; or | |
| ● | mandated modification of promotional materials and labeling and the issuance of corrective information. |
We and our manufacturers and other partners in development and/or (future) commercialization, as applicable, also will be subject to regulation under the Occupational Safety and Health Act, the National Environmental Policy Act, the Nuclear Energy and Radiation Control Act, the Toxic Substance Control Act and the Resource Conservation and Recovery Act. Following approval, the FDA periodically inspects drug and biologic manufacturing facilities to ensure continued compliance with the good manufacturing practices regulations. Our manufacturers will have to continue to comply with those requirements. Failure to comply with these requirements subjects the manufacturer to possible legal or regulatory action, such as suspension of manufacturing or recall or seizure of product. Adverse patient experiences with the product must be reported to the FDA and could result in the imposition of marketing restrictions through labeling changes or market 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.
We will also be subject to a variety of regulations governing clinical trials and sales of our products outside the U.S. Whether or not FDA approval has been obtained, approval of a product candidate by the comparable regulatory authorities of foreign countries and regions must be obtained prior to the commencement of marketing the product in those countries. The approval process varies from one regulatory authority to another and the time may be longer or shorter than that required for FDA approval. In the European Union, Canada and Australia, regulatory requirements and approval processes are similar, in principle, to those in the U.SU.S.
Other U.S. Healthcare Laws and Regulations
Healthcare Reform Measures
On March 23, 2010, former President Obama signed the “Patient Protection and Affordable Care Act” (P.L. 111-148) (the “ACA”) and on March 30, 2010, he signed the “Health Care and Education Reconciliation Act” (P.L. 111-152), collectively commonly referred to as the “Healthcare Reform Law.” The Healthcare Reform Law included a number of new rules regarding health insurance, the provision of healthcare, conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes have been and continue to be made to the current system for paying for healthcare in the U.S., including changes made to extend medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced by the U.S. in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may result in our current commercial products, products we may commercialize or promote in the future, and our therapeutic candidates, being chosen less frequently or the pricing being substantially lowered. At this stage, it is difficult to estimate the full extent of the direct or indirect impact of the Healthcare Reform Law on us.
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These structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare, Medicaid, and the State Children’s Health Insurance Program), creation of government-sponsored healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization partners are currently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate obligations associated with them are substantially increased, it could have a material adverse effect on our reputation, business, financial condition or results of operations.
Extending medical benefits to those who currently lack coverage will likely result in substantial costs to the U.S. federal government, which may force significant additional changes to the healthcare system in the U.S. Much of the funding for expanded healthcare coverage may be sought through cost savings. While some of these savings may come from realizing greater efficiencies in delivering care, improving the effectiveness of preventive care and enhancing the overall quality of care, much of the cost savings may come from reducing the cost of care and increased enforcement activities. Cost of care could be reduced further by decreasing the level of reimbursement for medical services or products (including our current commercial products, our development or commercialization partners or any product we may commercialize or promote, or those therapeutic candidates currently being developed by us), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for our current commercial products, any product we may commercialize or promote, or any therapeutic candidate, or for which we receive marketing approval in the future, could have a material adverse effect on our reputation, business, financial condition or results of operations.
Several states and private entities initially mounted legal challenges to the Healthcare Reform Law, in particular, the ACA, and they continue to litigate various aspects of the legislation. On July 26, 2012, the U.S. Supreme Court generally upheld the provisions of the ACA at issue as constitutional. However, the U.S. Supreme Court held that the legislation improperly required the states to expand their Medicaid programs to cover more individuals. As a result, states have a choice as to whether they will expand the number of individuals covered by their respective state Medicaid programs. Some states have not expanded their Medicaid programs and have chosen to develop other cost-saving and coverage measures to provide care to currently uninsured individuals. Many of these efforts to date have included the institution of Medicaid-managed care programs. The manner in which these cost-saving and coverage measures are implemented could have a material adverse effect on our reputation, business, financial condition or results of operations, particularly once we and/or any of our partners have products on the U.S. market, if ever.
Further, the healthcare regulatory environment has seen significant changes in recent years and is still in flux. Legislative initiatives to modify, limit, replace, or repeal the ACA and judicial challenges have continued. We cannot predict the extent to which our business may be impacted by legal challenges to the ACA or other aspects of the Healthcare Reform Law or other changes to the current laws and regulations. The financial impact of U.S. healthcare reform legislation over the next few years will depend on a number of factors, including the policies reflected in implementing regulations and guidance and changes in sales volumes for therapeutics affected by the legislation. From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions governing coverage, reimbursement, and marketing of pharmaceutical products. In addition, third-party payor coverage and reimbursement policies are often revised or interpreted in ways that may significantly affect our business and any products we or our partners may commercialize in the future, as well as the prospects and/or viability of our product candidates.
During his time in office, former President Trump supported the repeal of all or portions of the ACA. President Trump also issued an executive order in which he stated that it is his administration’s policy to seek the prompt repeal of the ACA and in which he directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the ACA to the maximum extent permitted by law. Congress has enacted legislation that repeals certain portions of the ACA, including but not limited to the Tax Cuts and Jobs Act, passed in December 2017, which included a provision that eliminates the penalty under the ACA’s individual mandate, effective January 1, 2019, as well as the Bipartisan Budget Act of 2018, passed in February 2018, which, among other things, repealed the Independent Payment Advisory Board (which was established by the ACA and was intended to reduce the rate of growth in Medicare spending).
Additionally, in December 2018, a district court in Texas held that the individual mandate is unconstitutional and that the rest of the ACA is, therefore, invalid. On appeal, the Fifth Circuit Court of Appeals affirmed the holding on the individual mandate but remanded the case back to the lower court to reassess whether and how such holding affects the validity of the rest of the ACA. The Fifth Circuit’s decision on the individual mandate was appealed to the U.S. Supreme Court. On June 17, 2021, the Supreme Court held that the plaintiffs (comprised of the state of Texas, as well as numerous other states and certain individuals) did not have standing to challenge the constitutionality of the ACA’s individual mandate and, accordingly, vacated the Fifth Circuit’s decision and instructed the district court to dismiss the case. As a result, the ACA will remain in-effect in its current form for the foreseeable future; however, we cannot predict what additional challenges may arise in the future, the outcome thereof, or the impact any such actions may have on our business.
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The Biden administration also introduced various measures in 2021 focusing on healthcare and drug pricing, in particular. For example, on January 28, 2021, President Biden issued an executive order that initiated a special enrollment period for purposes of obtaining health insurance coverage through the ACA marketplace, which began on February 15, 2021, and remained open through August 15, 2021. The executive order also instructed certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including among others, reexamining Medicaid demonstration projects and waiver programs that include work requirements and policies that create unnecessary barriers to obtaining access to health insurance coverage through Medicaid or the ACA. On the legislative front, the American Rescue Plan Act of 2021 was signed into law on March 11, 2021, which, in relevant part, eliminates the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source drugs and innovator multiple source drugs, beginning January 1, 2024. And, in July 2021, the Biden administration released an executive order entitled, “Promoting Competition in the American Economy,” with multiple provisions aimed at prescription drugs. In response, on September 9, 2021, HHS released a “Comprehensive Plan for Addressing High Drug Prices” that outlines principles for drug pricing reform and sets out a variety of potential legislative policies that Congress could pursue as well as potential administrative actions HHS can take to advance these principles. And, in November 2021, President Biden announced the “Prescription Drug Pricing Plan” as part of the Build Back Better Act (H.R. 5376) passed by the House of Representatives on November 19, 2021, which aims to lower prescription drug pricing by, among other things, allowing Medicare to negotiate prices for certain high-cost prescription drugs covered under Medicare Part D and Part B after the drugs have been on the market for a certain number of years and imposing tax penalties on drug manufacturers that refuse to negotiate pricing with Medicare or increase drug prices “faster than inflation.” If enacted, this bill could have a substantial impact on our business. In the coming years, additional legislative and regulatory changes could be made to governmental health programs that could significantly impact pharmaceutical companies and the success of our product candidates. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
There is uncertainty as to what healthcare programs and regulations may be implemented or changed at the federal and/or state level in the U.S. or the effect of any future legislation or regulation. Furthermore, we cannot predict what actions the Biden administration will implement in connection with the Health Reform Law. However, it is possible that such initiatives could have an adverse effect on our or our partners’ ability to obtain approval for and/or successfully commercialize products in the U.S. in the future.
Fraud and Abuse, Transparency, and Privacy
In the United States, we may be subject to various federal and state laws and regulations regarding fraud and abuse in the healthcare industry, as well as industry standards and guidance, such as the codes issued by the Pharmaceutical Research and Manufacturers of America (or “PhRMA Codes”), which some states reference or incorporate in their statutes and regulations. These laws, regulations, standards, and guidance may impact, among other things, our sales and marketing activities and our relationships with healthcare providers and patients. In addition, we may be subject to patient privacy regulations by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include but are not limited to:
| ● | the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in cash or in kind, to induce or reward, or in return for, either the referral of an individual for, or the purchase, order, or recommendation of, an item or service reimbursable under a federal healthcare program, such as the Medicare and Medicaid programs; | |
| ● | federal civil and criminal false claims laws and civil monetary penalty laws, including the False Claim Act, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from the federal government, including Medicare, Medicaid, or other third-party payors, that are false or fraudulent; |
| ◌ | The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), which imposes federal criminal and civil liability for executing, or attempting to execute, a scheme to defraud any healthcare benefit program and making false statements relating to healthcare matters; |
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| ● | the federal transparency laws, including the Physician Payments Sunshine Act, which requires applicable manufacturers of covered drugs to disclose payments and other transfers of value provided to physicians and teaching hospitals and physician ownership and investment interests; | |
| ● | HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (“HITECH”), and its implementing regulations, also imposes certain requirements relating to the privacy, security, and transmission of individually identifiable health information; and | |
| ● | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers, state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines, state laws that require pharmaceutical manufacturers to report certain pricing or payment information, and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and are not preempted by HIPAA, thus complicating compliance efforts. |
Because of the breadth of these laws and the narrow scope of the statutory or regulatory exceptions and safe harbors available, our current or future activities, policies, and/or arrangements could be challenged under one or more of these laws. In addition, the federal government has identified relationships between drug companies (and other medical-product manufacturers) and healthcare providers as particularly susceptible to fraud and abuse and, thus, our relationships may be subject to heightened regulatory scrutiny, particularly once we have one or more products on the U.S. market, if ever. Further, many of the applicable healthcare laws and regulations are subject to varying and/or evolving interpretations, which makes achieving and maintaining consistent compliance more difficult. We may have to devote substantial costs, resources, and time to compliance efforts, particularly once one or more of our product candidates, or any other products to which we may obtain commercialization rights in the future, is marketed in the United States. If any of our past, current, or future operations and/or arrangements are found to be in violation of If our operations are found to be in violation of any healthcare laws or regulations that may apply to us, we may be subject to significant civil, criminal, and/or administrative penalties; damages; fines; personal imprisonment; exclusion from government-funded programs, such as Medicare and Medicaid; additional reporting requirements and oversight under a corporate integrity (or deferred prosecution or other similar) agreement with the applicable federal or state agency or agencies (such as the U.S. Office of Inspector General (“OIG”), the U.S. Department of Justice (“DOJ”), or state attorneys general); and/or the curtailment or restructuring of our operations. Any adverse enforcement action initiated against us based on actual or alleged violations of one or more of the healthcare laws and regulations could have a material adverse effect on our business, even if we are ultimately successful in defending against such claims.
Employees
As of March 16, 2018,23, 2022, we had twenty employees, thirteen of whom were engaged in preclinical research at our Freiburg, Germany laboratory, and seven of whom were involved in management and administrative operations.
Available Information
We maintain a website at www.cytrx.com and make available there, free of charge, our periodic reports filed with the Securities and Exchange Commission, or SEC, as soon as is reasonably practicable after filing. The public may readAmong other things, we post on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operationamendments and Code of the Public Reference Room by calling the SEC at 1-800-SEC-0330.Business Conduct and Ethics. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers such as us that file electronically with the SEC. Among other things, we post on
Item 1A. RISK FACTORS
We are subject to various risks that may materially harm our website our Code of Business Conduct and Ethics.
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You should carefully consider the risks and uncertainties facing our business. The risks described below are not the only ones facing us.risks we face. If any of the events described in the following risk factors actually occurs, or if additional risks and uncertainties later materialize, that are not presently known to us or that we currently deem immaterial, then our business, prospects, results of operations and financial condition could be materially adversely affected. In that event, the trading price of our common stock could decline, and you may lose all or part of your investment in our shares. The risks discussed below include forward-looking statements, and our actual results may differ substantially from those discussed in these forward-looking statements. Our business is also subject to the risks that affect many other companies, such as employment relations, general economic conditions and geopolitical events. Further, additional risks not currently known to us or that we currently believe are immaterial may in the future materially and adversely affect our business, operations, liquidity and stock price.
Risk Factor Summary
Below is a summary of the principal factors that make an investment in our common stock speculative or risky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this Form 10-K and our other filings with the SEC, before making an investment decision regarding our common stock.
Risks Associated With Our Business:
| ● | We have operated at a loss and will likely continue to operate at a loss for the foreseeable future. | |
| ● | Because we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability to raise capital may be severely limited. | |
| ● | If Orphazyme fails to successfully develop and commercialize arimoclomol, our business prospects will be materially adversely affected. | |
| ● | If ImmunityBio fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with ImmunityBio is otherwise unsuccessful, our business prospects will be materially adversely affected. |
Risks Associated With Drug Discovery and Development:
| ● | If the projected development goals for our product candidates are not achieved in the expected time frames, the commercialization of our products may be delayed and our business prospects may suffer. Our financial projections also may prove to be materially inaccurate. | |
| ● | The regulatory approval process is lengthy, time consuming and inherently unpredictable, and if our products or those we have sold or licensed are not successfully developed and approved by the FDA or foreign regulatory authorities, we may be forced to reduce or curtail our operations. | |
| ● | Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. | |
| ● | We may be unable to protect our intellectual property rights, which could adversely affect our ability to compete effectively. | |
| ● | If our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market them. | |
| ● | The results of pre-clinical studies or early clinical trials are not necessarily predictive of future results, and our ultra-high potency albumin-binding drug conjugates may not have favorable results in later clinical trials or receive regulatory approval. | |
| ● | Any products that we develop or are sold or licensed may become subject to unfavorable pricing regulations or third-party coverage and reimbursement policies, which could have a material adverse effect on our business. | |
| ● | Healthcare legislative reform measures could hinder or prevent the commercial success of our products and product candidates. | |
| ● | We may also be subject to healthcare laws, regulation and enforcement and our failure to comply with those laws could adversely affect our business, operations and financial condition. | |
| ● | We will be required to pay substantial milestone and other payments relating to the commercialization of our products. | |
| ● | The COVID-19 pandemic could adversely impact our business and prospects, including active and planned clinical trials by ImmunityBio and Orphazyme. | |
| ● | In the event of a dispute regarding our international drug development, it may be necessary for us to resolve the dispute in the foreign country of dispute, where we would be faced with unfamiliar laws and procedures. | |
| ● | Drug discovery is a complex, time-consuming and expensive process, and we may not succeed in creating new product candidates. | |
| ● | We have a limited operating history in drug discovery, which is inherently risky, and we may not succeed in addressing these risks. |
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General Risk Factors:
| ● | We are subject to intense competition, and we may not compete successfully. | |
| ● | We are subject to potential liabilities from clinical testing and future product liability claims. | |
| ● | We may be unable to successfully acquire additional technologies or products. If we require additional technologies or products, our product development plans may change and the ownership interests of our shareholders could be diluted. | |
| ● | The impact and results of our exploration of any strategic alternatives are uncertain and may not be successful. | |
| ● | We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. | |
| ● | Our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. | |
| ● | You may experience future dilution as a result of future equity offerings or other equity issuances. | |
| ● | Our outstanding options and warrants and the availability for resale of the underlying shares may adversely affect the trading price of our common stock. | |
| ● | We cannot assure investors that our internal controls will prevent future material weaknesses. | |
| ● | We could be subject to legal actions that could adversely affect our financial condition. | |
| ● | Our anti-takeover measures may make it more difficult to change our management, or may discourage others from acquiring us, and thereby adversely affect stockholder value. | |
| ● | Our restated by-laws, as amended, designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees. | |
| ● | We may issue preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock. | |
| ● | We do not expect to pay any cash dividends on our common stock. |
Risks Associated With Our Business
We have operated at a loss and will likely continue to operate at a loss for the foreseeable future.
We have operated at a loss due to our ongoing expenditures for research and development of our product candidates and for general and administrative purposes, and lack of significant recurring revenues. We incurred a net loss of $35.0$13.0 million for the year ended December 31, 20172021 and $50.8$6.7 million for the year ended December 31, 20162020 and had an accumulated deficit as of December 31, 20172021 of $450.9$483.9 million. We are likely to continue to incur losses unless and until we are able to commercialize aldoxorubicin earn milestones and royalties from our existing licensing and sale agreements and/or oneconclude a successful strategic partnership or more offinancing for our other existing or possible future product candidates.LADR™ technology. These losses, among other things, have had and will continue to have an adverse effect on our stockholders'stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when we may become profitable, if at all. If we do not become profitable or are unable to maintain future profitability, the market value of our common stock will be adversely affected.
Our independent registered public accounting firm has included an explanatory paragraph in its report as of and for the year ended December 31, 2021 expressing substantial doubt in our ability to continue as a going concern based on our recurring and continuing losses from operations and our need for additional funding to continue operations. Our consolidated financial statements do not include any adjustments that might result from the outcome of this going concern uncertainty and have been prepared under the assumption that we will continue to operate as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. If we are unable to continue as a going concern, we may be forced to liquidate our assets which would have an adverse impact on our business and developmental activities. In such a scenario, the values we receive for our assets in liquidation or dissolution could be significantly lower than the values reflected in our financial statements. The reaction of investors to the inclusion of a going concern statement by our independent registered public accounting firm and our potential inability to continue as a going concern may materially adversely affect our stock price and our ability to raise new capital or to enter into strategic alliances.
Because we have no source of significant recurring revenue, we must depend on capital raising to sustain our operations, and our ability to raise capital may be severely limited.
Developing products and conducting clinical trials require substantial amounts of capital. To date,In July 2021, we have relied primarily upon proceeds from saleswere able raise some capital through the sale of our equity securitiescommon stock registered under our "shelf"“shelf” registration statements on Form S-3, filed withas well as through the SECrelated private placement of certain warrants and proceeds from the exercise of optionspreferred investment option. We will likely need to raise additional capital to fund our general and warrantsadministrative expenses and, if we determine to generate funds needed to finance our business and operations. Wedevelop products based on Centurion’s LADR™ technology platform, we will need to raise additional capital to amongfund development of product candidates, prepare, file, prosecute, maintain, enforce and defend patent and other things:
At December 31, 2017,2021, we had cash and cash equivalents of approximately $37.6 million. Under the terms of the loan agreement, however, we are required to maintain cash equal to a minimum of the greater of three months projected cash burn or $10$6.8 million. Management believes that our current resources will be sufficient to fund our operations for the foreseeable future.through December 31, 2022. This estimate is based, in part, upon our currently projected expenditures for 20182022 and the first three months of 20192023 of approximately $27.8$6.5 million (unaudited), which includes approximately $1.5 million (unaudited) for to fund our clinical programs, approximately $3.1 million (unaudited) for pre-clinical development of new high potency cytotoxic albumin-binding cancer drugs, approximately $0.7 million (unaudited) for general operation of its clinical programs, approximately $10.1 million (unaudited) for other general and administrative expenses and $12.4 million of interest and principal payments on our outstanding term loan.operating activities. These projected expenditures are also based upon numerous other assumptions and subject to many uncertainties, and actual expenditures may be significantly different from these projections. While these projections represent our current expected expenditures, we have the ability to reduce the amounts and alter the timing of research and development expenditures as needed to manage its liquidity needs while still advancing its research and development objectives. We will ultimately be required to obtain additional funding in order to execute our long-term business plans, although we do not currently have commitments from any third parties to provide us with long term debt or capital. We cannot assure that additional funding will be available on favorable terms, or at all. If we fail to obtain additional funding when needed, we may not be able to execute our business plans and our business may suffer, which would have a material adverse effect on our financial position, results of operations and cash flows.
If we raise additional funds by issuing equity securities, dilution to stockholders may result and new investors could have rights superior to holders of the shares issued in this offering.current equity holders. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not available to us, we may have to liquidate some or all of our assets or to delay or reduce the scope of or eliminate some portion or all of our development programs or clinical trials.programs. We also may have to license to other companies our product candidates or technologies that we would prefer to develop and commercialize ourselves.
On March 15, 2022, CytRx Corporation (the “Company”) held a special meeting of stockholders (the “Special Meeting”), which was originally opened and subsequently adjourned on September 23, 2021, at which meeting the Company’s stockholders, by an affirmative vote of the majority of the Company’s outstanding shares of capital stock, approved the amendment to the Company’s Restated Certificate of Incorporation (the “Certificate of Incorporation”) to effect an increase in the number of shares of authorized common stock, par value $0.001 per share, from 41,666,666 shares to 62,393,940 shares, and to make a corresponding change to the number of authorized shares of capital stock in order to comply with the Company’s contractual obligations under a securities purchase agreement entered into on July 13, 2021 (the “Authorized Share Increase Amendment”). The number of shares of authorized preferred stock of the Company remains unchanged.
On March 15, 2022, the Company filed a Certificate of Amendment to Restated Certificate of Incorporation (the”Certificate of Amendment”) with the Secretary of State of Delaware to effect the Authorized Share Increase Amendment.
As of March 23, 2022, we have no additional shares of common stock that are authorized and unissued. We would need approval of our stockholders to increase our authorized shares of our common stock in order to raise additional capital in excess of this amount of shares.
If NantCellOrphazyme fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with NantCell is otherwise unsuccessful,and commercialize arimoclomol, our business prospects will be materially adversely affected.
In July 2017, we entered into an exclusive licensing agreement with NantCell2011, CytRx sold the rights to completearimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme in exchange for a one-time, upfront payment and the right to receive up to a total of $120 million in milestone payments upon the achievement of certain pre-specified regulatory and business milestones, as well as single- and double-digit royalty payments based on a specified percentage of any net sales of products derived from arimoclomol. Orphazyme announced in March and May of 2021 that pivotal phase 3 clinical trials assessing the safety and efficacy of arimoclomol in treating ALS and IBM, respectively, did not meet their primary or secondary endpoints and that it has ceased development of, and commercializationits pursuit of aldoxorubicin. Under thisregulatory approvals for, arimoclomol for such indications. As a result, the maximum amount that we are eligible to receive in future milestone payments under the agreement NantCell has committed to provide substantial funding,with Orphazyme is now approximately $100 million. There can be no assurance that said amount or any portion thereof will be realized, as such realization is contingent upon certain regulatory approvals of arimoclomol for indications other than the prevention or treatment of ALS or stroke and other contingencies over which we have no control. Orphazyme is testing arimoclomol in NPC and Gaucher disease. On June 18, 2021, Orphazyme announced it received a CRL from the FDA, identifying certain deficiencies in the NDA that precluded its approval. In particular, Orphazyme announced that the CRL was issued based on the need for additional confirmatory evidence, as well as additional qualitative and quantitative evidence to further substantiate the validity of the 5-domain NPC Clinical Severity Scale (“NPCCSS”), specifically the swallow domain, in the context of a lack of significant capabilitiesfindings when using the FDA’s preferred and recommended statistical approach. In late October 2021, Orphazyme announced it held a Type A meeting with the FDA where the FDA recommended that Orphazyme submit additional data, information and analyses to address certain topics in the CRL and engage in further interactions with the FDA to identify a pathway to resubmission. The FDA concurred with Orphazyme’s proposal to remove the cognition domain from the NPCCSS endpoint, with the result that the primary endpoint is permitted to be recalculated using the 4- domain NPCCSS, subject to the submission of additional requested information which Orphazyme intends to provide. The FDA also affirmed that it would require additional in vivo or pharmacodynamic (PD)/pharmacokinetic (PK) data. Orphazyme is planning to request a Type C Meeting with the FDA in the second quarter of 2022 to discuss its progress in redressing the deficiencies identified in the CRL and plans for resubmission. Subject to FDA’s feedback in the Type C meeting and any other pertinent discussions with the regulatory body, Orphazyme plans to resubmit the NDA for arimoclomol in the second half of 2022. However, there are a number of uncertainties inherent in clinical development, regulatory affairs, marketinginvestigation that may hinder Orphazyme’s plans for generating additional data, meeting with FDA, and/or resubmitting the NDA. And, even if Orphazyme properly implements FDA’s feedback and sales.resubmits the NDA with the additional confirmatory evidence and qualitative and quantitative data that FDA requested, there is no guarantee that FDA will approve the resubmitted version of the NDA.
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Orphazyme has also submitted a MAA with the EMA. In February 2022, Orphazyme announced that they were notified by the CHMP of a negative trend vote on the MAA for any reason, NantCell doesarimoclomol in NPC following an oral explanation. The trend vote indicates that the CHMP’s current orientation is to not devote sufficient timeapprove arimoclomol when it convenes by the end of March 2022. Orphazyme considers it unlikely that this position will change before the formal vote is undertaken in March 2022. They will assess their strategic options and resourcesprovide an update to the development and commercialization of aldoxorubicin, we will not realizemarket at the potential commercial benefits of the arrangement, and our results of operations will be adversely affected. In addition, if NantCell were to breach or terminate its arrangement with us, the development and commercialization of aldoxorubicin could be delayed, curtailed or terminated, and we may not have sufficient financial resources or capabilities to continue development and commercialization of aldoxorubicin on our own.
The potential revenue from our existing and future arrangement with NantCell will consist ofOrphazyme is based on contingent payments, such as payments for achieving development and commercialization milestones and royalties payable on commercial sales of successfully developed aldoxorubicin. The milestone, royalty and other revenue that we may receive under this arrangementwhich will depend upon our, and NantCell'sOrphazyme’s ability to achieve regulatory approvals and successfully develop, introduce, market and sell aldoxorubicin.products derived from arimoclomol. Our ability to realize the maximum amount of aggregate milestone payments initially set forth in our agreement with Orphazyme has been reduced by approximately $20 million due to Orphazyme’s unsuccessful pivotal studies of arimoclomol for ALS and IBM and subsequent decision to cease arimoclomol’s development with regard such indications. While Orphazyme has progressed further in connection with its development of arimoclomol for NPC (than for ALS or IBM), its efforts to obtain the FDA and EMA approvals needed to lawfully market arimoclomol for NPC in the United States and the EU, respectively, have been unsuccessful thus far and may never succeed. We will not be directly involved in this process and will depend entirely on NantCell,Orphazyme, which may fail to develop or effectively commercialize aldoxorubicin becauseproducts derived from arimoclomol for many reasons, including if they:
| ● | decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment; | |
| ● | do not have sufficient resources necessary to carry arimoclomol through clinical development, regulatory approval and commercialization; | |
| ● | cannot obtain the necessary regulatory approvals for arimoclomol; or | |
| ● | decide to pursue a competitive drug candidate. |
If Orphazyme does not obtain the regulatory approvals for arimoclomol that are necessary to trigger the corresponding milestone payments to us under our agreement, or if their research and development or commercialization efforts are, otherwise, unsuccessful, we will not realize the anticipated commercial benefits of the arrangement and our business prospects will be materially and adversely affected.
If ImmunityBio fails to successfully develop aldoxorubicin or our exclusive licensing arrangement with ImmunityBio is otherwise unsuccessful, our business prospects will be materially and adversely affected.
In July 2017, we entered into an exclusive licensing agreement with ImmunityBio to complete the clinical development of and commercialization of aldoxorubicin. Under this agreement, ImmunityBio has committed to provide substantial funding, as well as significant capabilities in clinical development, regulatory affairs, marketing and sales.
If, for any reason, ImmunityBio does not devote sufficient time and resources to the development and commercialization of aldoxorubicin, we will not realize the potential commercial benefits of the arrangement, and our results of operations will be adversely affected. In addition, if ImmunityBio were to breach or terminate its arrangement with us, the development and commercialization of aldoxorubicin could be delayed, curtailed or terminated, and we may not have sufficient financial resources or capabilities to continue development and commercialization of aldoxorubicin on our own.
Under our agreement with ImmunityBio, they may opt out of a project by giving us twelve months’ prior written notice. If ImmunityBio were to exercise its right to opt out of a program or to terminate the licensing agreement, the development and commercialization of aldoxorubicin would be adversely affected, our potential for generating revenue from this program would be adversely affected and attracting new partners would be made more difficult.
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Much of the potential revenue from our existing and future arrangement with ImmunityBio will consist of contingent payments, such as payments for achieving development and commercialization milestones and single- and double-digit royalties payable on commercial sales of successfully developed aldoxorubicin. The milestone, royalty and other revenue that we may receive under this arrangement will depend upon our, and ImmunityBio’s ability to successfully develop, introduce, market, commercialize and sell aldoxorubicin. We will not be directly involved in this process and will depend entirely on ImmunityBio, which may fail to develop or effectively commercialize aldoxorubicin for many reasons including if they:
| ● | decide not to devote the necessary resources due to internal constraints, such as limited personnel with the requisite scientific expertise, limited cash resources or specialized equipment limitations, or the belief that other drug development programs may have a higher likelihood of obtaining regulatory approval or may potentially generate a greater return on investment; | |
| ● | do not have sufficient resources necessary to carry aldoxorubicin through clinical development, regulatory approval and commercialization; |
| ● | cannot obtain the necessary regulatory approvals for aldoxorubicin; or |
| ● | decide to pursue a competitive drug candidate. |
If NantCellImmunityBio fails to develop or effectively commercialize aldoxorubicin or for any of the other reasons described above, we may not be able to develop and commercialize that drug independently or replace NantCellImmunityBio with another suitable partner in a reasonable period of time and on commercially reasonable terms, if at all.
Risks Associated With Drug Discovery and Development
If we do not achieve ourthe projected development goals for our product candidates are not achieved in the expected time frames, we estimate, the commercialization of our products may be delayed and our business prospects may suffer. Our financial projections also may prove to be materially inaccurate.
From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of scientific studies and clinical trials and the submission of regulatory filings.
We also may disclose projected expenditures or other forecasts for future periods. These and other financial projections are based on management'smanagement’s current expectations and do not contain any margin of error or cushion for any specific uncertainties, or for the uncertainties inherent in all financial forecasting.
The actual timing of milestones and actual expenditures or other financial results can vary dramatically compared to our estimates, in some cases for reasons beyond our control.control or the control of companies that have licensed or purchased our product candidates. If we do not meetthese milestones or financial projections as announced from time to time,are not met, the development and commercialization of our productsproduct candidates may be delayed and our business prospects may suffer. The assumptions management has used to produce these projections may significantly change or prove to be inaccurate. Accordingly, you should not unduly rely on any of these financial projections.
The regulatory approval process is lengthy, time consuming and inherently unpredictable, and if our products or those we have sold or licensed are not successfully developed and approved by the FDA or foreign regulatory authorities, we may be forced to reduce or curtail our operations.
All of our product candidates in development or those licensed or sold must be approved by the FDA or corresponding foreign governmental agencies before they can be marketed. The process for obtaining FDA and foreign government approvals is both time-consuming and costly, with no certainty of a successful outcome. This process typically includes the conduct of extensive pre-clinical and clinical testing, including post-approval testing, which may take longer or cost more than we or our licensees, if any, anticipate, and may prove unsuccessful due to numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate'scandidate’s clinical development and may vary among jurisdictions. WeNone of our product candidates in development or licensed or sold to third parties have not obtainedreceived regulatory approval for any product candidate.approval.
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Numerous factors could affect the timing, cost or outcome of our product development efforts, including the following:
| difficulty in enrolling patients in conformity with required protocols or projected timelines; |
| ● | requirements for clinical trial design imposed by the FDA; |
| ● | unexpected adverse reactions by patients in trials; |
| ● | difficulty in obtaining clinical supplies of the product; |
| ● | changes in or our inability to comply with FDA or foreign governmental product testing, manufacturing or marketing requirements; |
| ● | regulatory inspections of clinical trials or manufacturing facilities, which may, among other things, require us or our manufacturers or licensees to undertake corrective action or suspend or terminate the affected clinical trials if investigators find them not to be in compliance with applicable regulatory requirements; |
| ● | inability to generate statistically significant data confirming the safety and efficacy of the product being tested; |
| ● | modification of the product during testing; and |
| ● | reallocation of our limited financial and other resources to other clinical programs. |
It is possible that none of the product candidates we develop or have sold or licensed will obtain the regulatory approvals necessary for us to begin selling them.them or making us eligible to receive milestone or royalty payments. The time required to obtain FDA and foreign governmental approvals is unpredictable, but often can take years following the commencement of clinical trials, depending upon the complexity of the product candidate. Any analysis we performperformed on data from clinical activities is subject to confirmation and interpretation by regulatory authorities, which could delay, limit or prevent regulatory approval. In addition, even if we were to obtainregulatory approval was obtained, regulatory authorities may approve any of our product candidates for fewer or more limited indications than we request,requested, may not approve the intended price we intend to charge for oursuch products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for ourthe product candidates.
Furthermore, even if we obtain regulatory approvals are obtained, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and other post-marketing information and reports, registration, as well as continued compliance with current good manufacturing practices, or cGMPs, and good clinical practices, or cGCPs, for any clinical trials that we conduct post-approval. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
| restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls; |
| ● | fines, warning letters or holds on clinical trials; |
| ● | refusal by the FDA to approve pending applications or supplements to approved applications filed by us or our strategic partners, or suspension or revocation of product license approvals; |
| ● | product seizure or detention, or refusal to permit the import or export of products; and | |
| ● | injunctions or the imposition of civil or criminal penalties. |
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The FDA'sFDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business. We will also be subject to periodic inspections and the potential for mandatory post- approval clinical trials required by the FDA and other U.S. and foreign regulatory authorities. Any delay or failure in obtaining required approvals or to comply with post-approval regulatory requirements could have a material adverse effect on our ability to generate revenue from the particular product candidate. The failure to comply with any post-approval regulatory requirements also could result in the rescission of the related regulatory approvals or the suspension of sales of the offending product.
Clinical drug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical trial process. The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical development may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or safety profiles, notwithstanding promising results in earlier trials. For example, aldoxorubicin has shown encouraging preliminary clinical results in our Phase 2b clinical trial as a treatment for STS; however, theseSTS. These conclusions may not be reproduced in future clinical trial results; forresults. For instance, the Phase 3 pivotal clinical trial testing aldoxorubicin as a treatment for STS narrowly missed statistical significance although it demonstrated a statistically significant improvement in PFS over investigator'sinvestigator’s choice in 312 patients treated in North America plus Australia .and Australia. Accordingly, our development partner may ultimately be unable to provide the FDA and/or other U.S. and foreign regulatory authorities with satisfactory data on clinical safety and efficacy sufficient to obtain approval from the FDA approval of aldoxorubicin for any indication.
Further wedelays may experience delaysoccur in clinical trials of our product candidates. We do not know whether ongoing clinical trials will be completed on schedule or at all, or whether planned clinical trials will begin on time, need to be redesigned, enroll patients on time or be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays related to:
| obtaining regulatory approval to commence a trial; |
| ● | reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among different CROs and clinical trial sites; |
| ● | obtaining institutional review board approval at each clinical trial site; |
| ● | recruiting suitable patients to participate in a trial; |
| ● | having patients complete a trial or return for post-treatment follow-up; |
| ● | clinical trial sites deviating from trial protocol or dropping out of a trial; |
| ● | adding new clinical trial sites; or |
| ● | manufacturing sufficient quantities of product candidate for use in clinical trials. |
We may be unable to protect our intellectual property rights, which could adversely affect our ability to compete effectively.
We will be able to protect our technologies from unauthorized use by third parties only to the extent that we have rights to valid and enforceable patents or other proprietary rights that cover them. Although we have rights to patents and patent applications directed to our product candidates, these patents and applications may not prevent third parties from developing or commercializing similar or identical technologies. In addition, our patents may be held to be invalid if challenged by third parties, and our patent applications may not result in the issuance of patents.
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The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States and in many foreign countries. The application and enforcement of patent laws and regulations in foreign countries is even more uncertain. Accordingly, we may not be able to effectively file, protect or defend our proprietary rights on a consistent basis. Many of the patents and patent applications on which we rely were issued or filed by third parties prior to the time we acquired rights to them. The validity, enforceability and ownership of those patents and patent applications may be challenged, and if a court decides that our patents are not valid, we will not have the right to stop others from using our inventions. There is also the risk that, even if the validity of our patents is upheld, a court may refuse to stop others on the ground that their activities do not infringe our patents.
Any litigation brought by us to protect our intellectual property rights could be costly and have a material adverse effect on our operating results or financial condition, make it more difficult for us to enter into strategic alliances with third parties to develop our products, or discourage our existing licensees from continuing their development work on our potential products. If our patent coverage is insufficient to prevent third parties from developing or commercializing similar or identical technologies, the value of our assets is likely to be materially and adversely affected.
We also rely on certain proprietary trade secrets and know-how, especially where we believe patent protection is not appropriate or obtainable. However, tradeTrade secrets and know-how are difficult to protect. Although we have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and invention assignment agreements with our employees, consultants and some of our contractors, it is possible that these persons may disclose our trade secrets or know-how or that our competitors may independently develop or otherwise discover our trade secrets and know-how.
If our product candidates infringe the rights of others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market them.
Our competitors or others may have patent rights that they choose to assert against us or our licensees, suppliers, customers or potential collaborators. Moreover, we may not know about patents or patent applications that our products would infringe. For example, because patent applications do not publish for at least 18 months, if at all, and can take many years to issue, there may be currently pending applications unknown to us that may later result in issued patents that our product candidates would infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us or our licensors in issued patents or pending applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of our foreign patent applications.
If a third-party claims that we are infringing on its proprietary rights, any of the following may occur:
| we may become involved in time-consuming and expensive litigation, even if the claim is without merit; |
| ● | we may become liable for substantial damages for past infringement if a court decides that our technology infringes a |
| ● | a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents; and |
| ● | we may have to redesign our product candidates or technology so that it does not infringe patent rights of others, which may not be possible or commercially feasible. |
If any of these events occurs, our business and prospects will suffer and the market price of our common stock will likely decline substantially.
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The results of pre-clinical studies or early clinical trials are not necessarily predictive of future results, and our ultra-high potency albumin-binding drug conjugates may not have favorable results in later clinical trials or receive regulatory approval.
Success in pre-clinical studies and early clinical trials does not ensure that later clinical trials will generate adequate data to demonstrate the efficacy and safety of our ultra-high potency albumin-binding drug conjugates. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than we have, have suffered significant setbacks in clinical trials, even after seeing promising results in earlier clinical trials. Despite the results reported in earlier preclinical trials for our ultra-high potency albumin-binding drug conjugates, weWe do not know whether the clinical trials we may conduct will demonstrate adequate efficacy and safety to result in regulatory approval to market them in any particular jurisdiction. If our clinical trials do not produce favorable results, our ability to achieve regulatory approval for these drug candidates will be adversely impacted and the value of our stock may decline.
The successful commercialization of our product candidates that are approved for marketing in the United States, if any, and/or any other products that we or our partners may commercialize in the future will likely depend, in-part, on the coverage and reimbursement policies of third-party payors, which, if unfavorable, could have a material adverse effect on our business.
The commercial success of our product candidates that are approved for marketing in the United States, if any, as well as any other products that we may or our partners may commercialize in the future, may depend, in significant part, on the extent to such products will be covered and reimbursed by third-party payors, including government healthcare programs, such as Medicare and Medicaid, private insurers, and managed care organizations. Patients for whom prescription drugs are prescribed and prescribing practitioners generally rely on third-party payors to reimburse all or part of the associated healthcare costs. Without adequate coverage and reimbursement, patients and providers are unlikely to use or prescribe any products that we or our partners may commercialize or from which we may, otherwise, generate revenue in connection with commercial sales.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, there is no uniform policy of coverage and reimbursement. Accordingly, third-party payors, including private insurers and governmental payors, such as Medicare and Medicaid, play an important role in determining the extent to which new drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, as well as certain people under 65 with disabilities and individuals suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers eligible individuals and families who have limited financial means. The Medicare and Medicaid programs are increasingly used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates and any other products we or our partners may commercialize or to which we may have commercialization rights or interests.
Third-party payors may deny coverage or reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, and most, if not all, payors will deny coverage for products used or administered for an unapproved indication. Third-party payors also typically refuse to cover and reimburse for experimental procedures and devices. Furthermore, third-party payors are increasingly challenging the prices charged for medical products and services. And, the U.S. government and state legislatures have shown significant interest in implementing healthcare cost-containment programs, including price controls, restrictions on reimbursement, discount and rebate requirements, and requirements for substitution of generic products. Such measures, and the enactment of any more restrictive updates thereto and/or new measures could further limit our potential profitability and commercial success in connection with any products we or our partners may market in the United States. We cannot predict whether, or the extent to which, government and/or private payors will cover any products we or our partners may commercialize in the future, and there can be no assurances that such coverage and reimbursement levels, as applicable, will be sufficient to allow us to profit from the commercial sale of such product(s) in light of our costs from development and other related activities and any current or future arrangements with our development and/or commercialization partners.
Any products that we develop or are sold or licensed may become subject to unfavorable pricing regulations and/or third-party coverage and reimbursement policies, which could have a material adverse effect on our business.
Our product candidates are intended to sell our products that may be approved for marketingmarketed primarily to hospitals, which generally receive reimbursement for the health care services they provide to their patients from third-party payors, such as Medicare, Medicaid and other domestic and international government programs, private insurance plans and managed care programs.
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Such drugs we develop maywill likely need to be administered under the supervision of a physician. Under currently applicable law, drugs that are not usually self-administered may be eligible for coverage by the Medicare program if:
| they are |
| ● | they are |
| ● | they are not excluded as immunizations; and |
| ● | they have been approved by the FDA. |
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, third-party payors, including private and governmental payors, such as the Medicare and Medicaid programs, play an important role in determining the extent to which new drugs and biologics will be covered and reimbursed. The Medicare program covers certain individuals aged 65 or older, disabled or suffering from end-stage renal disease. The Medicaid program, which varies from state-to-state, covers certain individuals and families who have limited financial means. The Medicare and Medicaid programs increasingly are used as models for how private payors and other governmental payors develop their coverage and reimbursement policies for drugs and biologics. It is difficult to predict at this time what third-party payors will decide with respect to the coverage and reimbursement for our product candidates.
Most third-party payors may deny coverage or reimbursement if they determine that a medical product was not used in accordance with cost-effective treatment methods, as determined by the third-party payor, or was used for an unapproved indication. Third-party payors also may refuse to cover and reimburse for experimental procedures and devices. Furthermore, because our programs are in the early stages of development, we are unable at this time to determine their cost-effectiveness and the level or method of reimbursement. Increasingly, third-party payors are requiring that drug companies provide them with predetermined discounts from list prices, and are challenging the prices charged for medical products. If the price we are able to charge for any products we develop is inadequate in light of our development and other costs, our profitability could be adversely affected.
Healthcare legislative reform measures could hinder or prevent the commercial success of our products and product candidates.
In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system that could affect our future revenues and profitability. Federal and state lawmakers regularly propose and, at times, enact legislation that results in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, in March 2010, the Patient Protection and Affordable Care Act (the “ACA”), as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act,“Healthcare Reform Law,” became law in the United StatesStates. It contains a number of provisions regarding health insurance, the provision of healthcare, conditions to reimbursement for healthcare services provided to Medicare and Medicaid patients, and other healthcare policy reforms. Through the law-making process, substantial changes have been and continue to be made to the current system for paying for healthcare in the United States, including changes made to extend medical benefits to certain Americans who lacked insurance coverage and to contain or reduce healthcare costs (such as by reducing or conditioning reimbursement amounts for healthcare services and drugs, and imposing additional taxes, fees, and rebate obligations on pharmaceutical and medical device companies). This legislation was one of the most comprehensive and significant reforms ever experienced by the United States in the healthcare industry and has significantly changed the way healthcare is financed by both governmental and private insurers. This legislation has impacted the scope of healthcare insurance and incentives for consumers and insurance companies, among others. Additionally, the Healthcare Reform Law’s provisions were designed to encourage providers to find cost savings in their clinical operations. Pharmaceuticals represent a significant portion of the cost of providing care. This environment has caused changes in the purchasing habits of consumers and providers and resulted in specific attention to the pricing negotiation, product selection and utilization review surrounding pharmaceuticals. This attention may result in any products we may commercialize or promote in the future, and/or our therapeutic candidates, as applicable, being chosen less frequently or subject to substantially lowered pricing.
These structural changes could entail further modifications to the existing system of private payors and government programs (such as Medicare, Medicaid, and the State Children’s Health Insurance Program), creation of government-sponsored healthcare insurance sources, or some combination of both, as well as other changes. Restructuring the coverage of medical care in the U.S. could impact the reimbursement for prescribed drugs and pharmaceuticals, including our current commercial products, those we and our development or commercialization partners are currently developing or those that we may commercialize or promote in the future. If reimbursement for the products we currently commercialize or promote, any product we may commercialize or promote, or approved therapeutic candidates is substantially reduced or otherwise adversely affected in the future, or rebate obligations associated with them are substantially increased, it could have a material adverse effect on our reputation, business, financial condition or results of operations.
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Further, there has been heightened governmental scrutiny over the manner in which drug manufacturers set prices for their marketed products, which have resulted in several recent Congressional inquiries and proposed and enacted bills designed to, among other things, bring more transparency to prescription drug pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. In addition, the United States government, state legislatures, and foreign governments have shown significant interest in implementing drug cost containment programs, including price-controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs to limit the growth of government paid health care costs. For example, the United States government has passed legislation requiring pharmaceutical manufacturers to provide rebates and discounts to certain entities and governmental payors to participate in federal healthcare programs. Further, Congress and the current administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs, and the current administration recently released a “Blueprint”, or plan, to reduce the cost of drugs. The current administration’s Blueprint contains certain measures that the U.S. Department of Health and Human Services is already working to implement. Individual states in the United States have also been increasingly passing legislation and implementing regulations designed to control pharmaceutical product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We anticipate there will continue to be proposals by legislators at both the federal and state levels, regulators and commercial payers to reduce prescription drug costs while expanding individual healthcare benefits. Additional changes that may affect our business include those governing enrollmentsenrollment in federal healthcare programs, reimbursement changes, and fraud and abuse measures, all of which will impact existing government healthcare programsenforcement, and will result in the developmentexpansion of new programs. programs, such as Medicare payment for performance initiatives. The Affordable Care Act, among other things, (i) increasesultimate implementation of any healthcare reform legislation and any new laws and regulations, and its impact on us, is impossible to predict. Any significant reforms made to the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extends the rebate program to individuals enrolled in Medicaid managed care organizations, and addresses new methodologies by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, and for drugs that are line extension products; (ii) establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and (iii) enacts a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer's outpatient drugs to be covered under Medicare Part D.
We may also be subject to federal and state healthcare laws regulation and enforcementregulations relating to our current and/or future operations, and our failure to comply with those laws could adversely affect our business, operations and financial condition.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations may be directly, or indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal False Claims Act, and physician sunshine laws and regulations. These laws may impact, among other things, our proposed sales, marketing, and education programs. In addition, we may be subject to patient privacy regulation by both the federal government and the states in which we conduct our business. The laws that may affect our ability to operate include:
| the federal Anti-Kickback Statute, which prohibits, among other things, any person from knowingly and willfully offering, soliciting, receiving or providing remuneration, directly or indirectly, to induce either the referral of an individual, for an item or service or the purchasing or ordering of a good or service, for which payment may be made under federal healthcare programs such as the Medicare and Medicaid programs; |
| ● | the federal False Claims Act, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, false claims, or knowingly using false statements, to obtain payment from the federal government, and which may apply to entities that provide coding and billing advice to customers; |
| ● | federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
| ● | the federal physician sunshine requirements under the Affordable Care Act, which requires manufacturers of drugs, devices, biologics, and medical supplies to report annually to the Centers for Medicare & Medicaid Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; |
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| the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare transactions and protects the security and privacy of protected health information; and |
| ● | state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical |
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health care reform legislationthe federal government has strengthened these laws. For example,identified relationships between drug companies (and other medical-product manufacturers) and healthcare providers as particularly susceptible to fraud and abuse and, thus, our relationships may be subject to heightened regulatory scrutiny, particularly once we have one or more products on the recently enacted Affordable Care Act, among other things, amends the intent requirementU.S. market, if ever. Further, many of the Federal Anti-Kickback Statuteapplicable healthcare laws and criminal healthcare fraud statutes. A person regulations are subject to varying and/or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.
Achieving and sustaining compliance with these laws may prove costly. In addition, any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management'smanagement’s attention from the operation of our business. If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines, the exclusion from participation in federal and state healthcare programs, imprisonment, or the curtailment or restructuring of our operations, any of which could adversely affect our ability to operate our business and our financial results.
We will be required to pay substantial milestone and other payments relating to the commercialization of our products.
Aldoxorubicin
The agreement relating to our worldwide rights to aldoxorubicin provides for our payment of up to an aggregate of $7.5 million upon meeting specified clinical and regulatory milestones up to and including the product’s second, final marketing approval. We also will be obliged to pay:
| ● | commercially reasonable royalties based on a percentage of net sales (as defined in the agreement); | |
| ● | a percentage of any non-royalty sub-licensing income (as defined in the agreement); and | |
| ● | milestones of $1,000,000 for each additional final marketing approval that we might obtain. |
Arimoclomol
The agreement relating to our worldwide rights to arimoclomol provides for our payment of up to an aggregate of $3.65 million upon receipt of milestone payments from Orphayzme A/S.
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Innovive
Under the merger agreement by which we acquired Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately $18.3 million of future earnout merger consideration, subject to our achievement of specified net sales under the Innovive license agreements. The earnout merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions, or, at our election, in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes of any future earnout merger consideration based upon the trading price of our common stock at the time the earnout merger consideration is paid.
The ongoing COVID-19 pandemic could adversely impact our business and prospects, including active and planned clinical trials by ImmunityBio and Orphazyme.
In December 2019, a novel strain of coronavirus, COVID-19, was first identified in China and has surfaced in several regions across the world. In March 2020, the disease was declared a pandemic by the World Health Organization. The COVID-19 pandemic has, from time to time, led to government-imposed quarantines, limitations on business activity and shelter-in-place mandates to mitigate or contain the virus, and has contributed to financial market volatility and uncertainty, significant disruptions in general commercial activity and the global economy.
As the COVID-19 pandemic continues to evolve, the companies which we are working to develop and commercialize our products, ImmunityBio and Orphazyme, could be materially and adversely affected by the risks, or the public perception of the risks, related to the COVID-19 pandemic, which could cause delays in our potential timing of receipts of milestones and royalties within the disclosed time periods and expected costs. The disruptions to ImmunityBio and Orphazyme could include:
| ● | delays or difficulties in recruiting and enrolling new patients in their clinical trials; | |
| ● | delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; | |
| ● | diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as their clinical trial sites and hospital staff supporting the conduct of their clinical trials; | |
| ● | interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others; | |
| ● | limitations in employee resources that would otherwise be focused on the conduct of their clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; | |
| ● | interruption in global shipping that may affect the transport of clinical trial supplies and materials, such as investigational drug product used in their clinical trials; | |
| ● | delays in receiving approval from the FDA and local regulatory authorities to initiate their planned clinical trials; | |
| ● | changes in FDA and local regulation as part of a response to the COVID-19 coronavirus outbreak which may change the ways in which clinical trials are conducted of discontinue clinical trials altogether; | |
| ● | delays in necessary interactions with regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; | |
| ● | delay in the timing of other interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; and | |
| ● | refusal of the FDA to accept data from clinical trials in affected geographies outside the United States. |
The extent to which the COVID-19 pandemic may impact our business and prospects will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the pandemic, new variants of the coronavirus, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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In the event of a dispute regarding our international drug development, it may be necessary for us to resolve the dispute in the foreign country of dispute, where we would be faced with unfamiliar laws and procedures.
The resolution of disputes in foreign countries can be costly and time consuming, similar to the situation in the United States. In a foreign country, we face the additional burden of understanding unfamiliar laws and procedures. We may not be entitled to a jury trial, as we might be in the United States. Further, to litigate in any foreign country, we would be faced with the necessity of hiring lawyers and other professionals who are familiar with the foreign laws. For these reasons, we may incur unforeseen expenses if we are forced to resolve a dispute in a foreign country.
Drug discovery is a complex, time-consuming and expensive process, and we may not succeed in creating new product candidates.
Conducting drug discovery and pre-clinical development of our albumin-binding technology is a complex and expensive process that will take many years. Accordingly, we cannot be sure whether or when our drug discovery and pre-clinical development activities will succeed in developing any new product candidates. In addition, any product candidates that we develop in pre-clinical testing may not demonstrate success in clinical trials required for marketing approval.
Any deficiency in the design, implementation or oversight of our drug discovery and pre-clinical testing programs could cause us to incur significant additional costs, experience significant delays, prevent us from obtaining marketing approval for any product candidate that may result from these programs or abandon development of certain product candidates. If any of these risks materializes, it could harm our business and cause our stock price to decline.
General Risk Factors
We are subject to intense competition, and we may not compete successfully.
Many companies, including large pharmaceutical and biotechnology firms with financial resources, research and development staffs, and facilities that may be substantially greater than those of ours or our strategic partners or licensees, are engaged in the research and development of pharmaceutical products that could compete with our potential products. To the extent that we seek to acquire, through license or otherwise, existing or potential new products, we will be competing with numerous other companies, many of which will have substantially greater financial resources and large acquisition and research and development staffs that may give those companies a competitive advantage over us in identifying and evaluating these drug acquisition opportunities. Any products that we acquire will be competing with products marketed by companies that in many cases will have substantially greater marketing resources than we have. The industry is characterized by rapid technological advances and competitors may develop their products more rapidly and such products may be more effective than those currently under development or that may be developed in the future by our strategic partners or licensees. Competitive products for a number of the disease indications that we have targeted are currently being marketed by other parties, and additional competitive products are under development and may also include products currently under development that we are not aware of or products that may be developed in the future.
As a result, these competitors may:
● succeed in developing competitive products sooner than us or our strategic partners or licensees; ● obtain FDA or foreign governmental approvals for their products before we can obtain approval of any of our products; ● obtain patents that block or otherwise inhibit the development and commercialization of our product candidate candidates; ● develop products that are safer or more effective than our products; ● devote greater resources than us to marketing or selling products; ● introduce or adapt more quickly than us to new technologies and other scientific advances; ● introduce products that render our products obsolete; ● withstand price competition more successfully than us or our strategic partners or licensees; ● negotiate third-party strategic alliances or licensing arrangements more effectively than us; and ● take better advantage than us of other opportunities.
We are subject to potential liabilities from clinical testing and future product liability claims. If any of our products are alleged to be defective, they may expose us to claims for personal injury by patients in clinical trials of our products or, if we obtain marketing approval and commercialize our products, by patients using our commercially marketed products. Even if one or more of our products is approved by the FDA, users may claim that such products caused unintended adverse effects. We maintain clinical trial insurance for our ongoing clinical trials, and we plan to seek to obtain similar insurance for any other clinical trials that we conduct. We also would seek to obtain product liability insurance covering the commercial marketing of our product candidates. We may not be able to obtain additional insurance, however, and any insurance obtained by us may prove inadequate in the event of a claim against us. Any claims asserted against us also may divert We may be unable to successfully acquire additional technologies or products. If we require additional technologies or products, our product development plans may change and the ownership interests of our shareholders could be diluted. We may seek to acquire additional technologies by licensing or purchasing such technologies, or through a merger or acquisition of one or more companies that own such technologies. We have no current understanding or agreement to acquire any technologies, however, and we may not be able to identify or successfully acquire any additional technologies. We also may seek to acquire products from third parties that already are being marketed or have been approved for marketing, although we have not currently identified any of these products. We do not have any prior experience in acquiring or marketing products approved for marketing and may need to find third parties to market any products that we might acquire. We have focused our product development efforts on our oncology and neurodegenerative drug candidates, which we believe have the greatest revenue potential. If we acquire additional technologies or product candidates, we may determine to make further changes to our product development plans and business strategy to capitalize on opportunities presented by the new technologies and product candidates. We may determine to issue shares of our common stock to acquire additional technologies or products or in connection with a merger or acquisition of another company. To the extent we do so, the ownership interest of our stockholders will be diluted accordingly. The impact and results of our exploration of any strategic alternatives are uncertain and may not be successful. From time to time, we may consider strategic alternatives available to us to enhance shareholder value. Strategic alternatives could include acquisition transactions and/or strategic partnerships with one or more parties, the licensing of some of our proprietary technologies, or other possible transactions. Any strategic transaction that is completed ultimately may not deliver the anticipated benefits or enhance shareholder value. Further, we may devote a significant amount of our management resources to such a transaction, which could negatively impact our operations. We may incur significant costs in connection with seeking certain acquisitions or other strategic opportunities regardless of whether the transaction is completed, which could materially and adversely affect our liquidity and capital resources. In the event that we consummate an acquisition or strategic alternative in the future, there is no assurance that we would fully realize the potential benefits of such a transaction. Integration may be difficult and unpredictable, and acquisition-related integration costs, including certain non-recurring charges, could materially and adversely affect our results of operations. Moreover, integrating assets and businesses may significantly burden management and internal resources, including the potential loss or unavailability of key personnel. If we fail to successfully integrate any assets and businesses we acquire, we may not fully realize the potential benefits we expect, and our operating results could be adversely affected. If we pay for an acquisition in cash, it would reduce our cash available for operations or cause us to incur additional debt, and if we pay with our stock it could be dilutive to our stockholders. We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively. We maintain sensitive data pertaining to our Company on our computer networks, including information about our development activities, our intellectual property and other proprietary business information. Our internal computer systems and those of third parties with which we contract may be vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures, despite the implementation of security measures. System failures, accidents or security breaches could cause interruptions to our operations, including material disruption of our development activities, result in significant data losses or theft of our intellectual property or proprietary business information, and could require substantial expenditures to remedy. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications or inappropriate disclosure of confidential or proprietary information, we could incur liability and our development programs could be delayed, any of which would harm our business and operations.
Our business continuity and disaster recovery plans may not adequately protect us from a serious disaster. Natural disasters could severely disrupt our operations or the operations of manufacturing facilities and have a material adverse effect on our business, financial condition, results of operations and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant portion of our headquarters, that damaged critical infrastructure, such as manufacturing facilities, or that otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The disaster recovery and business continuity plans we have in place currently are limited and may not prove adequate in the event of a Global, market and economic conditions may negatively impact our business, financial condition and share price. Concerns over inflation, geopolitical issues, the U.S. financial markets, foreign exchange rates, capital and exchange controls, unstable global credit markets and financial conditions and the COVID-19 pandemic, have led to periods of significant economic instability, declines in consumer confidence and discretionary spending, diminished expectations for the global economy and expectations of slower global economic growth going forward, and increased unemployment rates. Our general business strategy may be adversely affected by any such economic downturns, volatile business environments and continued unstable or unpredictable economic and market conditions. If these conditions continue to deteriorate or do not improve, it may In addition, we face several risks associated with international business and are subject to global events beyond our We may not be Our business is highly dependent upon the continued services of our senior management and An overall tightening and increasingly competitive labor market in the U.S. employment market generally, especially in response to the COVID-19 pandemic, has been recently observed in the United States. Sustained labor shortage or increased turnover rates within our employee base, caused by the COVID-19 pandemic or as a result of
You may experience future dilution as a result of future equity offerings or other equity issuances. To raise additional capital, we may in the future offer additional shares of our common stock, preferred stock or other securities convertible into or exchangeable for our common stock. We cannot assure you that we will be able to sell shares or other securities in any other offering at a price per share that is equal to or greater than the price per share that you may existing stockholders. Our outstanding options, As of December 31, We have registered with the SEC the resale by the holders of We cannot assure investors that our internal controls will prevent future material weaknesses. Section 404 of the Sarbanes-Oxley Act requires, among other things, that we maintain effective internal controls for financial reporting and disclosure controls and procedures. We are required to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment needs to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. There can be no assurance that we will not suffer from material weaknesses in the future. If we fail to remediate these material weaknesses or fail to otherwise maintain effective internal controls over financial reporting in the future, such failure could result in a material misstatement of our annual or quarterly consolidated financial statements that would not be prevented or detected on a timely basis and which could cause investors and other users to lose confidence in our consolidated financial statements, limit our ability to raise capital and have a negative effect on the trading price of our common stock. Additionally, failure to remediate the material weaknesses or otherwise failing to maintain effective internal controls over financial reporting may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the SEC, subject us to additional litigation and regulatory actions and cause us to incur substantial additional costs in future periods relating to the implementation of remedial measures. We are subject to legal actions that could adversely affect our financial condition. From time to time, we
We must pay the first legal fees and other litigation expenses incurred up to the application retention, or deductible, amounts under our insurance policies, including our director’s and officer’s and other liability insurance policies, and the insurance may not be sufficient to cover all of the liabilities that we may incur in connection with the pending or possible future legal actions. As a result, Our anti-takeover measures may make it more difficult to change our management, or may discourage others from acquiring us, and thereby adversely affect stockholder value. We have a stockholder rights plan and provisions in our restated by-laws, as amended, that are intended to protect our We have a classified board of directors, which means that at least two stockholder meetings, instead of one, will be required to effect a change in the majority control of our board of directors. This applies to every election of directors, not just an election occurring after a change in control. The classification of our board increases the amount of time it takes to change majority control of our board of directors and may cause potential acquirers to lose interest in a potential purchase of us, regardless of whether our purchase would be beneficial to us or our stockholders. The additional time and cost to change a majority of the members of our board of directors makes it more difficult and may discourage our existing stockholders from seeking to change our existing management in order to change the strategic direction or operational performance of our company. Our by-laws provide that directors may only be removed for cause by the affirmative vote of the holders of at least a majority of the outstanding shares of our capital stock then entitled to vote at an election of directors. This provision prevents stockholders from removing any incumbent director without cause. Our by-laws also provide that a stockholder must give us We are subject to the anti-takeover provisions of Section 203 of the Delaware General Corporation Law, which may also prevent or delay a takeover of us that may be beneficial to our stockholders. Our restated by-laws, as amended, designate the Court of Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our Our by-laws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware will be the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (iv) any action asserting a claim that is governed by the internal affairs doctrine. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our by-laws. This choice-of-forum provision may limit our
The Series C Certificate of Designation contains covenants that could limit our financing options and liquidity position, which would limit our ability to grow our business. Covenants in the certificate of designation (the “Series C Certificate of Designation”) for our Preferred Stock (as defined below) impose operating and financial restrictions on us. These restrictions prohibit or limit our ability to, among other things:
These restrictions may limit our ability to obtain additional financing, withstand downturns in our business or take advantage of business opportunities. We may issue additional classes of preferred stock in the future, and the terms of the preferred stock may reduce the value of our common stock. We are authorized to issue shares of preferred stock in one or more series. In the past, we have issued shares of preferred stock, including shares of our Preferred Stock issued in 2021. Our board of directors may determine the terms of future preferred stock offerings without further action by our stockholders. If we issue preferred stock, it could affect your rights or reduce the value of our outstanding common stock. In particular, specific rights granted to future holders of preferred stock may include voting rights, preferences as to dividends and liquidation, conversion and redemption rights, sinking fund provisions, and restrictions on our ability to merge with or sell our assets to a third party. We do not expect to pay any cash dividends on our common stock. We have not declared or paid any cash dividends on our common stock or other securities, and we currently do not anticipate paying any cash dividends in the foreseeable future. Because we do not anticipate paying cash dividends for the foreseeable future, our stockholders will not realize a return on their investment in our common stock except to the extent of any appreciation in the value of our common stock. Our common stock may not appreciate in value, or it may decline in value. Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited. Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes (such as research and development tax credits) to offset its post-change income and taxes may be limited. In general, an “ownership change” occurs if there is a cumulative change in our ownership by “5% shareholders” that exceeds 50 percentage points over a rolling three-year period. Similar rules may apply under state tax laws. As a result of a previous ownership change, our annual utilization of approximately $67.6 million in federal net operating loss carryforwards became substantially limited. If we experience ownership changes as a result of future transactions in our stock, we may be further limited in our ability to use our net operating loss carryforwards and other tax assets to reduce taxes owed on the net taxable income that we earn. Any such limitations on the ability to use our net operating loss carryforwards and other tax assets could potentially result in increased future tax liability to us on any net income that we may earn in the future. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES We lease our headquarters in Los Angeles, California. The lease covers approximately
Item 3. LEGAL PROCEEDINGS We are occasionally involved in legal proceedings and other matters arising from the normal course of business. As legal proceedings. We intend to vigorously defend against any matter involving our directors or officers. We evaluate developments in legal proceedings and other matters on a quarterly basis. If an unfavorable outcome becomes probable and reasonably estimable, we could incur charges that could have a material adverse impact on our financial condition and results of operations for the period in which the outcome becomes probable and reasonably estimable. Item 4. MINE SAFETY DISCLOSURES Not applicable.
PART II Item 5. MARKET FOR Market Information Our common stock is traded on The
OTC Market. The high and low prices reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders On March Dividends We have not paid any cash dividends since our inception and do not contemplate paying any cash dividends in the foreseeable future. Equity Compensation Plans The following table sets forth certain information as of December 31,
(1) The warrants shown were issued in discrete transactions from time to time as compensation for services rendered by consultants, advisors or other third parties, and do not include warrants sold in capital-raising transactions. The material terms of such warrants were determined based upon
For more information on the 2008 Stock 
the 2019 Plan Descriptions”. Recent Issuances of Unregistered Securities All sales of unregistered securities during the year ended December 31, 2021, were previously disclosed in a Quarterly Report on Form 10-Q or Current Report on Form 8-K. Repurchase of Shares We did not repurchase any of our shares during the year ended December 31, 2021. Item 6.
Item 7. The following discussion and analysis of our financial condition and results of operations should be read together with the discussion under Overview CytRx Corporation CytRx Corporation (“CytRx”) is a biopharmaceutical research and development company specializing in
On June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a private subsidiary, and transferred all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In We are you should not consider it as part of this Annual Report. LADR Drug Discovery Platform Centurion’s LADR™ (Linker Activated Drug Release) technology platform is a discovery engine combining our expertise in linker chemistry and albumin biology to create a pipeline of anti-cancer molecules that will avoid unacceptable systemic toxicity while delivering highly potent agents directly to the tumor. Centurion’s efforts Centurion’s postulated mechanism of
Centurion’s novel companion diagnostic, ACDx™ (albumin companion diagnostic), was developed to identify patients with cancer who are most likely to benefit from treatment with the four LADR lead assets. On March 9, 2022, Centurion was merged into the Company. Business Strategy for LADR™ Platform Currently, the Company continues to work on identifying partnership or financing opportunities for LADR™ ultra-high potency drug continue to focus on identifying partnership or financing opportunities. Aldoxorubicin Until July 2017, we were
On July 27, 2017, we entered into an exclusive worldwide license with ImmunityBio, Inc. (formerly known as NantCell, Inc. There can be no assurance that ImmunityBio will achieve such milestones, approvals or sales with respect to aldoxorubicin. ImmunityBio has initiated a Phase 2, randomized, three-cohort, open-label registrational-intent study for first-line and second-line treatment of locally advanced or metastatic pancreatic cancer, which includes aldoxorubicin. On October 13, 2021, ImmunityBio announced that the trial’s Cohort C was fully enrolled. In Aldoxorubicin is a conjugate of the commonly prescribed cytotoxin agent doxorubicin that binds to circulating albumin in the bloodstream and is believed to concentrate the drug at the site of the tumor. Aldoxorubicin, has been tested in over 600 patients with various types of cancer. Specifically, it is comprised of (6-maleimidocaproyl) hydrazine, an acid-sensitive molecule that is conjugated to doxorubicin. The initial indication for aldoxorubicin was for patients with advanced soft tissue sarcomas (STS). Aldoxorubicin has received Orphan Drug Designation (ODD) by the U.S. FDA for the treatment of STS. ODD provides several benefits, including seven years of market exclusivity after approval, certain R&D related tax credits, and protocol assistance by the FDA. European regulators granted aldoxorubicin Orphan designation for STS, which confers ten years of market exclusivity, among other benefits. ImmunityBio also lists ongoing clinical studies in head and neck and triple-negative breast cancer and has submitted a protocol with the FDA for glioblastoma; it is currently reviewing its options in STS.
Molecular Chaperone Assets (Orphayzme) In 2011, CytRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme A/S (formerly Orphazyme ApS) in Orphazyme had also submitted a Marketing Authorization Application (“MAA”) with the European Medicines Agency (the “EMA”). In February 2022, Orphazyme announced that although they had received positive feedback from the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA, they were notified by the CHMP of a negative trend vote on the MAA for arimoclomol for NPC following an oral explanation. The trend vote indicates that the CHMP’s current orientation is to not approve arimoclomol when it convenes by the end of March 2022. Orphazyme has publicly indicated that it considers it unlikely that this position will change before the formal vote is undertaken in April 2022. Orphazyme will assess its strategic options and applicable time. Research and Development Expenditures for research and development activities related to continuing operations were Research and development expenses are further discussed below under We do not currently expenditures. All of our product candidates in development must be approved by the FDA or corresponding foreign governmental agencies before they can be marketed. The process for obtaining FDA and foreign government approvals is both time-consuming and costly, with no certainty of a successful outcome. A discussion of these and other risks and uncertainties associated with our business is set forth in the Research and Development Expenses Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses, that are utilized in research and development and that have no alternative future use are expensed when incurred. Technology developed for use in our product candidates is expensed as incurred until technological feasibility has been established. CriticalAccounting Policies and Estimates Management’s discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates, including those related to stock options, impairment of long-lived assets, including accrued liabilities and certain expenses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. Our significant accounting policies are summarized in Note 2 of the Notes to Consolidated Financial Statements included in this Annual Report. We believe the following critical accounting policies are affected by our more significant judgments and estimates used in the preparation of our consolidated financial statements:
Clinical Trial Expenses Clinical trial expenses, which are included in research and development expenses, include obligations resulting from our contracts with various contract research organizations, or CROs, in connection with conducting clinical trials of our product candidates. We recognize expenses for these activities based on a variety of factors, including actual and estimated labor hours, clinical site initiation activities, patient enrollment rates, estimates of external costs and other activity-based factors. We believe that this method is the best measure of the efforts expended on a clinical trial with the expenses we record. We adjust our rate of clinical expense recognition if actual results differ from our estimates. If our estimates prove to be incorrect, clinical trial expenses recorded in any particular period could vary. Stock-based Compensation The fair value of the restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods. Basic and Diluted Net Loss Per Share of Common Stock Basic and diluted net loss per share of common
Liquidity and Capital Resources Going Concern The Company’s consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the year ended December 31, 2021, the Company incurred a net loss of $13,176,663, utilized cash in operations of $12,308,890, and the Company had an accumulated deficit of $484,075,711 as of December 31, 2021. In addition, the Company has no recurring revenue. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. In order to fund our business and operations, we have relied primarily upon sales of our equity securities, including proceeds from the exercise of stock options and common stock purchase warrants and We have approximately $1.3 million of contractual obligations in 2022 and expect to pay these out of the Company’s balance sheet cash. We have no material contractual obligations beyond 2022. If Discussion of Operating, Investing and Financing Activities Cash Flows from Operating Activities Net Net cash used
Cash Flows from Investing Activities We purchased $7,000 of Cash Flows from Net cash provided by financing activities for the year ended December 31, The registration rights agreement entered into between us and the Investor on July 13, 2021, contains a We continue to evaluate potential future sources of
There can be no assurance that we able to sustain that profitability. Results of Operations We incurred a net loss of During licensees Due to the nature of research and development, our operating results may fluctuate from period to period, and the results of prior periods should not be relied upon as predictive of the results in future periods. Research and Development
from Continuing Operations Research expenses are expenses incurred by us in the discovery of new information that will assist us in the creation and the development of new drugs or treatments. Development expenses are expenses incurred by us in our efforts to commercialize the findings generated through our research efforts. We incurred
General and Administrative
General and administrative expenses include all administrative salaries and general corporate expenses, including legal expenses associated with the prosecution of our intellectual property. Our general and administrative expenses, excluding common stock, stock options and warrants issued, were From time to time, we issue shares of our common stock or warrants or options to purchase shares of our common stock to consultants and other service providers in exchange for services. For financial statement purposes, we value these shares of common stock, stock options, and warrants at the fair value of the common stock, stock options or warrants granted, or the services received whichever we can measure more reliably. In Settlement with former Chief Executive Officer On January 3, 2022, in connection with the Separation Agreement, Steven A. Kriegsman, who served as the Chairman and Chief Executive Officer of CytRx Corporation, departed from his roles as an officer of the Company and the Chairman of the Company’s board of directors, Mr. Kriegsman’s departure as Chairman of the Board was not in connection with any disagreement between Mr. Kriegsman and the Company, its management, the Board or any committee of the Board on any matter relating to the Company’s operations, policies or practices, or any other matter. In connection with the execution of the Separation Agreement, Mr. Kriegsman’s existing executive employment agreement, as amended (the “Prior Employment Agreement”), was terminated; provided, however, that certain surviving customary confidentiality provisions and milestone and royalty payments as defined in the Prior Employment Agreement remain in full force and effect. Pursuant to the Prior Employment Agreement and the Separation Agreement, Mr. Kriegsman received a lump sum cash payment equal to approximately $6.0 million. Depreciation and Amortization Depreciation and amortization expenses for the years ended December 31, Liquidated Damages On July 13, 2021, the Company entered into a
In connection with the July 2021 Offerings, the Company entered into a registration rights agreement, dated as of July 13, 2021 (the “Registration Rights Agreement”), with the investor named therein, pursuant to which the Company will undertake to file, within five calendar days of the date of the filing of the proxy statement seeking the Stockholder Approval, a resale registration statement to register the shares of common stock issuable upon: (i) the conversion of the Preferred Stock sold in the Private Placement and (ii) the exercise of the Preferred Investment Option (collectively, the “Registrable Securities”); and to cause such registration statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event no later than 75 days following the pricing date of this offering, or no later than 105 days following such date in the event of a “full review” by the SEC, and shall use its reasonable best efforts to keep such registration statement continuously effective under the Securities Act until the date that all Registrable Securities covered by such registration statement have been sold or are otherwise able to be sold pursuant to Rule 144. The Registration Rights Agreement provides for liquidated damages to the extent that the Company does not file or maintain a registration statement in accordance with the terms thereof. The Registration Rights Agreement contains a triggering event which would require us to pay to any holder of the Preferred Stock an amount in cash, as partial liquidated damages and not as a penalty, on a monthly basis equal to the product of 2.0% multipled by the aggregate subscription amount paid by such holder for shares of Preferred Stock pursuant to the Purchase Agreement; provided, however, that such partial liquidated damages shall not exceed 24% of the aggregate subscription amounts paid by such holders pursuant to the Purchase Agreement, or $1,977,600. If we fail to pay any partial liquidated damages within seven days after the date payable, we will be required to pay interest on any such amounts at a rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law. The Company was required to hold a special shareholders meeting to approve an increase in authorized common shares to allow for conversion of preferred shares. At the first such meeting, held on September 23, 2021, the proposal was not approved by shareholders. On March 15, 2022,the Company held a special meeting of stockholders, which was originally opened and subsequently adjourned on September 23, 2021, at which meeting the Company’s stockholders, by an affirmative vote of the majority of the Company’s outstanding shares of capital stock, approved the amendment to the Company’s Restated Certificate of Incorporation to effect an increase in the number of shares of authorized common stock, par value $0.001 per share, from 41,666,666 shares to 62,393,940 shares, and to make a On March 15, 2022, the Company filed a Certificate of Amendment to Restated Certificate of Incorporation with the Secretary of State of Delaware to effect the Authorized Share Increase Amendment. Since the proposal was not approved on September 23, 2021, the Company was liable for liquidated damages in the monthly amount of 2020. Interest Income Interest income was Known Trends, Events and The
Recently Adopted Accounting Pronouncements In position, results of operations, and cash flows. Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material impact on the Company’s consolidated financial statements and related disclosures. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Historically, our exposure to market risk is limited primarily to interest income sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because a significant portion of our investments are in short-term debt securities issued by the U.S. government and institutional money market funds. The primary objective of our investment activities is to preserve principal. Due to the short-term nature of our investments, we believe that we are not exposed to any material market risk. We do not have any speculative or hedging derivative financial instruments or foreign currency instruments. If interest rates had varied by 10% in the year ended December 31, Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our consolidated financial statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures Our management, with the participation of our principal executive officer and principal financial officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of December 31, Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we assessed the effectiveness of our internal control over financial reporting as of December 31, Changes in Internal Control over Financial Reporting There have been no changes in our internal control over financial reporting Item 9B. OTHER INFORMATION None. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable.
PART III Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The following table sets forth information concerning our directors and executive officers:
Louis Ignarro, Ph.D. has been a director since Julyhas agreed to not stand for re-election at the 2022 Annual Meeting. Joel Caldwell joined our Board of Directors on July 12, 2017.Mr. Mr. Caldwell’s diverse background in accounting, auditing and finance, along with his accreditation as a member of both the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants will provide the board with a balanced perspective to enhance its stewardship and fulfill his role as the named financial expert on our Audit Committee. Jennifer Simpson, Ph.D. joined our board of directors in
Stephen Snowdy, Ph.D. was appointed Chief Executive Officer on January 3, 2022, effective January 10, 2022. Dr. Snowdy is a scientist, serial entrepreneur and medical venture capitalist with two decades of experience in the University of Florida, where he also completed two years of postbaccalaureate study in cardiopharmacology. His academic training followed service in the United States Navy Special Forces. John Y. Caloz joined us in October 2007 as our Chief Accounting Officer. In JanuaryFamily Relationships There are no family relationships among our directors and executive officers. Diversity Our board of directors Corporate Governance Board Committees, Meetings and Attendance Our business, property and affairs are managed by or under the direction of the board of directors. Members of the board are kept informed of our business through informal discussions with our chief executive and financial officers and other officers, by reviewing materials provided to them and by participating at meetings of the board and its committees. Our
Our In the year ended December 31, 2021, the Board met six times, the Audit Committee met four times and the Compensation Committee met once. Section 16(a) Beneficial Ownership Reporting Compliance Delinquent Section 16(a) Reports Each of our executive officers and directors and persons who own more than 10% of our outstanding shares of common stock is required under Section 16(a) of the Securities Exchange Act to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and to furnish us with copies of those reports. Code of Ethics We have adopted a Code of Ethics applicable to all employees, including our principal executive officer, principal financial officer and principal accounting officer, a copy of which is available on our website at www.cytrx.com. We will furnish, without charge, a copy of our Code of Ethics upon request. Such requests should be directed to Attention: Corporate Secretary, 11726 San Vicente Boulevard, Suite 650, Los Angeles, California, or by telephone at 310-826-5648. Board Leadership Structure On In January 2022, Mr. appropriate. Board of Directors Role in Risk Oversight In connection with its oversight responsibilities, our board of directors, including the Audit Committee, periodically assesses the significant risks that we face. These risks include, but are not limited to, financial, technological, competitive, and operational risks. Our board of directors administers its risk oversight responsibilities through our Chief Executive Officer and Chief Financial Officer who review and assess the operations of our business, as well as operating Item 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table presents summary information concerning all compensation paid or accrued by us for services rendered in all capacities during 2021. Summary Compensation Table
Outstanding Equity Awards at Fiscal Year-End The following table sets forth outstanding equity awards held by our named executive officers as of December 31, 2021 issued under our 2008 Plan and our 2019 Plan:
2021 Grants of Plan-Based Awards No stock options 2008 Stock Incentive Plan
The purpose of
2008 The 2008 Plan and the 2019 Plan, or the Plans, are administered by the Compensation Committee of our
Awards under the The Awards under the The following is a summary description of financial instruments that may be granted to participants in our Board. Stock Options . The Compensation Committee is authorized to grantRestricted Stock . The Compensation Committee may make awards of restricted stock, which will be subject to forfeiture to us and other restrictions as the Compensation Committee may impose.Stock Bonus Awards. The Compensation Committee may make awards of stock bonus awards in consideration for past services actually rendered, which will be subject to repurchase by us and such other terms as the Compensation Committee may impose.Limitations on Transfer; Beneficiaries. Stock Option awards under theAcceleration Upon Certain Events. In the event of aTermination and Amendment Our
Employment Agreements and Potential Payment upon Termination or Change in Control Employment Agreement with Steven A. Kriegsman On December 13, 2019, CytRx entered into a First Amendment to Amended and Restated Employment Agreement with Mr. Kriegsman
Under his employment agreement, Mr. Kriegsman is currently entitled to receive a base salary of $850,000. Our board of directors (or its Compensation Committee) reviews the base salary annually and may increase (but not decrease) it in its sole discretion. In addition to his annual salary, Mr. Kriegsman is eligible to receive an annual bonus as determined by our board of directors (or its Compensation Committee) in its sole discretion, but not to be less than $150,000, and Mr. Kriegsman received a grant of fully-vested stock options to purchase 3,000,000 shares of Common Stock in connection with the First Amendment (Mr. Kriegsman exercised these options in 2020). In addition, Mr. Kriegsman, during his lifetime, and thereafter to his heirs, is entitled to receive payments equal to ten percent (10%) of the gross milestone and royalty payments received by the Company from Orphazyme A/S (or its successor or assigns) in respect of Arimoclomol and certain covered diseases following the sale of certain assets relating to the Company’s molecular chaperone regulation technology to Orphazyme pursuant to the Asset Purchase Agreement, dated May 13, 2011, less any applicable tax withholdings. Mr. Kriegsman is eligible to receive additional grants of options to purchase shares of our common stock. The number and terms of those options, including the vesting schedule, will be determined by our board of directors (or its Compensation Committee) in its sole discretion. In his employment agreement, however, we have agreed that all stock options held by Mr. Kriegsman will provide for In Mr. If his employment agreement is not renewed by us or by Mr. Kriegsman, or in the event we terminate Mr. Under Mr. On January 3, 2022 Mr. Kriegsman tendered his resignation as Chief Executive Officer. Upon his resignation, Mr. Kriegsman’s employment agreement was terminated.
Potential Payment upon Termination or Change in Control for Steven A. Kriegsman Mr. Employment Agreement with John Y. Caloz John Y. Caloz is employed as our Chief Financial Officer, Treasurer and We agree in Mr. 2023. Quantification of Termination Payments and Benefits In January 2022, in connection with the Dr. Snowdy, the Company’s Chief Executive Officer, is entitled to receive $250,000 should he be terminated without Mr. Caloz, the
control. Compensation of Directors We use a combination of cash and stock-based compensation to attract and retain qualified candidates to serve on our board of directors. Directors who also are employees of our company currently receive no compensation for their service as directors or as members of board committees. In setting director compensation, we consider the significant amount of time that directors dedicate to the fulfillment of their director responsibilities, as well as the competency and skills required of members of our board. The Our non-employee directors receive a quarterly retainer of $6,000 (plus an additional $5,000 for the Chairmen of the Audit and Compensation and Strategy Committees, and $1,500 for the Chairman of the Nomination and Governance Committee), a fee of
The following table sets forth the compensation paid to our directors other than our Chief Executive Officer for 2021: Director Compensation Table
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Based solely upon information made available to us, the following table sets forth information with respect to the beneficial ownership of our common stock as of March
Equity Compensation Plans The information required is incorporated herein by reference to Item 5 of this Annual Report relating to our Equity Compensation Plans as set forth on page 38. Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE Director Independence Although the Company is no longer listed on NASDAQ, our Board has determined that Transactions with Related Persons Our Audit Committee is responsible for reviewing and approving, as appropriate, all transactions with related persons, in accordance with its Charter. Transactions between us and one or more related persons may present risks or conflicts of interest or the appearance of conflicts of interest. Our Code of Ethics requires all employees, officers and directors to avoid activities or relationships that conflict, or may be perceived to conflict, with our interests or adversely affect our reputation. It is understood, however, that certain relationships or transactions may arise that would be deemed acceptable and appropriate so long as there is full disclosure of the interest of the related parties in the transaction and review and approval by disinterested directors to ensure there is a legitimate business reason for the transaction and that the transaction is fair to us and our stockholders. As a result, the procedures followed by the Audit Committee to evaluate transactions with related persons require:
Our Audit Committee will evaluate related person transactions based on:
In connection with Mr. Kriegsman’s departure, the Company and Mr. Kriegsman entered into a General Release and Separation Agreement, dated January 3, 2022 (see Item 7). The transaction was approved by the Board in December 2021. Item 14. PRINCIPAL Audit Fees Weinberg & Company, or 2020. The fees for reviews of our unaudited consolidated financial statements were approximately $117,000. The fees for Form S-3 registration statements were $12,000. Audit-Related Fees None. Tax Fees The aggregate fees billed by 2021. All Other Fees No other services were rendered by 2020. Pre-Approval Policies and Procedures It is the policy of our Audit Committee that all services to be provided by our independent registered public accounting firm, including audit services and permitted audit-related and non-audit services, must be pre-approved by our Audit Committee. Our Audit Committee pre-approved all services, audit and non-audit, provided to us by
PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) The following documents are filed as part of this 10-K:(1) Financial Statements Our consolidated financial statements and the related report of the independent registered public accounting firm thereon are set forth on pages F-1 to Consolidated Balance Sheets as of December 31, 2020 Consolidated Statements of Operations for the Years Ended December 31, 2020 Consolidated Statements of 2020 Consolidated Statements of Cash Flows for the Years Ended December 31, 2020 Notes to Consolidated Financial Statements Reports of Independent Registered Public Accounting Firm (2) Financial Statement Schedules All (3) Exhibits See Exhibit Index to this Annual Report, which is incorporated herein by reference.
CytRx Corporation Form 10-K Exhibit Index
Item 16. FORM 10-K SUMMARY None.
SIGNATURES In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm Board of Directors and Stockholders CytRx Corporation Los Angeles, California Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of CytRx Corporation (the Going Concern The accompanying consolidated financial statements have this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Financing under security purchase agreements As discussed in Note 7 to the consolidated financial statements, the Company entered into a securities purchase agreement for aggregate gross proceeds of $10 million and net proceeds of approximately $9.2 million related to the issuance of (i) 2 million shares of its common stock (ii) 8,240 shares of Series C 10.00% Convertible Preferred Stock; and (iii) an investment option that allows for the purchase of up to 11,363,637 shares of common stock for additional gross proceeds of approximately $10 million if fully exercised. The Company allocated the proceeds to the respective instruments on a relative fair value basis. In determining the fair value of the investment option, the Company used a Black Scholes Option Pricing Model, which uses certain assumptions related to expected life of the warrants, expected volatility, risk-free interest rates, and future dividends, to determine the fair value of the preferred investment option. We identified the accounting and allocation of proceeds for the financing under the security purchase agreement as a critical audit matter because of the significance of the account balances, high estimation uncertainty due to significant judgements with respect to the selection of the valuation methodologies applied to determine the relative fair value of the investment option, and due to the complexity involved in assessing the classification and presentation of the common stock, the preferred stock and Preferred Investment Option. The auditing for these transactions required a high degree of audit judgement including evaluating the reasonableness of the significant judgements made by Management in determining the appropriate accounting. The primary audit procedures we performed to address this critical audit matter included the following, among others:
We have served as the 2019. /s/ Weinberg & Company Los Angeles, California March 23, 2022
CYTRX CORPORATION CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
CYTRX CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
CYTRX CORPORATION CONSOLIDATED STATEMENTS OF
The accompanying notes are an integral part of these consolidated financial statements.
CYTRX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
CYTRX CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of Business CytRx Corporation On June 1, 2018, CytRx launched Centurion BioPharma Corporation (“Centurion”), a private subsidiary, and transferred all of its assets, liabilities and personnel associated with the laboratory operations in Freiburg, Germany. In connection with said transfer, the Company and Centurion entered into a Management Services Agreement whereby the Company agreed to render advisory, consulting, financial and administrative services to Centurion, for which Centurion shall reimburse the Company for the cost of such services plus a 5% service charge. The Management Services Agreement may be terminated by either party at any time. Centurion is focused on the development of personalized medicine for solid tumor treatment. On December 21, 2018, CytRx announced that Centurion had concluded the pre-clinical phase of development for its four LADR™ drug candidates, and for its albumin companion diagnostic (ACDx™). As a result of completing this work, operations taking place at the pre-clinical laboratory in Freiburg, Germany would no longer be needed and, accordingly, the lab was closed at the end of January 2019. We are a Delaware corporation, incorporated in 1985. Our corporate offices are located at 11726 San Vicente Boulevard, Suite 650, Los Angeles, California 90049, and our telephone number is (310) 826-5648. Our web site is located at http://www.cytrx.com. We do not incorporate by reference into this Annual Report the information on, or accessible through, our website, and you should not consider it as part of this Annual Report. LADR Drug Discovery Platform and Centurion Centurion’s LADR™ (Linker Activated Drug Release) The first-generation (“gen”) product candidate employing our tumor targeting and drug release system is aldoxorubicin, described below. Our next-gen products are Centurion’s postulated mechanism of
Centurion’s novel companion diagnostic, ACDx™ (albumin companion diagnostic), was developed to identify patients with cancer who are most likely to benefit from treatment with the four LADR lead assets. On March 9, 2022, Centurion was merged into the Company. Business Strategy for LADR™ Platform Currently, the Company continues to work on identifying partnership or financing opportunities for LADR™ ultra-high potency drug conjugates and their albumin companion diagnostic. We have Aldoxorubicin Until July 2017, we were concentrating on the research and the widely-used cytotoxin doxorubicin, modified with our LADR delivery and concentration system. Modifying doxorubicin with our LADR™ system allows for delivery of higher amounts of doxorubicin (3½ to 4 times) without several of the major dose-limiting toxicities seen with administration of doxorubicin alone. On July 27, 2017,
Molecular Chaperone Assets (Orphazyme) In 2011, CytRx sold the rights to arimoclomol and iroxanadine, based on molecular chaperone regulation technology, to Orphazyme A/S (formerly Orphazyme ApS) in exchange for a one-time, upfront payment and the right to receive up to a total of $120 million (USD) in milestone payments upon the achievement of certain pre-specified regulatory and business milestones, as well as single- and double-digit royalty payments based on a specified percentage of any net sales of products derived from arimoclomol. Orphazyme A/S is testing arimoclomol in three additional indications beyond ALS, including Niemann-Pick disease Type C (NPC), Gaucher disease and Inclusion Body Myositis (IBM). CytRx received a Going Concern The Company’s consolidated financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. During the year ended December 31, 2021, the Company incurred a net loss of $13,176,663, utilized cash in operations of $12,308,890, and had an accumulated deficit of $484,075,711 as of December 31, 2021. In addition, the Company has no recurring revenue. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s consolidated financial statements do not this uncertainty. At December 31, Current Business Strategy Currently, the Company identifying these partnership or financing opportunities. 2. Summary of Significant Accounting Policies Basis of Presentation and Principles of Consolidation — The accompanying Consolidated Financial Statements are prepared pursuant to the rules and regulations of the Securities and Exchange Commission The Consolidated Financial Statements include the accounts of CytRx Corporation and its subsidiary. All intercompany accounts are eliminated. Revenue Recognition — Revenue consists of license fees from strategic alliances with pharmaceutical companies.fees. Cash Equivalents — The Company considers all highly liquid debt instruments with an original maturity of 90 days or less to be cash equivalents. Cash equivalents consist primarily of amounts invested in certificates of deposit and money market accounts.Equipment and Furnishings — Equipment and furnishings are stated at cost and depreciated using the straight-line method based on the estimated useful lives (generally three to five years for equipment and furniture) of the related assets. Whenever there is a triggering event that might suggest impairment, management evaluates the realizability of recorded long-lived assets to determine whether their carrying values have been impaired. The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the non-discounted cash flows estimated to be generated by those assets are less than the carrying amount of those assets. Any impairment loss is measured by comparing the fair value of the asset to its carrying amount.
Insurance recoveries — The Company has several policies with insurance underwriters that provide for the recovery of certain costs incurred by the Company. The Company’s policy is to record any liability as incurred, and then to record the estimated recovery from the insurance company for that cost as a receivable in its existing policies. As of December 31, 2021, management has estimated that $200,000 is recoverable from its insurance carriers under the terms of its policies. Fair Value Measurements — Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure the fair value. Level inputs are as follows:Level 1 – quoted prices in active markets for identical assets or liabilities. Level 2 – other significant observable inputs for the assets or liabilities through corroboration with market data at the measurement date. Level 3 – significant unobservable inputs that reflect
The Company considers carrying amounts of accounts receivable, accounts payable and accrued expenses Patents and Patent Application Costs — Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Patent costs are therefore expensed as incurred.Stock— Basic net income (loss) per
Potentially dilutive stock options, warrants and
Stock-based Compensation— accounts for forfeitures when they occur. Research and Development Expenses — Research and development expenses consist of costs incurred for direct and overhead-related research expenses and are expensed as incurred. Costs to acquire technologies, including licenses and drugs, that are utilized in research and development and that have no alternative future use are expensed when incurred. Technology developed for use in its products is expensed as incurred until technological feasibility has been established.Income Taxes — The Company accounts for income taxes in accordance with the provisions of FASB ASC 740-10, Income Taxes,The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities based on the technical merits of the position. The Concentrations of Risks — Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash, cash equivalents and short-term investments. The Company maintains cash and cash equivalents in large well-capitalized financial institutions and theUse of Estimates —New Accounting Pronouncements — In
In August 2020, the FASB issued ASU 2020-06, Debt — Debt with Conversion and Other disclosures. In Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not, or are not expected to, have a material related disclosures. 3. Foreign Currency Remeasurement The U.S. dollar has been determined to be the functional currency for the net assets of the As of December 31, Schedule of
4. Equipment and Furnishings Equipment and furnishings at December 31,
following: Schedule of Equipment and Furnishings
Depreciation and amortization expense for the years ended December 31, 5. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities at December 31, Schedule of Accrued Expenses and Other Current Liabilities
6. Leases We lease office space and office copiers related primarily In January 2020, the Company signed a new four-year office lease which covers approximately 2,771 square feet of office and storage space. This lease is As of December 31, 2021, the balance Future minimum lease payments under non-cancelable operating leases under ASC 842 as of December 31, 2021 are Schedule of Future Minimum Lease Payments
The components of rent expense and supplemental cash flow information related to leases for the period are as follows: Schedule of Rent Expense and Supplemental Cash Flow Information Related to Leases
7. Financing Under Security Purchase Agreement On The Company accounted for these transactions as a single transaction for accounting purposes and allocated total proceeds to the respective instruments based upon the relative fair value of each instrument. The Company determined that the relative fair value of (i) the shares of the common stock issued was $, (ii) the relative fair value of the shares of Preferred Stock was $, and (iii) the relative fair value of the Preferred Investment Option was $4,293,872 based upon a Black Scholes valuation model. As such, the Company recorded as Additional Paid in Capital the fair value of the common stock and Preferred Investment Option of $5,153,090, and the fair value of the Series C Preferred Stock was $4,022,700 which has been reflected as mezzanine (temporary equity) due to certain clauses of the Securities Purchase Agreement. Terms of Series C Preferred Stock Under the Certificate of the Designations, Powers, Preferences and Rights of Series C 10.00% Convertible Preferred Stock (the “Certificate of Designations”), each share of Series C Preferred Stock will be convertible, subject to the Beneficial Ownership Limitation (as defined below), at either the holder’s option or at the Company’s option (a “Company Initiated Conversion”) at any time following stockholder approval having been obtained to amend our restated certificate of incorporation to increase the number of authorized shares of common stock above (the “Stockholder Approval”), into common stock at a conversion rate equal to the quotient of (i) the Series C Stated Value of $ (the “Series C Stated Value”) plus, in the case of a Company Initiated Conversion, all accrued and accumulated and unpaid dividends on such share of Series C Preferred Stock, divided by (ii) the initial conversion price of $0.88, subject to specified adjustments for stock splits, stock dividends, reclassifications or other similar events as set forth in the Certificate of Designations.
The Certificate of Designations contains limitations that prevent the holder thereof from acquiring shares of common stock upon conversion that would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of common stock outstanding immediately after giving effect to the conversion (the “Beneficial Ownership Limitation”), except that upon notice from the holder to the Company, the holder may increase or decrease the amount of ownership of outstanding shares of common stock after converting the holder’s shares of Series C Preferred Stock, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of outstanding shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of the shares of Series C Preferred Stock held by the holder and provided that any increase in the Beneficial Ownership Limitation shall not be effective until 61 days following notice to the Company Each holder of shares of Preferred Stock is entitled to receive dividends, commencing from the date of issuance of the Preferred Stock. Such dividends may be paid only when, as and if declared by the Board of Directors of the Company (the “Board”), out of assets legally available therefore, quarterly in arrears on the first day of January, April, July and October in each year, commencing on the date of issuance, at the dividend rate of 10.00% per year. Such dividends are cumulative and continue to accrue on a daily basis whether or not declared and whether or not we have assets legally available therefore. Under the Certificate of Designations, each share of Series C Preferred Stock carries a liquidation preference equal to the Series C Stated Value plus accrued and unpaid and accumulated dividends thereon. Such liquidation preference is payable upon certain change in control transactions and accordingly, this instrument is classified as mezzanine (temporary equity). The holders of the Series C Preferred Stock may vote their shares of Preferred Stock on an as-converted basis, subject to the Beneficial Ownership Limitation (which Beneficial Ownership Limitation shall be calculated on a basis which includes the number of shares of common stock which are issuable upon conversion of the unconverted Series C Stated Value beneficially owned by a holder or any of its affiliates or attribution parties on all matters submitted to the holders of common stock for approval). The Company may not take the following actions without the prior consent of the holders of at least a majority of the Preferred Stock then outstanding: (a) alter or change adversely the powers, preferences or rights given to the Preferred Stock or alter or amend the Certificate of Designations, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Liquidation (as defined in the Certificate of Designations) senior to, or otherwise pari passu with, the Preferred Stock, (c) amend its Certificate of Incorporation or other charter documents in any manner that adversely affects any rights of the holders of the Preferred Stock, (d) increase the number of authorized shares of Preferred Stock, or (e) enter into any agreement with Terms of Preferred Investment Option The Preferred Investment Option to purchase up to shares of common stock is exercisable at a price of $0.88 per share. The Preferred Investment Option have a term of five and one-half years from the Authorized Share Increase Date. The holders of the Preferred Investment Option may exercise the Preferred Investment Option on a cashless basis, solely to the extent there is no effective registration statement registering, or the prospectus in such registration statement is not available for the resale of the shares of common stock issuable at the time of exercise. The Company is prohibited from effecting an exercise of any Preferred Investment Option to the extent that such exercise would result in the number of shares of common stock beneficially owned by such holder and its affiliates exceeding 9.99% of the total number of shares of common stock outstanding immediately after giving effect to the exercise of the Preferred Investment Options by the holder (the “PIO Beneficial Ownership Limitation”), except that upon notice from the holder to the Company, the holder may increase or decrease the amount of ownership of outstanding shares of Common Stock after exercising the holder’s Preferred Investment Option, provided that the PIO Beneficial Ownership Limitation in no event exceeds 9.99% of the number of outstanding shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of common stock upon exercise of the Preferred Investment Option held by the holder and provided that any increase in the PIO Beneficial Ownership Limitation shall not be effective until 61 days following notice to the Company. The Preferred Investment Option provides for a Black-Scholes payout upon certain fundamental change transactions relating to the Company, as Until the Authorized Share Increase Date, the Company may not issue any shares of common stock upon exercise of the Preferred Investment Option.
Registration Rights Agreement In connection with the July 2021 Offerings, the Company entered into a registration rights agreement, dated as of July 13, 2021 (the “Registration Rights Agreement”), During the year ended December 31, 2021, the Company did not have enough authorized shares to issue the issuable shares under the Preferred Stock and Preferred Investment Option. The Company attempted, but was unsuccessful, to obtain stockholders’ approval for the increase in authorized shares, and accordingly, the Company was unable to meet its registration rights obligation as of December 31, 2021. As such, the Company recognized an aggregate of approximately $1.1 million in liquidated damages during the year ended December 31, 2021, of which includes a provision of $615,123 as an accrual for estimated damages until stockholders’ approval is achieved and the Registration Statement is filed. On March 15, 2022, the Company received stockholders’ approval to increase its authorized shares and Company expects to file a Registration Statement on or about March 23, 2022 and has provided for liquidated damages through that date. 8. Departure of Chairman and Chief Executive Officer In connection with a Separation Agreement (as defined below), Steven A. Kriegsman, who served as the Chairman and Chief Executive Officer of CytRx Corporation (the “Company”), departed from his roles as an officer of the Company and the Chairman of the Company’s board of directors (the “Board”), Mr. Kriegsman’s departure as Chairman of the Board was not in connection with any disagreement between Mr. Kriegsman and the Company, its management, the Board or any committee of the Board on any matter relating to the Company’s operations, policies or practices, or any other matter. In connection with the execution of the Separation Agreement, Mr. Kriegsman’s existing executive employment agreement, as amended (the “Prior Employment Agreement”), was terminated; provided, however, that certain surviving customary confidentiality provisions and milestone and royalty payments as defined in the Prior Employment Agreement remain in full force and effect. Pursuant to the Prior Employment Agreement and the Separation Agreement, Mr. Kriegsman received a lump sum cash payment equal to approximately $6.0 million during the year ended December 31, 2021. In addition, the Company has accrued $256,115 of health benefits payable to him as of December 31, 2021. Stock Options The Company has a 2008 Stock Incentive Plan under which million shares of common stock are reserved for issuance. As of December 31, 2021, there were approximately million shares subject to outstanding stock options and approximately million shares outstanding related to restricted stock grants issued from the 2008 Plan. This plan expired on and thus no further shares are available for future grant under this plan. In November 2019, the Company adopted a 2019 Stock Incentive Plan under which million shares of common stock are reserved for issuance. As of December 31, 2021, there were shares subject to outstanding stock options and shares outstanding related to restricted stock grants from the 2019 Plan. This Plan expires on . There were no stock options issued to employees and directors in 2021 and 2020.
During the year ended December 31, 2021, options to acquire shares of common stock were exercised resulting in net proceeds of $78,000. During the year ended December 31, 2020, the Company issued an aggregate of approximately million shares of its common stock upon the exercise of million options. Of the million option shares, holders of million options exercised their shares on a cashless basis into approximately million shares of the Company’s common stock. The Company received $39,000 for the exercise of the remaining 150,000 options shares in exchange for shares of its common stock. Schedule of Stock-based Compensation Expense
Schedule of Stock Options Activity
No options were issued to consultants in 2021 or 2020. Schedule of Stock Options Activity
Schedule of Ranges of Stock Options
The aggregate intrinsic value of the outstanding options and options vested as of December 31, 2021 was $143,000. Restricted Stock In December 2021, the Company granted to Jennifer Simpson, who serves on our Board of Directors, shares of restricted common stock, pursuant to the 2019 Plan. This restricted stock vests on the first anniversary of the date of the grant. The fair value of the restricted stock is based on the market price of the Company’s shares on the grant date less the par value received as consideration. The fair value of the restricted stock on the grant date was $11,200. No restricted stock was granted in 2020. As of December 31, 2021, there is $ of unamortized stock compensation that will be amortized through December 2022, In December 2017, the Company granted to Steven Kriegsman, Chief Executive Officer, shares of restricted common stock, pursuant to the 2008 Plan. This restricted stock vests in equal annual instalments over . The fair value of the restricted stock is based on the market price of the Company’s shares on the grant date less the par value received as consideration. The fair value of the restricted stock on the grant date was $679,000 and was amortized over the -year term through 2020. The Company recorded an employee stock-based compensation expense for restricted stock of approximately $ for the year ended December 31, 2020. Equity-Classified Warrants A summary of the Company’s warrant activity and related information for the years ended December 31, 2021 and 2020 are shown below. Schedule of Warrants Activity and Related Information
The outstanding warrants as of December 31, 2021 had intrinsic value.
9. Stockholder Protection Rights Plan On December 13, 2019, the Board of Directors of the Company, authorized and declared a dividend of one right (a “Right”) for each of the Company’s issued and outstanding shares of common stock, par value $ per share. The dividend was paid to the stockholders of record at the close of business on December 23, 2019. Each Right entitled the registered holder, subject to the terms of the On November 12, 2020, the Board approved an amendment and restatement of the Original Rights Agreement (as amended and restated, the “Amended and Restated Rights Agreement”) to effect certain changes to the Original Rights Agreement, including (i) reducing the duration to a term of three years, subject to certain earlier expiration as described in more detail below, and (ii) lowering the beneficial ownership threshold at which a person or group of persons becomes an Acquiring Person (as defined below) to 4.95% or more of the Company’s outstanding shares of Common Stock, subject to certain exceptions. The Amended and Restated Rights Agreement is The purpose of the Amended and Restated Rights Agreement is to protect value by preserving the Company’s ability to utilize its net operating losses and certain other tax attributes (collectively, the “Tax Benefits”) to offset potential future income tax obligations. The Company’s ability to use its Tax Benefits would be substantially limited if it experiences an “ownership change,” as such term is defined in Section 382 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). A corporation generally will experience an ownership change if the percentage of the corporation’s stock owned by its “5-percent shareholders,” as defined in Section 382 of the Tax Code, increases by more than 50 percentage points over their lowest ownership percentage within a The Rights will not be exercisable until the earlier to occur of (i) the close of business on the tenth business day after a public announcement or filing that a person or group of affiliated or associated persons has become an “Acquiring Person,” which is defined as a person or group of affiliated or associated persons that, at any time after the date of the Amended and Restated Rights Agreement, has acquired, or obtained the right to acquire, beneficial ownership of 4.95% or more of the Company’s outstanding shares of Common Stock, subject to certain exceptions or (ii) the close of business on the tenth business day after the commencement of, or announcement of an intention to commence, a tender offer or exchange offer the consummation of which would result in any person becoming an Acquiring Person (the earlier of such dates being called the “Distribution Date”) (provided, however, that if such tender or exchange offer is terminated prior to the occurrence of the Distribution Date, then no Distribution Date shall occur as a result of such tender or exchange offer). The Rights, which are not exercisable until the Distribution Date, will expire at or prior to the earliest of (i) the close of business on November 16, 2023; (ii) the time at which the Rights are redeemed pursuant to the Amended and Restated Rights Agreement; (iii) the time at which the Rights are exchanged pursuant to the Amended and Restated Rights Agreement; (iv) the time at which the Rights are terminated upon the occurrence of certain mergers or other transactions approved in advance by the Board; and (v) the close of business on the date set by the Board following a determination by the Board that (x) the Amended and Restated Rights Agreement is no longer necessary or desirable for the preservation of the Tax Benefits or (y) no Tax Benefits are available to be carried forward or are otherwise available (the earliest of (i), (ii), (iii), (iv) and (v) is referred to as the “Expiration Date”). Each share of Preferred Stock will be entitled, when, as and if declared, to a preferential per share quarterly dividend payment equal to the greater of (i)
The Purchase Price payable, and In the event that any person or group of affiliated or associated persons becomes an Acquiring Person, each holder of a Right, other than the Rights beneficially owned by the Acquiring Person, affiliates and associates of the Acquiring Person and certain transferees thereof (which will thereupon become null and void), will thereafter have the right to receive upon exercise of a Right that number of shares of Common Stock having a market value of two times the Purchase Price. In the event that, after a person or a group of affiliated or associated persons has become an Acquiring Person, the Company is acquired in a merger or other business combination transaction, or 50% or more of the Company’s assets or earning power are sold, proper provision will be made so that each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then-current purchase price of the Right, that With certain exceptions, no adjustment in the Purchase Price will be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the Purchase Price. No fractional shares of Preferred Stock will be issued (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the election of the Company, be evidenced by depositary receipts) and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the trading day immediately prior to the date of exercise. At any time after any person or group of affiliated or associated persons becomes an Acquiring Person and prior to the acquisition of beneficial ownership by such Acquiring Person of 50% or more of the outstanding shares of Common Stock, the Board, at its option, may exchange each Right (other than Rights owned by such person or group of affiliated or associated persons which will have become void), in whole or in part, at an exchange ratio of one share of Common Stock per outstanding Right (subject to adjustment). In connection with any exercise or exchange of the Rights, no holder of a Right will be entitled to receive shares of Common Stock if receipt of such shares would result in such holder, together with such holder’s affiliates and associates, beneficially owning more than 4.95% of the then-outstanding Common Stock (such shares, the “Excess Shares”) and the Board determines that such holder’s receipt of Excess Shares would jeopardize or endanger the value or availability of the Tax Benefits or the Board otherwise determines that such holder’s receipt of Excess Shares is not in the best interests of the Company. In lieu of such Excess Shares, such holder will only be entitled to receive cash or a note or other evidence of indebtedness with a principal amount equal to the then-current market price of the Common Stock multiplied by the number of Excess Shares that would otherwise have been issuable. At any time before the Distribution Date, the Board may redeem the Rights in whole, but not in part, at a price of $ per Right (subject to certain adjustments) (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on such basis and with such conditions as the Board in its sole discretion may establish. Immediately upon the action of the Board electing to redeem or exchange the Rights, the Company shall make a public announcement thereof, and upon such election, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price. Until a Right is exercised or exchanged, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends.
The Board may amend or supplement the Amended and Restated Rights Agreement without the approval of any holders of Rights, including, without limitation, in order to (a) cure any ambiguity, (b) correct inconsistent provisions, (c) alter time period provisions, including the Expiration Date, or (d) make additional changes to the Amended and Restated Rights Agreement that the Board deems necessary or desirable. However, from 10. Income Taxes At December 31, 2021, the Company had federal and state net operating loss carryforwards (“NOLs”) of $335.0 million and $259.9 million, respectively, available to As a result of a change in-control that occurred in the CytRx shareholder base, approximately $ million in federal net operating loss carryforwards became substantially limited in their annual availability. Management currently believes that the remaining $267.4 million in federal net operating loss carryforwards, and the $259.9 million in state net operating loss carryforwards, are unrestricted. As of December 31, 2021, CytRx also had research and development tax credits for federal and state purposes of approximately $16.0 million and $22.0 million, respectively, available for offset against future income taxes, which expire in 2022 through 2036. The credits are subject to change-in-control limitations, which may affect their utilization in future years. Based on an assessment of all available evidence including, but not limited to, the Company’s limited operating history in its core business and lack of profitability, uncertainties of the commercial viability of its technology, the impact of government regulation and healthcare reform initiatives, and other risks normally associated with biotechnology companies, the Company has concluded that it is more likely than not that these net operating loss carryforwards and credits will not be realized and, as a result, a 100% deferred tax valuation allowance has been recorded against these assets. Deferred income taxes reflect the net effect of temporary differences between the financial reporting carrying amounts of assets and liabilities and income tax carrying amounts of assets and liabilities. The components of the Company’s deferred tax assets and liabilities, all of which are long-term, are as follows (in thousands): Schedule of Deferred Tax Assets and Liabilities
For all years presented, the Company did not recognize any deferred tax assets or liabilities. The net change in valuation allowance for the years ended December 31, 2021 and 2020 was
The provision for income taxes differs from the provision computed by applying the Federal statutory rate to net loss before income taxes as follows (in thousands): Schedule of Effective Income Tax Rate Reconciliation
There have been no changes to the Company’s liability for unrecognized tax benefits during the year ended December 31, 2021. The Company files income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. As of the year ended December 31, 2021, the tax returns for 2018 through 2021 remain open to examination by the Internal Revenue Service and for 2017 to 2021 for various state tax authorities. The Company’s policy is to recognize any interest and penalties related to unrecognized tax benefits as a component of income tax expense. As of the date of adoption of ASC 740 and the years ended December 31, 2021 and 2020, the Company had accrued no interest or penalties related to uncertain tax positions. 11. Commitments and Contingencies Commitments Aldoxorubicin The agreement relating to our worldwide rights to aldoxorubicin provides for our payment of up to an aggregate of $7.5 million upon meeting specified clinical and regulatory milestones up to and including the product’s second, final marketing approval. We also will be obliged to pay:
Arimoclomol The agreement relating to our worldwide rights to arimoclomol provides for our payment of up to an aggregate of $3.65 million upon receipt of milestone payments from Orphayzme A/S. Innovive Under the merger agreement by which we acquired Innovive, we agreed to pay the former Innovive stockholders a total of up to approximately $18.3 million of future earnout merger consideration, subject to our achievement of specified net sales under the Innovive license agreements. The earnout merger consideration, if any, will be payable in shares of our common stock, subject to specified conditions, or, at our election, in cash or by a combination of shares of our common stock and cash. Our common stock will be valued for purposes of any future earnout merger consideration based upon the
As of December 31, 2021, no amounts are due under the Contractual obligations CytRx’s current contractual obligations that will require future cash payments
Schedule of Current Contractual Obligations
Contingencies The Company applies the disclosure provisions of ASC 460, Guarantees ( The Company evaluates developments in legal proceedings and other matters on a quarterly basis. The Company records accruals for loss contingencies to the extent that the Company concludes that it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated. In December 2019, a novel strain of coronavirus, COVID-19, was first identified in China and has
12. Subsequent Events On March 15, 2022, the Company
On March 15, 2022, the On January 1, 2022, the Company paid a quarterly 10% dividend to the
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