UNITED STATES
____________________________
FORM 10-Q
(Mark One)
x | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
September 30,or
o | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the
Commission file number File Number 000-22245
____________________________
SEELOS THERAPEUTICS, INC.0-22245
Nevada | 87-0449967 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
300 San Diego, CA 92130
(646) 293-2100
(Registrant’sRegistrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
Common Stock, par value | SEEL | The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 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). Yes
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" "accelerated filer,” “smaller" "smaller reporting company,”" and “emerging"emerging growth company”company" in Rule 12b-2 of the Exchange Act (check one):
Large accelerated filer¨ | Accelerated filer¨ | ||||||
Non-accelerated filer¨ | Smaller reporting companyx | ||||||
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. o¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of October 27, 2017, 15,215,517November 6, 2020, 53,423,672 shares of the common stock, par value $.001,$0.001, of the registrant were outstanding.
Page | ||
PART I. | ||
1 | ||
21 | ||
58 | ||
DEFAULTS UPON SENIOR SECURITIES | 58 | |
MINE SAFETY DISCLOSURES | 58 | |
58 | ||
59 | ||
64 |
i
PART I.
Seelos Therapeutics, Inc. and Subsidiaries
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
Assets | |||||||
Current assets | |||||||
Cash | $ | 8,463 | $ | 2,087 | |||
Prepaid expenses and other current assets | 216 | 177 | |||||
Current assets of discontinued operations | 9 | 1,370 | |||||
Total current assets | 8,688 | 3,634 | |||||
Property and equipment, net | 100 | 164 | |||||
Other long term assets | 35 | 60 | |||||
Noncurrent assets of discontinued operations | — | 842 | |||||
Total assets | $ | 8,823 | $ | 4,700 | |||
Liabilities and stockholders’ equity (deficit) | |||||||
Current liabilities | |||||||
Note payable, net | $ | — | $ | 6,650 | |||
Accounts payable | 262 | 686 | |||||
Accrued expenses | 783 | 1,236 | |||||
Accrued compensation | 668 | 614 | |||||
Current liabilities of discontinued operations | 101 | 2,108 | |||||
Total current liabilities | 1,814 | 11,294 | |||||
Warrant liabilities | 636 | 846 | |||||
Deferred rent | 54 | 76 | |||||
Total liabilities | 2,504 | 12,216 | |||||
Commitments and contingencies | |||||||
Stockholders’ equity (deficit) | |||||||
Preferred stock, $.001 par value, 10,000,000 shares authorized, no shares issued or outstanding as of September 30, 2017 and December 31, 2016 | $ | — | $ | — | |||
Common stock, $.001 par value, 30,000,000 shares authorized, 15,029,052 and 7,733,205 issued and outstanding as of September 30, 2017 and December 31, 2016, respectively | 15 | 8 | |||||
Additional paid-in-capital | 319,845 | 308,784 | |||||
Accumulated deficit | (313,541 | ) | (316,308 | ) | |||
Total stockholders’ equity (deficit) | 6,319 | (7,516 | ) | ||||
Total liabilities and stockholders’ equity (deficit) | $ | 8,823 | $ | 4,700 |
September 30, | December 31, | |||||
2020 | 2019 | |||||
Assets | ||||||
Current assets | ||||||
Cash | $ | 8,054 | $ | 10,261 | ||
Prepaid expenses and other current assets | 1,824 | 835 | ||||
Total current assets | 9,878 | 11,096 | ||||
Total assets | $ | 9,878 | $ | 11,096 | ||
Liabilities and stockholders' equity (deficit) | ||||||
Current liabilities | ||||||
Accounts payable | $ | 355 | $ | 796 | ||
Accrued expenses | 1,634 | 1,919 | ||||
Licenses payable | 125 | 7,100 | ||||
Warrant liabilities, at fair value | 725 | 963 | ||||
Total current liabilities | 2,839 | 10,778 | ||||
Licenses payables, long-term | 200 | 325 | ||||
Note payable | 147 | - | ||||
Total liabilities | 3,186 | 11,103 | ||||
Commitments and contingencies (note 10) | ||||||
Stockholders' equity (deficit) | ||||||
Preferred stock, $0.001 par value, 10,000,000 shares authorized, no shares | ||||||
issued or outstanding as of September 30, 2020 and December 31, 2019 | - | - | ||||
Common stock, $0.001 par value, 120,000,000 shares authorized, | ||||||
53,270,044 and 27,028,533 issued and outstanding as of | ||||||
September 30, 2020 and December 31, 2019, respectively | 53 | 27 | ||||
Additional paid-in-capital | 75,351 | 56,027 | ||||
Accumulated deficit | (68,712) | (56,061) | ||||
Total stockholders' equity (deficit) | 6,692 | (7) | ||||
Total liabilities and stockholders' equity (deficit) | $ | 9,878 | $ | 11,096 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
Seelos Therapeutics, Inc. and Subsidiaries
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Operating expense | |||||||||||||||
Research and development | $ | 1,960 | $ | 170 | $ | 3,226 | $ | 5,274 | |||||||
General and administrative | 1,756 | 1,550 | 4,799 | 5,878 | |||||||||||
Total operating expense | 3,716 | 1,720 | 8,025 | 11,152 | |||||||||||
Loss before other income (expense) | (3,716 | ) | (1,720 | ) | (8,025 | ) | (11,152 | ) | |||||||
Other income (expense) | |||||||||||||||
Interest income (expense), net | 3 | (234 | ) | (89 | ) | (771 | ) | ||||||||
Loss on extinguishment of debt | — | — | (422 | ) | — | ||||||||||
Change in fair value of warrant liability | (296 | ) | 626 | (588 | ) | 5,063 | |||||||||
Other financing expenses | — | (256 | ) | — | (461 | ) | |||||||||
Other expense, net | — | (12 | ) | (26 | ) | (23 | ) | ||||||||
Total other income (expense) | (293 | ) | 124 | (1,125 | ) | 3,808 | |||||||||
Loss from continuing operations | (4,009 | ) | (1,596 | ) | (9,150 | ) | (7,344 | ) | |||||||
Income from discontinued operations | 177 | 305 | 11,917 | 210 | |||||||||||
Net income (loss) | $ | (3,832 | ) | $ | (1,291 | ) | $ | 2,767 | $ | (7,134 | ) | ||||
Basic and diluted earnings (loss) per share | |||||||||||||||
Continuing operations | $ | (0.30 | ) | $ | (0.24 | ) | $ | (0.85 | ) | $ | (1.20 | ) | |||
Discontinued operations | $ | 0.01 | $ | 0.05 | $ | 1.11 | $ | 0.03 | |||||||
Total earnings (loss) per share | $ | (0.29 | ) | $ | (0.19 | ) | $ | 0.26 | $ | (1.17 | ) | ||||
Weighted average common shares outstanding for basic and diluted earnings (loss) per share | 13,208 | 6,632 | 10,781 | 6,108 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Revenues | ||||||||||||
Grant revenue | $ | - | $ | 375 | $ | - | $ | 375 | ||||
Total revenues | - | 375 | - | 375 | ||||||||
Operating expense | ||||||||||||
Research and development | 2,015 | 2,641 | 7,152 | 13,365 | ||||||||
General and administrative | 2,070 | 1,415 | 5,762 | 6,427 | ||||||||
Total operating expense | 4,085 | 4,056 | 12,914 | 19,792 | ||||||||
Loss from operations | (4,085) | (3,681) | (12,914) | (19,417) | ||||||||
Other income (expense) | ||||||||||||
Interest income | 4 | 46 | 38 | 110 | ||||||||
Interest expense | (6) | (1) | (13) | (28) | ||||||||
Loss on warrant issuance | - | - | - | (5,020) | ||||||||
Change in fair value of warrant liabilities | (3) | 415 | 238 | (16,132) | ||||||||
Change in fair value of convertible notes payable | - | - | - | (109) | ||||||||
Total other income (expense) | (5) | 460 | 263 | (21,179) | ||||||||
Net loss and comprehensive loss | $ | (4,090) | $ | (3,221) | $ | (12,651) | $ | (40,596) | ||||
Net loss per share basic and diluted | $ | (0.09) | $ | (0.13) | $ | (0.30) | $ | (2.25) | ||||
Weighted-average common shares outstanding basic and diluted | 46,989,700 | 24,157,217 | 41,781,121 | 18,066,764 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
Seelos Therapeutics, Inc. and Subsidiaries
For the Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | 2,767 | $ | (7,134 | ) | |||
Net income from discontinued operations | 11,917 | 210 | ||||||
Net loss from continuing operations | (9,150 | ) | (7,344 | ) | ||||
Adjustments to reconcile net income (loss) to net cash used in operating activities from continuing operations: | ||||||||
Depreciation and amortization | 98 | 217 | ||||||
Non-cash interest expense | 56 | 282 | ||||||
Stock-based compensation expense | 903 | 1,427 | ||||||
Warrant liabilities revaluation | 588 | (5,063 | ) | |||||
Loss on debt extinguishment | 422 | — | ||||||
Other financing expenses | — | 461 | ||||||
Changes in operating assets and liabilities from continuing operations: | ||||||||
Prepaid expenses and other current assets | (39 | ) | 257 | |||||
Other assets | 25 | 18 | ||||||
Accounts payable | (425 | ) | 105 | |||||
Accrued expenses | (583 | ) | (1,103 | ) | ||||
Accrued compensation | 54 | (318 | ) | |||||
Deferred compensation | — | (135 | ) | |||||
Other liabilities | (22 | ) | 15 | |||||
Net cash used in operating activities from continuing operations | (8,073 | ) | (11,181 | ) | ||||
Cash flows from investing activities from continuing operations: | ||||||||
Release of restricted cash | — | 280 | ||||||
Purchase of fixed assets, net | — | (18 | ) | |||||
Net cash provided by investing activities from continuing operations | — | 262 | ||||||
Cash flows from financing activities from continuing operations: | ||||||||
Issuance of common stock and warrants | 10,733 | 14,785 | ||||||
Issuance costs related to common stock and warrants | (1,235 | ) | (641 | ) | ||||
Repayment of capital lease obligations | — | (5 | ) | |||||
Repayment of notes payable | (7,129 | ) | (2,311 | ) | ||||
Net cash provided by financing activities from continuing operations | 2,369 | 11,828 | ||||||
Cash flows from discontinued operations: | ||||||||
Net cash provided by operating activities of discontinued operations | 80 | 818 | ||||||
Net cash provided by investing activities of discontinued operations | 12,000 | — | ||||||
Net cash provided by discontinued operations | 12,080 | 818 | ||||||
Net increase in cash | 6,376 | 1,727 | ||||||
Cash, beginning of period | 2,087 | 3,887 | ||||||
Cash, end of period | $ | 8,463 | $ | 5,614 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | 92 | $ | 508 | ||||
Non-cash investing and financing activities: | ||||||||
Issuance of restricted stock | $ | — | $ | 249 | ||||
Accrued transaction costs for financing activities | $ | (131 | ) | $ | (259 | ) | ||
Issuance of placement agent warrants | $ | 287 | $ | 103 | ||||
Reclassification of warrant liabilities to equity | $ | 798 | $ | — |
Common | Common | Additional | Total | |||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders' | ||||||||||
(Shares) | (Amount) | Capital | Deficit | Equity (Deficit) | ||||||||||
Balance as of June 30, 2020 | 44,405,044 | $ | 44 | $ | 68,285 | $ | (64,622) | $ | 3,707 | |||||
Stock-based compensation expense | - | - | 695 | - | 695 | |||||||||
Issuance of common stock and warrants, pursuant to | ||||||||||||||
Securities Purchase Agreement, net of issuance costs | 8,865,000 | 9 | 6,371 | - | 6,380 | |||||||||
Net loss | - | - | - | (4,090) | (4,090) | |||||||||
Balance as of September 30, 2020 | 53,270,044 | $ | 53 | $ | 75,351 | $ | (68,712) | $ | 6,692 |
Common | Common | Additional | Total | |||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders' | ||||||||||
(Shares) | (Amount) | Capital | Deficit | Equity (Deficit) | ||||||||||
Balance as of June 30, 2019 | 21,277,229 | $ | 21 | $ | 47,099 | $ | (42,181) | $ | 4,939 | |||||
Stock-based compensation expense | - | - | 133 | - | 133 | |||||||||
Issuance of common stock in at-the-market offering, | ||||||||||||||
net of issuance | 1,197,676 | 1 | 2,566 | - | 2,567 | |||||||||
Issuance of common stock and warrants, pursuant to | ||||||||||||||
Securities Purchase Agreement, net of issuance | 4,475,000 | 5 | 5,925 | - | 5,930 | |||||||||
Net loss | - | - | - | (3,221) | (3,221) | |||||||||
Balance as of September 30, 2019 | 26,949,905 | $ | 27 | $ | 55,723 | $ | (45,402) | $ | 10,348 |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
Seelos Therapeutics, Inc. and Subsidiaries
Common Stock (Shares) | Common Stock (Amount) | Additional Paid-In Capital | Accumulated Deficit | Total Stockholders’ Equity (Deficit) | |||||||||||||||
Balance as of December 31, 2016 | 7,733 | $ | 8 | $ | 308,784 | $ | (316,308 | ) | $ | (7,516 | ) | ||||||||
Stock-based compensation expense | — | — | 903 | — | 903 | ||||||||||||||
Issuance of common stock due to the vesting of restricted stock, net of shares withheld to cover taxes | 129 | — | — | — | — | ||||||||||||||
Issuance of common stock and warrants, net of offering costs | 7,167 | 7 | 9,360 | — | 9,367 | ||||||||||||||
Reclassification of warrant liabilities to equity | — | — | 798 | — | 798 | ||||||||||||||
Net income | — | — | — | 2,767 | 2,767 | ||||||||||||||
Balance as of September 30, 2017 | 15,029 | $ | 15 | $ | 319,845 | $ | (313,541 | ) | $ | 6,319 |
Common | Common | Additional | Total | |||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders' | ||||||||||
(Shares) | (Amount) | Capital | Deficit | Equity (Deficit) | ||||||||||
Balance as of December 31, 2019 | 27,028,533 | $ | 27 | $ | 56,027 | $ | (56,061) | $ | (7) | |||||
Stock-based compensation expense | - | - | 1,347 | - | 1,347 | |||||||||
Issuance of common stock for prepaid services | 400,000 | - | 330 | - | 330 | |||||||||
Issuance of common stock for license acquired | 1,809,845 | 2 | 2,441 | - | 2,443 | |||||||||
Issuance of common stock, | ||||||||||||||
net of issuance costs | 15,166,666 | 15 | 8,835 | - | 8,850 | |||||||||
Issuance of common stock and warrants, pursuant to | ||||||||||||||
Securities Purchase Agreement, net of issuance costs | 8,865,000 | 9 | 6,371 | - | 6,380 | |||||||||
Net loss | - | - | - | (12,651) | (12,651) | |||||||||
Balance as of September 30, 2020 | 53,270,044 | $ | 53 | $ | 75,351 | $ | (68,712) | $ | 6,692 |
Common | Common | Additional | Total | |||||||||||
Stock | Stock | Paid-In | Accumulated | Stockholders' | ||||||||||
(Shares) | (Amount) | Capital | Deficit | Equity (Deficit) | ||||||||||
Balance as of December 31, 2018 | 3,081,546 | $ | 3 | $ | 97 | $ | (4,806) | $ | (4,706) | |||||
Stock-based compensation expense | - | - | 315 | - | 315 | |||||||||
Issuance of common stock and warrants in a private | ||||||||||||||
offering, net of $16.5 million warrant liability | 1,829,407 | 2 | - | - | 2 | |||||||||
Effect of reverse merger | 947,218 | 1 | (300) | - | (299) | |||||||||
Issuance of common stock in at-the-market offering, | ||||||||||||||
net of issuance | 1,197,676 | 1 | 2,566 | - | 2,567 | |||||||||
Issuance of common stock and warrants, pursuant to | ||||||||||||||
Securities Purchase Agreement, net of issuance | 4,475,000 | 5 | 5,925 | - | 5,930 | |||||||||
Warrants exercised for cash | 14,253,992 | 14 | 4,429 | - | 4,443 | |||||||||
Issuance of common stock for license acquired | 992,782 | 1 | 2,999 | - | 3,000 | |||||||||
Reclass of warrant liabilities related to Series A | ||||||||||||||
warrants exercised for cash | - | - | 5,504 | - | 5,504 | |||||||||
Reclass of Series B warrants from warrant liability | ||||||||||||||
to stockholders' equity | - | - | 31,473 | - | 31,473 | |||||||||
Issuance of common stock for conversion of debt and | ||||||||||||||
accrued interest | 172,284 | - | 2,715 | - | 2,715 | |||||||||
Net loss | - | - | - | (40,596) | (40,596) | |||||||||
Balance as of September 30, 2019 | 26,949,905 | $ | 27 | $ | 55,723 | $ | (45,402) | $ | 10,348 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Seelos Therapeutics, Inc. and subsidiaries (the “Company”) Annual Report on Form 10-K (“Annual Report”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 13, 2017. Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Nine Months Ended September 30, | ||||||
2020 | 2019 | |||||
Cash flows from operating activities: | ||||||
Net loss | $ | (12,651) | $ | (40,596) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||
Stock-based compensation expense | 1,347 | 315 | ||||
Shares issued for services | 124 | - | ||||
Research and development expensed - license acquired | 192 | 3,000 | ||||
Change in fair value of convertible notes payable | - | 109 | ||||
Change in fair value of warrant liability | (238) | 16,132 | ||||
Loss on warrant issuance | - | 5,020 | ||||
Changes in operating assets and liabilities | ||||||
Prepaid expenses and other current assets | (782) | (750) | ||||
Accounts payable | (441) | (371) | ||||
Accrued expenses | (285) | 517 | ||||
Accrued interest | - | 12 | ||||
Licenses payable | (4,850) | 2,425 | ||||
Net cash used in operating activities | (17,584) | (14,187) | ||||
Cash flows provided by financing activities | ||||||
Proceeds from issuance of common stock and warrants in a private offering | - | 16,520 | ||||
Proceeds from issuance of common stock, net of issuance costs | 8,850 | - | ||||
Proceeds from issuance of common stock and warrants, pursuant to | ||||||
Securities Purchase Agreement, net of issuance costs | 6,380 | 5,930 | ||||
Proceeds from note payable | 147 | - | ||||
Proceeds from issuance of common stock in at-the-market offering | - | 2,567 | ||||
Proceeds from exercise of warrants | - | 4,443 | ||||
Net cash provided by financing activities | 15,377 | 29,460 | ||||
Net (decrease) increase in cash | (2,207) | 15,273 | ||||
Cash, beginning of period | 10,261 | 42 | ||||
Cash, end of period | $ | 8,054 | $ | 15,315 | ||
Supplemental disclosure of cash flow information: | ||||||
Cash paid for interest | $ | 10 | $ | 16 | ||
Cash paid for income taxes | $ | - | $ | - | ||
Non-cash investing and financing activities: | ||||||
Issuance of common stock for license payable | $ | 2,443 | $ | - | ||
Issuance of common stock for conversion of debt | $ | - | $ | 2,551 | ||
Issuance of common stock for conversion of accrued interest | $ | - | $ | 164 | ||
Effect of reverse merger | $ | - | $ | 299 | ||
Reclass of warrant liabilities related to Series A warrants exercised for cash | $ | - | $ | 5,504 | ||
Reclass of Series B warrants from warrant liability to stockholders' equity | $ | - | $ | 31,473 |
The accompanying financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. In the opinion of management, the accompanying condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows. Certain prior year items have been reclassified to conform to the current year presentation. The December 31, 2016 condensed consolidated balance sheet was derived from audited financial statements, but does not include all GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periodsnotes are not necessarily indicative of results for the full year. The preparationan integral part of these unaudited condensed consolidated financial statements requiresstatements.
5
Seelos Therapeutics, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Description of Business
Seelos Therapeutics, Inc. and its subsidiaries (the "Company") plan on developing its clinical and regulatory strategy with its internal research and development team with a view toward prioritizing market introduction as quickly as possible. The Company's lead programs are SLS-002 for the Company to make estimatespotential treatment of acute suicidal ideation and judgments that affectbehavior in patients with major depressive disorder ("ASIB in MDD") and in post-traumatic stress disorder, SLS-005 for the amounts reported inpotential treatment of Sanfilippo syndrome and Amyotrophic Lateral Sclerosis ("ALS") and SLS-006 for the financial statements and the accompanying notes. The Company’s actual results may differ from these estimates under different assumptions or conditions.
Liquidity
The Company has generated limited revenues, has incurred operating losses since inception, and expects to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, the Company had $8.1 million in cash and an accumulated deficit of approximately $313.5 million and working capital of $6.9 million as of September 30, 2017 and reported net income of approximately $2.8 million and negative cash flows from operations for the nine months ended September 30, 2017. While the Company believes it has enough cash to fund its current operating plans through the fourth quarter of 2018, the Company’s history and other factors raise substantial doubt about the Company’s ability to continue as a going concern.$68.7 million. The Company has principally been financedhistorically funded its operations through the issuance of convertible notes (the "Notes") (see Note 6), the sale of its common stock (see Note 3) and other equity securities, debt financings, up-front payments received from commercial partners for the Company’s products under development, and through the sale of assets. As of September 30, 2017, the Company had cash and cash equivalents of approximately $8.5 million.
On September 10, 2017,4, 2020, the Company entered into a Securities Purchase Agreement (the “September 2017 SPA”) with certain accreditedinstitutional investors for net proceeds of approximately $3.1 million, after deducting commissions and estimated offering expenses payable by the Company. Pursuant(the "2020 Securities Purchase Agreement"), pursuant to the agreement,which the Company issued and sold 2,136,614an aggregate of 8,865,000 shares of the Company’s common stock atin a purchase price of $1.73 per share,registered direct offering and warrants to purchase up to 1,068,3076,648,750 shares of common stock in a concurrent private placement. The warrants were exercisable upon closing, or on September 13, 2017, at an exercise price equal to $1.67 per shareplacement, resulting in total net proceeds of common stock$6.4 million, after deducting the placement agent's fees and are exercisable for two and one half years from that date. In addition, the Company issued warrants to purchase up to 106,831 shares of common stock (the “September 2017 Placement Agent Warrants”) to H.C. Wainwright & Co., LLC (“H.C. Wainwright”)other offering expenses (see Note 3). The September 2017 Placement Agent Warrants were exercisable upon closing at an exercise price of $2.16 per share, and also expire two and one half years from the closing date.
On April 26, 2017,March 16, 2020, the Company completed an underwritten public offering (the “April 2017 Financing”) forpursuant to which it sold 7,500,000 shares of its common stock at a price to the public of $0.60 per share. The net proceeds ofto the Company from this offering were approximately $5.9$4.0 million, after deducting the underwriting discounts and commissions and other offering expenses payable by the Company. Pursuant to the underwriting agreement with H.C. Wainwright,
On February 13, 2020, the Company sold to H.C. Wainwrightcompleted an aggregate of 5,030,000 units. Each unit consisted of one share of common stock and one warrant to purchase 0.75 of a share of common stock, sold at aunderwritten public offering, price of $1.40 per unit. At the time of the offering closing, the Company did not have a sufficient number of authorized common stock to cover shares of common stock issuable upon the exercise of the warrants. The sufficient number of authorized common stock became available on May 17, 2017 when the Company received stockholder approval of the proposed amendment to the Company’s Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock (the “Charter Amendment”) and the Charter Amendment became effective on that date. The warrants will expire five years from May 17, 2017, the date the warrants became exercisable, and the exercise price of the warrants is $1.55 per share of common stock. In connection with this transaction, the Company issued to H.C. Wainwright warrants to purchase up to 251,500 shares of common stock (the “Underwriter Warrants”). The Underwriter Warrants have substantially the same terms as the warrants sold concurrently to the investors in the offering, except that the Underwriter Warrants have a term of five years from the effective date of the related prospectus, or April 20, 2017, and an exercise price of $1.75 per share. The common shares, warrants and
Pursuant to the amended and restated license agreement with Stuart Weg, M.D., the Company is required to make a cash payment to Dr. Weg in the amount of $0.125 million in January 2021 and, if certain conditions are not met, make an upfrontadditional cash payment of $11.5$0.2 million Ferring paidin January 2022. The Company believes that in order for it to meet its obligations arising from normal business operations for the next twelve months, the Company approximately $0.7 million forrequires additional capital in the deliveryform of certain product-related inventoryequity, debt or both. Without additional capital, the Company's ability to continue to operate will be limited. These financial statements do not include any adjustments to the recoverability and $0.5 million relatedclassification of recorded assets amounts and classification of liabilities that might be necessary should the Company not be able to transition services. continue as a going concern.
The Company currently has retained the U.S. development and commercialization rights for Vitaros, which the Company has in-licensed from Allergan plc (“Allergan”). The Company used approximately $6.6 million of the proceeds from the sale to repay all outstanding amounts due and owed, including applicable termination fees, under its Loan and Security Agreement (the “Credit Facility”) with Oxford Finance LLC (“Oxford”) and Silicon Valley Bank (“SVB”) (Oxford and SVB are referred to together as the “Lenders”).
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as of the dateSeptember 30, 2020, and the Company filed the Form S-3 registration statement, the Company’s usage of suchhas sold securities pursuant to its previously effective shelf registration statement will bein the last 12 months, the Company's usage of any S-3 shelf registration statement is currently limited. The Company still maintains the ability to raise funds through other means, such as through the filing of a registration statement on Form S-1 or in private placements. The rules and regulations of the SEC or any other regulatory agencies may restrict the Company’sCompany's ability to conduct certain types of financing activities or may affect the timing of and amounts it can raise by undertaking such activities.
The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and the Company's current plans, which are subject to change, management believes that the Company's existing cash and cash equivalents as of September 30, 2020 are not sufficient to satisfy its operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to its ability to continue as a going concern.
The Company’sCompany's future liquidity and capital funding requirements will depend on numerous factors, including:
The Company received notice from NASDAQ indicating that it was not in compliance with NASDAQ Listing Rule 5550(a)(2) because the closing bid price for its Common Stock had been below $1.00 per share for the previous thirty (30) consecutive business days. In October 2016, the Company regained compliance with NASDAQ Listing Rule 5550(a)(2) by effecting a 1-for-10 reverse stock split of its common stock.
2. Significant Accounting Policies
Basis of presentation
The Company’s outstanding common stock warrants issuedaccompanying unaudited interim condensed consolidated financial statements should be read in connectionconjunction with its February 2015the audited financial statements and January 2016 financings are classifiednotes thereto as liabilitiesof and for the year ended December 31, 2019 included in the Company's Annual Report on Form 10-K ("Annual Report") filed with the SEC on March 17, 2020. The accompanying financial statements have been prepared by the Company in accordance with United States generally accepted accounting principles ("U.S. GAAP") for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. In the opinion of management, the accompanying unaudited condensed consolidated financial statements for the periods presented reflect all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the Company's financial position, results of operations and cash flows. The
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December 31, 2019 condensed consolidated balance sheets as they contain provisions thatsheet was derived from audited financial statements, but it does not include all U.S. GAAP disclosures. The unaudited condensed consolidated financial statements for the interim periods are considered outsidenot necessarily indicative of results for the Company’s control, such as requiringfull year. The preparation of these unaudited condensed consolidated financial statements requires the Company to maintain active registrationmake estimates and judgments that affect the amounts reported in the financial statements and the accompanying notes. The Company's actual results may differ from these estimates under different assumptions or conditions.
Use of estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the shares underlying such warrants.financial statements and the reported amounts of expenses during the reporting period. The warrants were recorded at fair value using the Black-Scholes option pricing model. The fair value of these warrants is re-measured at each financial reporting period with any changes in fair value being recognized as a component of other income (expense)most significant estimates in the accompanying condensed consolidatedCompany's financial statements relate to the valuation of operations.
Fair Value Measurements
The Company determinesfollows the accounting guidance in the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurements and Disclosures ("ASC 820"), for its fair value measurements of applicablefinancial assets and liabilities based on a three-tier fair value hierarchy established by accounting guidance and prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. The Company’s common stock warrant liabilities are measured and disclosed at fair value on a recurring basis, and are classified within the Level 3 designation.
The accounting guidance requires fair value measurements be classified and disclosed in one of the following three categories:
Level 1: Quoted prices in active markets for identical assets or liabilities.
Level 2: Observable inputs other than Level 1 prices, for similar assets or liabilities that are directly or indirectly observable in the marketplace.
Level 3: Unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value hierarchy. In such cases, the level in therequires significant judgment or estimation.
The fair value hierarchy within whichalso requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Assets and liabilities measured at fair value measurementare classified in itstheir entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement in its entirety. measurement.
The Company’s assessmentCompany's warrant liabilities and convertible notes were classified within Level 3 of the significance of a particular input to the fair value measurement in its entirety requires judgment,hierarchy because their fair values were estimated by utilizing valuation models and significant unobservable inputs. The warrants and convertible notes were valued using a scenario-based discounted cash flow analysis. Two primary scenarios were considered and probability weighted to arrive at the valuation conclusion for each convertible note. The first scenario considers factors specificthe value impact of conversion at the stated discount to the asset or liability.
The following table presentstables present information about the Company’s fair value hierarchy for its warrantCompany's financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy utilized to determine such fair values (in thousands) as of:
Fair Value Measurements as of September 30, 2020 | ||||||||||||
(Level 1) | (Level 2) | (Level 3) | Total | |||||||||
Assets | ||||||||||||
Cash | $ | 8,054 | $ | - | $ | - | $ | 8,054 | ||||
Liabilities | ||||||||||||
Warrant liabilities, at fair value | $ | - | $ | - | $ | 725 | $ | 725 |
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Fair Value Measurements as of December 31, 2019 (Level 1) (Level 2) (Level 3) Total Assets Cash $ 10,261 $ - $ - $ 10,261 Liabilities Warrant liabilities, at fair value $ - $ - $ 963 $ 963
There were no transfers between fair value measurement levels during the nine months ended September 30, 20172020.
The Company's warrant liabilities were classified within Level 3 of the fair value hierarchy because their fair values were estimated by utilizing valuation models and December 31, 2016:
Quoted Market Prices for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | |||||||||||||
Warrant liabilities | ||||||||||||||||
Balance as of September 30, 2017 | $ | — | $ | — | $ | 636 | $ | 636 | ||||||||
Balance as of December 31, 2016 | $ | — | $ | — | $ | 846 | $ | 846 |
September 30, 2017 | December 31, 2016 | |||||||
Risk-free interest rate | 1.93%-1.94% | 1.64%-1.99% | ||||||
Volatility | 87.72%-88.33% | 77.25%-81.03% | ||||||
Dividend yield | — | % | — | % | ||||
Expected term | 5.29-5.42 | 4.75-6.17 | ||||||
Weighted average fair value | $ | 0.73 | $ | 0.49 |
Nine Months Ended | |||
September 30, 2020 | |||
Risk-free interest rate | 0.18% | ||
Volatility | 116.18% | ||
Dividend yield | - % | ||
Expected term | 3.32 | ||
Weighted-average fair value | $ | 0.80 |
The following table is a reconciliation for allthe common stock warrant liabilities measured at fair value using Level 3 unobservable inputs (in thousands):
Warrant liabilities | ||||
Balance as of December 31, 2016 | $ | 846 | ||
Change in fair value measurement of warrant liability | 588 | |||
Warrant liability reclassified to stockholders' equity | (798 | ) | ||
Balance as of September 30, 2017 | $ | 636 |
Warrant liabilities | |||
Balance as of December 31, 2019 | $ | 963 | |
Change in fair value measurement of warrant liability | (238) | ||
Balance as of September 30, 2020 | $ | 725 |
Stock-based compensation
The Company excludes common stock equivalents fromexpenses stock-based compensation to employees, non-employees and board members over the calculation of diluted net loss per share whenrequisite service period based on the effect is anti-dilutive.
As of September 30, | ||||||
2017 | 2016 | |||||
Outstanding stock options | 391 | 490 | ||||
Outstanding warrants | 7,270 | 2,318 | ||||
Restricted stock | 721 | 116 |
Net Loss Per Share
Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the effect, if any, from the potential exercise or conversion of securities, such as wellconvertible debt, warrants and stock options that would result in the issuance of incremental shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders, the weighted average number of shares remains the same for both calculations due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the resultingimpact is anti-dilutive.
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The following potentially dilutive securities outstanding for the three and nine months ended September 30, 2020 and 2019 have been excluded from the computation of diluted weighted average shares outstanding, as they would be anti-dilutive (in thousands):
Three and Nine Months Ended September 30, | ||||||
2020 | 2019 | |||||
Outstanding stock options | 5,070 | 508 | ||||
Outstanding warrants | 10,219 | 3,662 | ||||
15,289 | 4,170 |
Amounts in the table reflect the common stock equivalents of the noted instruments.
Recent Accounting Pronouncements
In August 2018, the FASB issued Accounting Standards Update ("ASU") No. 2018-13, Fair Value Measurement ("Topic 820"), Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). The amendments in this ASU require certain existing disclosure requirements in Topic 820 to be modified or removed, and certain new disclosure requirements to be added to the Topic. In addition, this ASU allows entities to exercise more discretion when considering fair valuesvalue measurement disclosures. The Company adopted ASU 2018-13 effective January 1, 2020. The adoption of ASU 2018-13 did not have a material effect on the Company's financial statements.
3. Common Stock Offerings
2020 Registered Direct Offering and Concurrent Private Placement
On September 4, 2020, the Company entered into the 2020 Securities Purchase Agreement pursuant to which the Company issued and sold an aggregate of 8,865,000 shares of common stock in a registered direct offering, resulting in total net proceeds of $6.4 million, after deducting the placement agent's fees and other offering expenses. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended. The Company also issued to the investors unregistered warrants to purchase up to 6,648,750 shares of common stock in a concurrent private placement (the "September 2020 Warrants"). The September 2020 Warrants have an exercise price of $0.84 per share of common stock, will be exercisable beginning on March 9, 2021 and will expire on March 9, 2026.
The combined purchase price for one share and one warrant to purchase 0.75 of a share of common stock in the offerings was $0.79. The closing of the offerings occurred on September 9, 2020.
The Company also agreed, pursuant to the 2020 Securities Purchase Agreement, to file a registration statement on Form S-1 by December 3, 2020 to provide for the resale of the shares of common stock issuable upon exercise of the September 2020 Warrants (the "2020 Warrant Shares"), and will be obligated to use commercially reasonable efforts to keep such registration statement effective from the date the September 2020 Warrants initially become exercisable until the date on which no purchaser owns any September 2020 Warrants or 2020 Warrant Shares.
Consulting Agreement
On May 11, 2020, the Company entered into a consulting agreement (the "Consulting Agreement") with an advisory firm, pursuant to which the advisory firm agreed to provide the Company with certain management consulting, business and advisory services. The Company agreed to issue the advisory firm 300,000 unregistered shares of the Company's common stock, which shares were issued on May 11, 2020, plus $80,000 in cash.
On June 9, 2020, the Company and the advisory firm entered into an amendment to the Consulting Agreement (the "Amendment"). Pursuant to the Amendment, the advisory firm agreed to provide the Company with additional services and, in consideration, the Company agreed to issue the advisory firm an additional 200,000 unregistered shares of the Company's common stock (the "Additional Shares"), plus $20,000 in cash. The Additional Shares were issued to the advisory firm on June 9, 2020 and are subject to certain vesting restrictions.
Through September 30, 2020, the Company has recognized approximately $431,000 of consulting expense under this Consulting Agreement. On July 9, 2020, the Company cancelled the Consulting Agreement with an effective date of August 9, 2020. The Company also canceled 100,000 shares that will not vest due to the cancellation of the Consulting Agreement.
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Public Offerings
On March 16, 2020, the Company completed an underwritten public offering pursuant to which it sold 7,500,000 shares of its common stock at theira price to the public of $0.60 per share. The net proceeds to the Company from this offering were approximately $4.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended.
On February 13, 2020, the Company completed an underwritten public offering, pursuant to which it sold 6,666,667 shares of its common stock at a price to the public of $0.75 per share. On February 19, 2020, the Company sold an additional 999,999 shares of its common stock at a price to the public of $0.75 per share pursuant to the full exercise of the underwriters' option to cover over-allotments. The net proceeds to the Company from this offering were approximately $4.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by the Company. The shares were offered by the Company pursuant to the Company's registration statement on Form S-1 filed with the SEC on January 22, 2020, as amended.
Stock Purchase Agreement with Vyera
On January 2, 2020, the Company entered into a stock purchase agreement (the "Stock Purchase Agreement") with Phoenixus AG f/k/a Vyera Pharmaceuticals, AG and Turing Pharmaceuticals AG ("Vyera"), pursuant to which the Company issued to Vyera 1,809,845 registered shares of the Company's common stock (the "Shares"). The Company entered into the Stock Purchase Agreement in accordance with the Vyera Agreement, as amended by the amendment entered into on October 15, 2019 (see Note 4). As partial consideration for the assets of Vyera, the Company agreed to issue the Shares pursuant to the Stock Purchase Agreement. The Shares were issued on January 2, 2020, pursuant to the Company's registration statement on Form S-3 (File No. 333-221285), as amended, which was declared effective by the SEC on December 7, 2017, a base prospectus dated December 7, 2017 and a prospectus supplement dated January 2, 2020.
2019 Registered Direct Offering and Concurrent Private Placement
On August 23, 2019, the Company entered into a Securities Purchase Agreement with certain institutional investors (the "2019 Securities Purchase Agreement") pursuant to which the Company issued and sold an aggregate of 4,475,000 shares of common stock in a registered direct offering, resulting in total net proceeds of $5.9 million, after deducting the placement agent's fees and other offering expenses. The shares were offered by the Company pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended. The Company issued to the investors unregistered warrants to purchase up to 2,237,500 shares of common stock in a concurrent private placement (the "August 2019 Warrants"). The August 2019 Warrants have an exercise price of $1.78 per share of common stock, became exercisable beginning on February 27, 2020 and will expire on August 28, 2023. The combined purchase price for one share and one warrant to purchase half of a share of common stock in the offerings was $1.50. The closing of the offerings occurred on August 27, 2019. The Company filed a registration statement on Form S-1 on November 21, 2019 to provide for the resale of the shares of common stock issuable upon the exercise of the August 2019 Warrants (the "2019 Warrant Shares"), and is obligated to use commercially reasonable efforts to keep such registration statement effective from the date the warrants initially become exercisable until the earlier of (i) the date on which the 2019 Warrant Shares may be sold without registration pursuant to Rule 144 under the Securities Act during any 90 day period, and (ii) the date on which no purchaser owns any warrants or 2019 Warrant Shares.
Equity Distribution Agreement
On June 17, 2019, the Company entered into the Equity Distribution Agreement with Piper Jaffray & Co., as sales agent ("Piper Jaffray"), pursuant to which the Company may offer and sell, from time to time, through Piper Jaffray (the "Offering") up to $50,000,000 in shares. Any shares offered and sold in the offering will be issued pursuant to the Company's shelf registration statement on Form S-3 filed with the SEC on November 2, 2017, as amended on December 1, 2017 and declared effective on December 7, 2017, the prospectus supplement relating to the offering filed with the SEC on June 17, 2019 and any applicable additional prospectus supplements related to the offering that form a part of the registration statement. The number of shares eligible for sale under the Equity Distribution Agreement will be subject to the limitations of General Instruction I.B.6 of Form S-3. Subject to the terms and conditions of the Equity Distribution Agreement, Piper Jaffray will use its commercially reasonable efforts to sell the shares from time to time, based upon the Company's instructions. Under the Equity Distribution Agreement, Piper Jaffray may sell the shares by any method permitted by law deemed to be an "at the market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the "Securities Act"), including sales made directly on the Nasdaq Capital Market or on any other existing trading market for the shares. Subject to the Company's prior written consent, Piper Jaffray may also sell shares by any other method permitted by law including, but not limited to, privately negotiated transactions. The Company has no obligation to sell any of the shares and may at any time suspend offers under the Equity Distribution Agreement. The Offering will terminate upon the earlier of (i) the sale of all of the shares, or (ii) the termination of the Equity Distribution Agreement according to its terms by either the Company or Piper Jaffray. The Company and Piper Jaffray may each terminate the Equity Distribution Agreement at any time by giving advance written notice to the
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other party as required by the Equity Distribution Agreement. Under the terms of the Equity Distribution Agreement, Piper Jaffray will be entitled to a commission at a fixed rate of 3.0% of the gross proceeds from each sale of shares under the Equity Distribution Agreement. The Company will also reimburse Piper Jaffray for certain expenses incurred in connection with the Equity Distribution Agreement, and agreed to provide indemnification and contribution to Piper Jaffray with respect to certain liabilities, including liabilities under the Securities Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"). During the year ended December 31, 2019, the Company sold 1,197,676 shares for net proceeds of approximately $2.6 million pursuant to the Equity Distribution Agreement. On August 23, 2019, the Company suspended its continuous offering under the Equity Distribution Agreement.
Pre-Merger Financing
On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), completed a business combination with Seelos Therapeutics, Inc., a Delaware corporation ("STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the Merger Agreement, (i) a subsidiary of Apricus merged with and into STI, with STI (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger").
On January 24, 2019, STI and Apricus closed a private placement transaction with certain accredited investors (the "Investors"), whereby, among other things, STI issued to investors shares of STI's common stock immediately prior to the Merger in a private placement transaction (the "Financing"), pursuant to the Securities Purchase Agreement, made and entered into as of October 16, 2018, by and among STI, Apricus and the investors, as amended (the "Purchase Agreement").
Pursuant to the Purchase Agreement, STI (i) issued and sold to the Investors an aggregate of 2,374,672 shares of STIs common stock which converted pursuant to the exchange ratio in the Merger into the right to receive 1,829,407 shares of the Company's common stock and (ii) issued warrants representing the right to acquire 1,463,519 shares of common stock at a price per share of $4.15, subject to adjustment as provided therein (the "Series A Warrants"), currently adjusted to a price per share of $0.2957 per share, and additional warrants initially representing the right to acquire no shares of common stock at a price per share of $0.001, subject to adjustment as provided therein (the "Series B Warrants" together with the Series A Warrants, the "Investor Warrants"), for aggregate gross proceeds of $18.0 million, or $16.5 million net of financing fees. The terms of the Investor Warrants included certain provisions that could result in adjustments to both the number of warrants issued and the exercise price of each warrant, which resulted in the warrants being classified as a liability upon issuance dates(see Note 7). The Investor Warrants were recorded at fair value of $21.5 million upon issuance and given the liability exceed the proceeds received, a loss of $5.0 million was recognized.
On March 7, 2019, the Company entered into Amendment Agreements (collectively, the "Amendment Agreements") with each Investor amending: (i) the Purchase Agreement, (ii) the Series A Warrants, and (iii) the Series B Warrants. The Amendment Agreements, among other things, fixed the aggregate number of shares of common stock issued and issuable pursuant to the Series A Warrants at 3,629,023 (none of which were exercised as of March 7, 2019). The terms of the Investor Warrants continue to include certain provisions that could result in a future adjustment to the exercise price of the Investor Warrants and accordingly, they continue to be classified as a liability after the Amendment Agreements.
At September 30, 2020, 0.9 million Series A Warrants remain unexercised. All Series B Warrants were exercised during the year ended December 31, 2019.
4. License Agreements
Acquisition of License from Ligand Pharmaceuticals Incorporated
On September 21, 2016, the Company entered into a License Agreement (the "License Agreement") with Ligand Pharmaceuticals Incorporated ("Ligand"), Neurogen Corporation and CyDex Pharmaceuticals, Inc. (collectively, the "Licensors"), pursuant to which, among other things, the Licensors granted to the Company an exclusive, perpetual, irrevocable, worldwide, royalty-bearing, nontransferable right and license under (i) patents related to a product known as Aplindore, which is now known as SLS-006, acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), which is now known as SLS-012, an H3 receptor antagonist, which is now known as SLS-010, and either or both of the Licensors' two proprietary CRTh2 antagonists, which are now known collectively as SLS-008 (collectively, the "Licensed Products"), and (ii) copyrights, trade secrets, moral rights and all other intellectual and proprietary rights related thereto. The Company is obligated to use commercially reasonable efforts to (a) develop the Licensed Products, (b) obtain regulatory approval for the Licensed Products in the European Union (either in its entirety or including at least one of France, Germany or, if at the time the United Kingdom is a member of the European Union, the United Kingdom), the United Kingdom, if at the time the United Kingdom is not a member of the European Union, Japan
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or the People's Republic of China (each, a "Major Market") or the United States, and (c) commercialize the Licensed Products in each country where regulatory approval is obtained. The Company has the exclusive right and sole responsibility and decision-making authority to research and develop any Licensed Products and to conduct all clinical trials and non-clinical studies the Company believes appropriate to obtain regulatory approvals for commercialization of the Licensed Products. The Company also has the exclusive right and sole responsibility and decision-making authority to commercialize any of the Licensed Products.
In connection with the closing of the Merger, the Company issued 801,253 shares of common stock to Ligand and recognized research and development expense totaling approximately $2.2 million during the three months ended March 31, 2019 for this License Agreement.
The Company also agreed to pay to Ligand certain one-time, non-refundable regulatory milestone payments in connection with the Licensed Products, other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome, consisting of (i) $750,000 upon submission of an application with the FDA or equivalent foreign body for a particular Licensed Product, (ii) $3.0 million upon FDA approval of an application for a particular Licensed Product, (iii) $1.125 million upon regulatory approval in a Major Market for a particular Licensed Product, and (iv) $1.125 million upon regulatory approval in a second Major Market for a particular Licensed Product.
The Company also agreed to pay to Ligand certain one-time, non-refundable regulatory milestone payments in connection with the Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome, consisting of (i) $100,000 upon submission of an application with the FDA or equivalent foreign body for such a particular Licensed Product, (ii) $350,000 upon FDA approval of an application for such a particular Licensed Product, (iii) $125,000 upon regulatory approval in a Major Market for such a particular Licensed Product, and (iv) $125,000 upon regulatory approval in a second Major Market for such a particular Licensed Product.
The Company agreed to pay to Ligand certain one-time, non-refundable commercial milestone payments in connection with the Licensed Products, consisting of (i) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon Aplindore, (ii) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon an H3 receptor antagonist, (iii) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), (iv) $10.0 million upon the achievement of $1.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists, (v) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon Aplindore, (vi) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon an H3 receptor antagonist, (vii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon acetaminophen (as it may have been or may be modified for use in a product to be administered by any method in any form including, without limitation injection and intravenously, the sole active pharmaceutical ingredient of which is acetaminophen), and (viii) $20.0 million upon the achievement of $2.0 billion of cumulative worldwide net sales of Licensed Products based upon CRTh2 antagonists.
The Company will also pay to Ligand middle single-digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are covered under a licensed patent and a tiered incremental royalty in the upper single digit to lower double digit range on aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are covered under a licensed patent. Additionally, the Company will pay to Ligand low single digit royalties on aggregate annual net sales of Licensed Products other than in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are not covered under a licensed patent and a tiered incremental royalty in the lower single digit to middle single digit range on aggregate annual net sales of Licensed Products in connection with Aplindore for the indication of PD or Restless Leg Syndrome in a country where such Licensed Products are not covered under a licensed patent.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
Acquisition of Assets from Vyera
On March 6, 2018, the Company entered into the Vyera Agreement with Vyera, pursuant to which the Company acquired the assets (the "Vyera Assets") and liabilities (the "Vyera Assumed Liabilities"), of Vyera related to TUR-002 (intranasal ketamine), which is now known as SLS-002. The Company is obligated to use commercially reasonable efforts to seek regulatory approval in the United States for and commercialize SLS-002.
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As consideration for the Vyera Assets, the Company paid to Vyera a non-refundable cash payment of $150,000 on May 21, 2018. As further consideration for the Vyera Assets, upon public announcement of the entry by Apricus and STI into the Merger Agreement, the Company paid to Vyera a non-refundable cash payment of $150,000. As further consideration for the Vyera Assets, the Company issued to Vyera 191,529 shares of common stock and paid Vyera a non-refundable cash payment of $1,000,000 on January 29, 2019.
Pursuant to the amendment to the Asset Purchase Agreement entered into by the Company and Vyera on October 15, 2019, the Company issued Vyera 1,809,845 registered shares of the Company's common stock on January 2, 2020 and made cash payments to Vyera in the amounts of $750,000, $750,000, $1.0 million and $1.0 million in October 2019, January 2020, April 2020 and July 2020, respectively.
In the event that the Company sells, directly or indirectly, all or substantially all of the Vyera Assets to a third party, then the Company must pay Vyera an amount equal to 4% of the net proceeds actually received by the Company as an upfront payment in such sale.
The Company agreed to pay to Vyera certain one-time, non-refundable milestone payments consisting of (i) $3.5 million upon dosing of the first patient in a Phase III clinical trial for SLS-002, (ii) $10.0 million upon approval by the FDA of a new drug application (an "NDA"), with respect to SLS-002, (iii) $5.0 million upon approval by the European Medicines Agency (the "EMA") of the foreign equivalent to an NDA with respect to SLS-002 in a Major Market, (iv) $2.5 million upon approval by the EMA of the foreign equivalent to an NDA with respect to SLS-002 in a second Major Market, (v) $5.0 million upon the achievement of $250.0 million in net sales of SLS-002, (vi) $10.0 million upon the achievement of $500.0 million in net sales of SLS-002, (vii) $15.0 million upon the achievement of $1.0 billion in net sales of SLS-002, (viii) $20.0 million upon the achievement of $1.5 billion in net sales of SLS-002, and (ix) $25.0 million upon the achievement of $2.0 billion in net sales of SLS-002. The Company will also pay to Vyera a royalty percentage in the mid-teens on aggregate annual net sales of SLS-002.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
Acquisition of License from Stuart Weg, MD
On August 29, 2019, the Company entered into an amended and restated exclusive license agreement with Stuart Weg, M.D. (the "Weg License Agreement"), pursuant to which the Company was granted an exclusive worldwide license to certain intellectual property and regulatory materials related to SLS-002. Under the terms of the Weg License Agreement, the Company paid an upfront license fee of $75,000 upon execution of the agreement. The Company agreed to pay additional consideration to Dr. Weg as follows: (i) $0.1 million on January 2, 2020, (ii) $0.125 million on January 2, 2021, and (iii) in the event the FDA has not approved an NDA for a product containing ketamine in any dosage on or before December 31, 2021, $0.2 million on January 2, 2022. The Company paid the required $0.1 million on January 2, 2020. As further consideration, the Company agreed to pay Dr. Weg certain milestone payments consisting of (i) $0.1 million and shares of common stock equal to $0.15 million divided by the closing sales price of the Company's common stock upon the issuance of the first patent directed to an anxiety indication, (ii) $0.5 million after the locking of the database and unblinding the data for the statistically significant readout of a Phase III trial of an intranasal racemic ketamine product that has been conducted for the submission under an NDA or equivalent seeking regulatory approval in the United States, the United Kingdom, France, Germany, Italy, Spain, China or Japan, or seeking regulatory approval from the EMA in the EU, for such product (the "Milestone Product"), (iii) $3.0 million upon FDA approval of an NDA for the Milestone Product, (iv) $2.0 million upon regulatory approval by the EMA for the Milestone Product, (v) $1.5 million upon regulatory approval in Japan for the Milestone Product; provided, however, that the maximum amount to be paid by the Company under milestones (i)-(v) will be $6.6 million. The Company will also pay to Dr. Weg a royalty percentage equal to 2.25% on the sale of each product containing ketamine in any dosage.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
Acquisition of Assets from Bioblast Pharma Ltd. ("Bioblast")
On February 15, 2019, the Company entered into an Asset Purchase Agreement (the "Bioblast Asset Purchase Agreement") with Bioblast. Pursuant to the Bioblast Asset Purchase Agreement, the Company acquired all of the assets of Bioblast relating to a therapeutic platform known as Trehalose (the "Bioblast Asset Purchase"). The Company paid to Bioblast $1.5 million in February 2019 and an additional $2.0 million in February 2020. Accordingly, the Company recognized a $3.5 million charge to research and development expense during the three months ended March 31, 2019. Under the terms of the Bioblast Asset Purchase Agreement, the Company agreed to pay additional consideration to Bioblast upon the achievement of certain milestones in the future, as follows: (i) within 15 days following the completion of the Company's first Phase II(b) clinical trial of Trehalose satisfying certain criteria, the Company will pay to Bioblast $8.5 million; and (ii) within 15 days following the approval for commercialization by the FDA or the Health Products and Food Branch of Health Canada of the first NDA or
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New Drug Submission, respectively, of Trehalose filed by the Company or its affiliates, the Company will pay to Bioblast $8.5 million. In addition, the Company agreed to pay Bioblast a cash royalty equal to 1% of the net sales of Trehalose. Under the terms of the Bioblast Asset Purchase, the Company assumed a collaborative agreement with Team Sanfilippo Foundation ("TSF"), a nonprofit medical research foundation founded by parents of children with Sanfilippo syndrome. TSF, upon approval by the FDA, planned to begin an open label, Phase II(b) clinical trial in up to 20 patients with Sanfilippo syndrome, which is now known under the study name SLS-005. The Company will provide the clinical supply of Trehalose. The terms of the Bioblast Asset Purchase Agreement entitle the Company access to all clinical data from this trial. On July 15, 2019, TSF and the Company amended the agreement whereby the Company agreed to assume responsibility for the Phase II(b)/III clinical trial and TSF agreed to provide a grant of up to $1.5 million towards the funding of the trial.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
Acquisition of License from The Regents of the University of California
On March 7, 2019, the Company entered into an exclusive license agreement (the "UC Regents License Agreement") with The Regents of the University of California ("The UC Regents") pursuant to which the Company was granted an exclusive license to intellectual property owned by The UC Regents pertaining to a technology that was created by researchers at the University of California, Los Angeles (UCLA). Such technology relates to a family of rationally-designed peptide inhibitors that target the aggregation of alpha-synuclein (α-synuclein). The Company plans to study this initial approach in PD and will further evaluate the potential clinical approach in other disorders affecting the central nervous system ("CNS"). This program is now known as SLS-007. Upon entry into the UC Regents License Agreement, the Company paid to The UC Regents $0.1 million and recognized a $0.1 million charge to research and development expense during the three months ended March 31, 2019. Under the terms of the UC Regents License Agreement, the Company agreed to pay additional consideration upon the achievement of certain milestones in the future, as follows: (i) within 90 days following the completion of dosing of the first patient in a Phase I clinical trial, the Company will pay $50,000; (ii) within 90 days following dosing of the first patient in a Phase II clinical trial, the Company will pay $0.1 million; (iii) within 90 days following dosing of the first patient in a Phase III clinical trial, the Company will pay $0.3 million; (iv) within 90 days following the first commercial sales in the U.S., the Company will pay $1.0 million; (v) within 90 days following the first commercial sales in any European market, the Company will pay $1.0 million; and (vi) within 90 days following $250 million in cumulative worldwide net sales of a licensed product, the Company will pay $2.5 million. The Company is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the Company fails to achieve certain milestones within a specified timeframe, The UC Regents may terminate the agreement or reduce the Company's license to a nonexclusive license.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
Acquisition of License from Duke University
On June 27, 2019, the Company entered into an exclusive license agreement (the "Duke License Agreement") with Duke University pursuant to which the Company was granted an exclusive license to a gene therapy program targeting the regulation of the SNCA gene, which encodes alpha-synuclein expression. The Company plans to study this initial approach in PD and will further evaluate the potential clinical approach in other disorders affecting the CNS. This program is now known as SLS-004. Upon entry into the Duke License Agreement, the Company paid to Duke University $0.1 million and recognized $0.1 million charge to research and development expense during the three months ended June 30, 2019. The Company agreed to pay additional consideration to Duke University upon the achievement of certain milestones in the future, as follows: (i) within 30 days following filing of an IND following the completion of preclinical studies including comprehensive validation of the platform, the Company will pay $0.1 million; (ii) within 30 days following dosing of the first patient in a Phase I clinical trial, the Company will pay $0.2 million; (iii) within 30 days following dosing of the first patient in a Phase II clinical trial, the Company will pay $0.5 million; (iv) within 30 days following dosing of the first patient in a Phase III clinical trial, the Company will pay $1.0 million; and (v) within 30 days following an NDA approval, the Company will pay $2.0 million. The Company is also obligated to pay a single digit royalty on sales of the product, if any. In addition, if the Company fails to achieve certain milestones within a specified timeframe, Duke University may terminate the agreement.
The potential regulatory and commercial milestones are not yet considered probable, and no milestone payments have been accrued at September 30, 2020.
5. Business Combination
On January 24, 2019, Apricus completed the business combination with STI in accordance with the terms of the Merger Agreement.
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The Merger was accounted for as a reverse recapitalization under U.S. GAAP because the primary assets of Apricus were nominal at the close of the Merger. STI was determined to be the accounting acquirer based upon the terms of the Merger and other factors, including: (i) STI stockholders and other persons holding securities convertible, exercisable or exchangeable directly or indirectly for STI common stock owned the majority of the Company immediately following the effective time of the Merger, (ii) STI holds the majority (four of five) of board seats of the combined company, and (iii) STI's management holds all key positions in the management of the combined company.
STI acquired no tangible assets and assumed no employees or operation from Apricus. Additionally, Apricus' intellectual property was considered to have no value. The remaining Apricus liabilities had a fair value of approximately $300 thousand.
In connection with the Merger, STI entered into a Contingent Value Rights Agreement (the "CVR Agreement"). Pursuant to the CVR Agreement, Apricus stockholders received one contingent value right ("CVR") for each share of Apricus common stock held of record immediately prior to the closing of the Merger. Each CVR represents the right to receive payments based on Apricus' U.S. assets related to products in development, intended for the topical treatment of erectile dysfunction, which are known as Vitaros in certain countries outside of the United States (the "CVR Product Candidate"). In particular, CVR holders will be entitled to receive 90% of any cash payments (or the fair market value of any non-cash payments) exceeding $500,000 received, during a period of ten years from the closing of the Merger, based on the sale or out-licensing of Apricus' CVR Product Candidate intangible asset, including any milestone payments (the "Contingent Payments"), less reasonable transaction expenses. STI is entitled to retain the first $500,000 and 10% of any Contingent Payments. STI has agreed to pay up to $500,000 of such Contingent Payments that STI receives to a third party pursuant to a settlement agreement between STI and the third party. STI assigned no value to the CVR Product Candidate intangible asset as of September 30, 2020 or the CVR in the acquisition accounting.
6. Debt
Convertible Notes
From May 2017 to October 2018, the Company entered into convertible note agreements with investors for the issuance of convertible notes (the "Notes"). The aggregate principal amount of the Notes was $2.3 million, and the Notes were due no later than April 30, 2019 with simple interest at the rate of 8% per annum. The Notes automatically converted, upon the issuance of preferred stock of the Company for capital-raising purposes occurring on or prior to the Notes' maturity date resulting in gross proceeds in excess of a specific amount, into shares of common stock of the Company by dividing the then-outstanding balance of each convertible note by 80% or 90%, depending on the terms for each note, of the lowest purchase price per share paid, or $9.70 to $10.91 per share, respectively, by another investor in the qualifying financing, which condition was satisfied by the Pre-Merger Financing.
The Notes were carried at fair value. The Company did not recognize an adjustment relating to changes in the Notes fair value during the three months ended September 30, 2020 and 2019, respectively, and recognized an adjustment of $0 and $109 thousand during the nine months ended September 30, 2016.2020 and 2019, respectively.
In connection with the closing of the Merger, the Notes plus unpaid interest were converted into 172,284 shares of common stock at a price of $9.70 or $10.91 per share.
PPP Loan
On May 4, 2020, the Company qualified for and received a loan pursuant to the Paycheck Protection Program, a program implemented by the U.S. Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the "PPP Lender"), for an aggregate principal amount of approximately $147,000 (the "PPP Loan"). The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest deferred, has a term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration. The principal amount of the PPP Loan is subject to forgiveness under the Paycheck Protection Program upon the Company's request to the extent that the PPP Loan proceeds are used to pay expenses permitted by the Paycheck Protection Program, including payroll costs, covered rent and mortgage obligations and covered utility payments incurred by the Company. The Company intends to apply for forgiveness of the PPP Loan with respect to these covered expenses. To the extent that all or part of the PPP Loan is not forgiven, the Company will be required to pay interest on the PPP Loan at a rate of 1.0% per annum, and commencing in the fourth quarter of 2020, principal and interest payments will be required through the maturity date in May 2022. The terms of the PPP Loan provide for customary events of default including, among other things, payment defaults, breach of representations and warranties and insolvency events. The obligation to repay the PPP Loan may be accelerated upon the occurrence of an event of default.
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7. Stockholders' Equity
Preferred Stock
The Company is authorized to issue 10.0 million shares of preferred stock, par value $0.001. No shares of preferred stock options were grantedoutstanding as of September 30, 2020 or December 31, 2019.
Common Stock
The Company has authorized 120,000,000 shares of common stock as of September 30, 2020 and December 31, 2019. Each share of common stock is entitled to one voting right. Common stock owners are entitled to dividends when funds are legally available and declared by the Board of Directors.
Warrants
September 2020 Warrants
The September 2020 Warrants are exercisable for 6,648,750 shares of common stock at an exercise price per share equal to $0.84. The September 2020 Warrants are exercisable beginning on March 9, 2021 and will expire on March 9, 2026.
August 2019 Warrants
The August 2019 Warrants are exercisable for 2,237,500 shares of common stock at an exercise price per share equal to $1.78. The August 2019 Warrants became exercisable beginning on February 27, 2020 and will expire on August 28, 2023.
As of September 30, 2020, August 2019 Warrants exercisable for 2.2 million shares remain outstanding at an exercise price of $1.78 per share.
Series A Warrants
The Series A Warrants were initially exercisable for 1,463,519 shares of common stock at an exercise price per share equal to $4.15, which was adjusted several times pursuant to the terms thereof to 3,629,023 shares of common stock at an exercise price per share equal to $0.2957 per share. The most recent adjustment to the exercise price (from $0.60 to $0.2957 per share) occurred effective during the firstthree months ended September 30, 2020 as a result of the announcement of the Offerings. The Series A Warrants were immediately exercisable upon issuance and will expire on January 31, 2024.
During the three months ended September 30, 2020 and 2019, no Series A Warrants were exercised. During the nine months ended September 30, 2020 and 2019, Series A Warrants for 0 and 2.6 million shares of 2017.
September 30, 2016 | ||||
Risk-free interest rate | 1.36%-1.78% | |||
Volatility | 72.35%-80.02% | |||
Dividend yield | — | % | ||
Expected term | 5.25-6.08 years | |||
Forfeiture rate | 11.33 | % | ||
Weighted average grant date fair value | $ | 7.23 |
Series B Warrants
The Series B Warrants were initially exercisable for no shares of common stock, which was adjusted to 7,951,090 shares of common stock on February 27, 2019 and which was further adjusted to 11,614,483 shares of common stock on March 7, 2019, in each case essentially due to trading at a lower price, pursuant to the terms thereof. The Series B Warrants had an exercise price of $0.001, were immediately exercisable upon issuance and provided for an expiration date of the day following the later to occur of (i) the Reservation Date (as defined therein), and (ii) the date on which the Series B Warrants have been exercised in full (without giving effect to any limitation on exercise contained therein) and no shares remain issuable thereunder.
During the nine months ended September 30, 2019, Series B Warrants for 11.6 million shares of common stock were exercised for approximately $11,614. As of December 31, 2019, no Series B Warrants remain outstanding and the Series B Warrants are therefore no longer subject to any further changes in warrants or exercise price.
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A summary of the Company’s stock optionwarrant activity under its stock option plans during the nine months ended September 30, 20172020 is as follows (share amounts in thousands):
Number of Shares | Weighted Average Exercise Price | ||||||
Outstanding as of December 31, 2016 | 415 | $ | 17.23 | ||||
Cancelled | (24 | ) | $ | 15.32 | |||
Outstanding as of September 30, 2017 | 391 | $ | 17.34 |
Weighted- | Weighted- | |||||||
Average | Average | |||||||
Exercise | Remaining | |||||||
Warrants | Price | Contractual Life | ||||||
Outstanding at December 31, 2019 | 3,584 | $ | 3.85 | 3.3 | ||||
Issued | 6,648 | $ | 0.84 | - | ||||
Exercised | - | $ | - | |||||
Cancelled | (13) | $ | 18.00 | |||||
Outstanding as of September 30, 2020 | 10,219 | $ | 1.82 | 4.6 | ||||
Exercisable as of September 30, 2020 | 3,571 | $ | 3.64 | 3.0 |
The Series A summaryWarrants and the Series B Warrants were each recognized as a liability at their fair value upon issuance. The warrant liability is remeasured to the then fair value prior to their exercise or at period end for warrants that are un-exercised and the gain or loss recognized in earnings during the period.
8. Stock-based Compensation
The Company has the Amended and Restated Apricus 2012 Stock Long Term Incentive Plan (the "2012 Plan"), which provides for the issuance of incentive and non-incentive stock options, restricted and unrestricted stock awards, stock unit awards and stock appreciation rights. Options and restricted stock units granted generally vest over a period of one to four years and have a maximum term of ten years from the date of grant. As of September 30, 2020, an aggregate of 8,038,582 shares of common stock were authorized under the Apricus 2012 Plan, of which 3.3 million shares of common stock were available for future grants. Upon completion of the Company’sMerger, the Company assumed the Seelos Therapeutics, Inc. 2016 Equity Incentive Plan (the "2016 Plan") and awards outstanding under the 2016 Plan became awards for common stock. Effective as of the Merger, no further awards may be issued under the 2016 Plan.
On May 15, 2020, the Company's stockholders approved a 2020 Employee Stock Purchase Plan (the "ESPP"), whereby qualified employees are allowed to purchase limited amounts of the Company's common stock at the lesser of 85% of the market price at the beginning or end of the offering period. The stockholders have authorized an initial amount of 1.0 million shares for purchase by employees under the ESPP. The ESPP provides that an additional number of shares will automatically be added annually to the shares authorized for issuance under the ESPP on January 1st of each year commencing on January 1, 2021 and ending on (and including) January 1, 2030, which amount shall be equal to the lesser of (i) 1% of the number of shares of the Company's common stock issued and outstanding on the immediately preceding December 31, and (ii) a number of shares of common stock set by the Company's Board of Directors or the Compensation Committee of the Board of Directors (the "Compensation Committee") of the Company on or prior to each such January 1.
On July 28, 2019, the Compensation Committee adopted the Seelos Therapeutics, Inc. 2019 Inducement Plan (the "2019 Inducement Plan"), which became effective on August 12, 2019. The 2019 Inducement Plan is substantially similar to the 2016 Plan. The 2019 Inducement Plan provides for the grant of equity-based awards in the form of stock options, stock appreciation rights, restricted stock, unit activityunrestricted stock, stock units, including restricted stock units, performance units and cash awards, solely to prospective employees of the Company or an affiliate of the Company provided that certain criteria are met. Awards under itsthe 2019 Inducement Plan may only be granted to an individual, as a material inducement to such individual to enter into employment with the Company, who (i) has not previously been an employee or director of the Company or (ii) is rehired following a bona fide period of non-employment with the Company. The maximum number of shares available for grant under the 2019 Inducement Plan is 1,000,000 shares of the Company's common stock. The 2019 Inducement Plan is administered by the Compensation Committee and expires on August 12, 2029.
Stock options
During the nine months ended September 30, 2020, the Company granted 1,134,339 incentive stock options and 3,260,556 non-qualified stock options to employees with a weighted average exercise price per share of $1.16 and a 10-year term, subject to the terms and conditions of the 2012 Plan above. The stock options are subject to time vesting requirements. The stock options granted to employees vest 25% on the first anniversary of the grant and monthly thereafter over the next three years.
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During the nine months ended September 30, 2020, the Company also granted 179,000 non-qualified stock options to non-employee directors and a consultant with a weighted average exercise price per share of $1.15 and a 10-year term, subject to the terms and conditions of the 2012 Plan above. These stock options granted to non-employee directors and the consultant vest either monthly over the 12 months following the grant or over a three or four-year service period.
The fair value of stock option plansgrants are estimated on the date of grant using the Black-Scholes option-pricing model. The Company was historically a private company and lacked sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies. Additionally, due to an insufficient history with respect to stock option activity and post-vesting cancellations, the expected term assumption for employee grants is based on a permitted simplified method, which is based on the vesting period and contractual term for each tranche of awards. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect for time periods approximately equal to the expected term of the award. Expected dividend yield is zero based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
During the nine months ended September 30, 2020, no stock options were exercised and 26,000 were forfeited.
The following assumptions were used in determining the fair value of the stock options granted during the nine months ended September 30, 20172020:
Nine Months Ended | ||||
September 30, 2020 | ||||
Risk-free interest rate | 0.3%-1.7% | |||
Volatility | 109%-119% | |||
Dividend yield | - | % | ||
Expected term (years) | 5-7 | |||
Weighted-average fair value | $ | 0.98 |
A summary of stock option activity during the nine months ended September 30, 2020 is as follows (share amounts in thousands):
Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Unvested as of December 31, 2016 | 115 | $ | 5.11 | ||||
Granted | 873 | $ | 1.13 | ||||
Vested | (211 | ) | $ | 1.70 | |||
Forfeited | (56 | ) | $ | 1.45 | |||
Unvested as of September 30, 2017 | 721 | $ | 1.57 |
Weighted- | Weighted- | Total | |||||||||
Average | Average Remaining | Aggregate | |||||||||
Stock | Exercise | Contractual | Intrinsic | ||||||||
Options | Price | Life (in years) | Value | ||||||||
Outstanding as of December 31, 2019 | 522 | $ | 9.18 | 9.0 | $ | 21 | |||||
Granted | 4,574 | 1.16 | 9.6 | ||||||||
Exercised | - | - | |||||||||
Cancelled | (26) | 1.96 | - | ||||||||
Outstanding as of September 30, 2020 | 5,070 | $ | 1.99 | 9.4 | $ | 9 | |||||
Vested and expected to vest as of September 30, 2020 | 312 | $ | 13.86 | 7.5 | $ | 9 | |||||
Exercisable as of September 30, 2020 | 312 | $ | 13.86 | 7.5 | $ | 9 |
The following table summarizes the total stock-based compensation expense resulting from share-based awards recorded in the Company’sCompany's condensed consolidated statements of operations (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Research and development | $ | 57 | $ | 54 | $ | 193 | $ | 479 | ||||||||
General and administrative | 275 | 279 | 710 | 948 | ||||||||||||
Total | $ | 332 | $ | 333 | $ | 903 | $ | 1,427 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
2020 | 2019 | 2020 | 2019 | |||||||||
Research and development | $ | 138 | $ | 37 | $ | 268 | $ | 71 | ||||
General and administrative | 557 | 96 | 1,079 | 244 | ||||||||
$ | 695 | $ | 133 | $ | 1,347 | $ | 315 |
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9. Related Party Transactions
IRRAS AB ("IRRAS") is a commercial stage medical technology company of which develops pharmaceutical products.
10. Commitments and Contingencies
Leases
In March 2017 (see note 2), the Company does not currently have a revenue stream. Accordingly, the adoption of this update on January 1, 2018 is not expected to have a material effect on its condensed consolidated financial statements and related disclosures.
In December 2011, Apricus entered into a five-year lease agreement for its original headquarters in San Diego, California expiring December 31, 2016. In December 2015, Apricus amended the lease agreement to sell to Ferring its assets and rights (the “Purchased Assets”) related toextend the business of developing, marketing, distributing, and commercializing, outside the United States, the Company’s products currently marketed or in development, intended for the topical treatment of sexual dysfunction (the “Product Business”), including products sold under the name Vitaros (the “Products”) for up to approximately $12.7 million. The Purchased Assets include, among other things, certain pending and registered patents and trademarks, contracts, manufacturing equipment and regulatory approvals relating to the Products outside of the United States.term through January 31, 2020. The Company retainedhad an option to extend the U.S. developmentlease an additional three years. The original lease term contained a base rent of approximately $24,000 per month with 3% annual escalations, plus a supplemental real estate tax and commercialization rights for Vitaros and a license from Ferring (the “Ferring License”) for intellectual property rights for Vitaros and other products which relateoperating expense charge to development both within the United States and internationally.
For the second was received in September 2017. The Company used a portion of the proceeds from the sale of the Purchased Assets to repay all amounts owed, including applicable termination fees, under the Credit Facility, which was approximately $6.6 million. The extinguishment of the Credit Facility was a stipulation of the Ferring Asset Purchase Agreement; however, since it was corporate debt, the loss on extinguishment was not offset against the gain on the sale of the Purchased Assets.
Upfront payment received | $ | 11,500 | |
Transition services payment earned in Q2 and Q3 2017 | 500 | ||
Payment received for inventory | 709 | ||
Total proceeds from sale | $ | 12,709 | |
Carrying value of assets sold in sale | (1,578 | ) | |
Liabilities transferred upon sale | 1,186 | ||
Total gain on sale of Purchased Assets | $ | 12,317 |
September 30, 2017 | December 31, 2016 | ||||||
Accounts receivable | $ | 9 | $ | 530 | |||
Inventories | — | 764 | |||||
Prepaid expenses and other current assets | — | 76 | |||||
Current assets of discontinued operations | 9 | 1,370 | |||||
Property and equipment, net | — | 842 | |||||
Total assets of discontinued operations | $ | 9 | $ | 2,212 | |||
Accounts payable | 25 | 274 | |||||
Accrued expenses | 76 | 1,834 | |||||
Total liabilities of discontinued operations | $ | 101 | $ | 2,108 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Product sales | $ | — | $ | 172 | $ | 143 | $ | 541 | |||||||
Royalty revenue | — | 195 | 368 | 866 | |||||||||||
License fee revenue | — | 3,950 | — | 4,000 | |||||||||||
Cost of goods sold | — | (110 | ) | (74 | ) | (436 | ) | ||||||||
Cost of Sandoz rights | — | (3,380 | ) | — | (3,380 | ) | |||||||||
Operating expenses | (73 | ) | (504 | ) | (821 | ) | (1,363 | ) | |||||||
Other expense | — | (17 | ) | (16 | ) | (17 | ) | ||||||||
Gain on sale | 250 | — | 12,317 | — | |||||||||||
Income (loss) from discontinued operations | $ | 177 | $ | 306 | $ | 11,917 | $ | 211 |
Future minimum rental payments owed by the Company to Sandoz as a condition under the termination agreement between the two parties related to Vitaros outside of the United States. Operating expenses for the current periods include primarily patent and legal fees and accounting expenses incurred in connection with the Ferring Asset Purchase Agreement.
September 30, 2017 | December 31, 2016 | ||||||
Professional fees | $ | 601 | $ | 783 | |||
Deferred compensation | — | 134 | |||||
Outside research and development services | 64 | 142 | |||||
Other | 118 | 177 | |||||
$ | 783 | $ | 1,236 |
December 31, 2016 | ||||
Notes payable, principal | $ | 6,392 | ||
Add: accretion of final payment fee | 378 | |||
Less: unamortized debt discount | (120 | ) | ||
6,650 | ||||
Less: current portion of notes payable, net | (6,650 | ) | ||
$ | — |
Contractual Commitments
The Company has filed with the SEC a prospectus supplement to the Company’s prospectus, dated August 25, 2014, filed as part of the Company’s effective $100.0 million shelf registration statement on Form S-3, File No. 333-198066, registering all of the shares of common stock that may be offered and sold to Aspire Capital from time to time.
Litigation
As of September 30, 2017,2020, there was no material litigation against the total aggregate fair value of the warrant liability, which includes only the January 2016 Warrants and the February 2015 Warrants, was $0.6 million.
Common Shares Issuable upon Exercise | Weighted Average Exercise Price | |||||
Outstanding at December 31, 2016 | 2,317,846 | $ | 15.19 | |||
Issued | 5,199,138 | $ | 1.60 | |||
Cancelled | (246,914 | ) | 52.50 | |||
Outstanding as of September 30, 2017 | 7,270,070 | $ | 3.85 | |||
Exercisable as of September 30, 2017 | 7,270,070 | $ | 3.85 |
Shares Issuable Upon Exercise | Exercise Price | Expiration Date | |||||
300,000 | $ | 34.00 | May 2018 | ||||
1,068,307 | $ | 1.67 | March 2020 | ||||
106,831 | $ | 2.16 | March 2020 | ||||
251,500 | $ | 1.75 | April 2022 | ||||
4,638,425 | $ | 1.55 | May 2022 | ||||
428,620 | $ | 8.80 | January 2023 | ||||
441,763 | $ | 8.80 | March 2023 | ||||
19,380 | $ | 12.90 | October 2024 | ||||
15,244 | $ | 16.40 | July 2025 | ||||
7,270,070 |
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Disclosures Regarding Forward-Looking Statements
The following should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes that appear elsewhere in this report as well as in conjunction with the Risk Factors section and in our Annual Report on Form 10-K10- K for the year ended December 31, 20162019 as filed with the United States Securities and Exchange Commission (“SEC”("SEC") on March 13, 2017.17, 2020. This report and our Form 10-K include forward-looking statements made based on current management expectations pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, as amended.
We have common law trademark rights in the United States, which is pending registrationunregistered marks "Seelos Therapeutics, Inc.," "Seelos," and subject to our agreement with Warner Chilcott Company, Inc., now a subsidiary of Allergan plc (“Allergan”).the Seelos logo in certain jurisdictions. Vitaros is a registered trademark of Ferring International Center S.A. ("Ferring") in certain countries outside of the United States. In addition, we own trademarks for NexACT
Overview
We are a clinical-stage biopharmaceutical company focused on the development of innovative product candidates in the areas of urologydeveloping novel technologies and rheumatology. We have two product candidates currently in development. Vitaros is a product candidate in the United Statestherapeutics for the treatment of erectile dysfunction (“ED”), which we in-licensed from Warner Chilcott Company, Inc., nowcentral nervous system, respiratory and other disorders.
We plan on developing our clinical and regulatory strategy with our internal research and development team with a subsidiary of Allergan. RayVa
Recent Developments
Coronavirus (COVID-19)
In March 2020, we began taking precautionary measures to scleroderma, for which we own worldwide rights.
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In addition, although we do not expect the preventative measures taken to date to have a material adverse impact on our business for the fourth quarter of 2020, the ultimate impact of the COVID-19 pandemic on our business, financial condition and results of operations is unknown and will depend on future developments and risks, which are highly uncertain and cannot be predicted. These developments and risks include, among others, the duration and severity of the COVID-19 outbreak, the impact on capital markets, the impact on our partners and the regulatory agencies that oversee our sector and any additional preventative and protective actions that governmental authorities, or we, may implement, any of which may result in an extended period of business disruption, including potential delays in commencing future clinical trials or delays in completing enrollment for any clinical trials we may commence. Any resulting financial impact cannot be reasonably estimated at this time, but the COVID-19 pandemic may force us to make adjustments to our business, our plans and our timeline for developing assets, including our programs. In addition, the pandemic is anticipated to have a material adverse impact on our business, financial condition and results of operations, including our ability to raise additional capital, if the pandemic continues at its current rate into the first quarter of 2021. See Part II, Item 1A, Risk Factors, for an additional discussion of risks related to COVID-19.
PPP Loan
On May 4, 2020, we qualified for and received a loan pursuant to the upfront payment of $11.5 million, Ferring paid us approximately $0.7 millionPaycheck Protection Program, a program implemented by the U.S. Small Business Administration under the Coronavirus Aid, Relief, and Economic Security Act, from a qualified lender (the "PPP Lender"), for the delivery of certain product-related inventory in April 2017 and an aggregate principal amount of $0.5 million relatedapproximately $147,000 (the "PPP Loan"). The PPP Loan bears interest at a fixed rate of 1.0% per annum, with the first six months of interest deferred, has a term of two years and is unsecured and guaranteed by the U.S. Small Business Administration. The principal amount of the PPP Loan is subject to transition services, paid in July 2017 and September 2017.
Business Update
On August 7, 2020, we entered into an agreement with Allergan to license the U.S. development and commercialization rights for Vitaros. Pursuant to the Ferring Asset Purchase Agreement, Ferring now owns the rights to Vitaros outside of the United States.
On August 25, 2020, we announced that we were granted European Orphan Drug Designation ("ODD") for SLS-005 in May 2014mucopolysaccharidosis type III (MPS III), Sanfilippo syndrome, from the FDA to begin clinical studies. We reported results from our Phase 2a clinical trial of RayVa for the treatment of Raynaud’s Phenomenon secondary to scleroderma in September 2015, which we believe supports moving RayVa forward into future clinical trials. We expect to finalize the RayVa Phase 2b delivery device and study protocol and seek an ex-U.S. collaboration partner prior to initiating any future clinical studies.
On September 10, 2017,4, 2020, we entered into a Securities Purchase Agreement (the “September 2017 SPA”) with certain accreditedinstitutional investors for(the "Securities Purchase Agreement") pursuant to which we issued and sold 8,865,000 shares of common stock in a registered direct offering, resulting in total net proceeds of approximately $3.1$6.4 million, after deducting commissionsthe placement agent's fees and estimated offering expenses. We also issued to the investors unregistered warrants to purchase up to 6,648,750 shares of common stock in a concurrent private placement. The warrants have an exercise price of $0.84 per share of common stock, will be exercisable beginning on March 9, 2021 and will expire on March 9, 2026.
On September 10, 2020, we announced that we received a Notice of Allowance from the United States Patent and Trademark Office ("USPTO") for Seelos' application number 16/460,046 titled: "TREATMENT OF PROTEIN AGGREGATION MYOPATHIC AND NEURODEGENERATIVE DISEASES BY PARENTERAL ADMINISTRATION OF TREHALOSE". The allowed claims cover a method of using trehalose (SLS-005) to treat several neurodegenerative conditions including spinocerebellar ataxia (SCA), spinal and bulbar muscular atrophy (SBMA), dentatomral-pailidoluyssan atrophy (DRPLA), Pick's disease, corticobasaldegeneration (CBD), progressive supranuclear palsy (PSP), and frontotemporal dementia.
On September 14, 2020, we announced that we received an issued patent from the Japanese Patent Office (Japanese patent number 6722453) covering SLS-002 titled: "ANXIOLYTIC COMPOSITION, FORMULATION AND METHOD OF USE." The issued claims cover a formulation and method of using SLS-002 to treat patients experiencing anxiety due to phobic disorders such as: Specific Phobia, Agoraphobia, and Social Phobia. Additionally, we received a Notice of Allowance from the Japanese Patent Office (Japanese patent application number 2018-124196) covering SLS-002 titled: "ANXIOLYTIC COMPOSITION, FORMULATION AND METHOD OF USE." The allowed claims cover a formulation and method of using SLS-002 to prevent anxiety in patients prior to medical or dental procedures.
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On September 23, 2020, we announced that we entered into a sponsored research agreement with Duke University to use the MPTP-induced PD mouse model to establish an in vivo proof-of-concept study to demonstrate that administration of the LV-dCas9-DNMT3A virus can prevent and/or delay PD and test the efficacy and safety of SLS-004.
Merger
On January 24, 2019, Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), completed a business combination with Seelos Therapeutics, Inc., a Delaware corporation ("STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the "Merger Agreement") entered into on July 30, 2018. Pursuant to the agreement,Merger Agreement, (i) a subsidiary of Apricus merged with and into STI, with STI (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger"). Upon completion of the Merger, we focused on the development and commercialization of central nervous system ("CNS") therapeutics with known mechanisms of action in areas with a highly unmet medical need.
We intend to become a leading biopharmaceutical company focused on neurological and psychiatric disorders, including orphan indications. Our business strategy includes:
Liquidity, Capital Resources and Financial Condition
Liquidity
We have generated limited revenues, incurred operating losses since inception, and we expect to continue to incur significant operating losses for the foreseeable future and may never become profitable. As of September 30, 2020, we had $8.1 million in cash and an accumulated deficit of $68.7 million. We have historically funded our operations through the issuance of convertible notes (the "Notes") (see Note 6 to our condensed consolidated financial statements), the sale of common stock (see Note 3 to our condensed consolidated financial statements) and the exercise of warrants (see Note 7 to our condensed consolidated financial statements).
On September 4, 2020, we entered into the Securities Purchase Agreement, pursuant to which we issued and sold an aggregate of 8,865,000 shares of common stock in a registered direct offering, resulting in total net proceeds of $6.4 million, after deducting the placement agent's fees and other offering expenses (see Note 3 to our condensed consolidated financial statements).
On March 16, 2020, we completed an underwritten public offering pursuant to which we sold 2,136,6147,500,000 shares of our common stock at a purchase price to the public of $1.73$0.60 per share,share. The net proceeds to us from this offering were approximately $4.0 million, after deducting underwriting discounts and warrants to purchase up to 1,068,307 shares of common stock in a private placement. The warrants were exercisable upon closing, or on Septembercommissions and other offering expenses payable by us.
On February 13, 2017, at an exercise price equal to $1.67 per share of common stock and are exercisable for two and one half years from that date. In addition, we issued warrants to purchase up to 106,831 shares of common stock (the “September 2017 Placement Agent Warrants”) to H.C. Wainwright & Co., LLC (the “Placement Agent”). These were exercisable upon closing at an exercise price of $2.16 per share, and also expire two and one half years from the closing date.
We expect to use the net proceeds from the above transactions primarily for general corporate purposes, which may include financing our offering expenses. normal business operations, developing new or existing product candidates and funding capital expenditures, acquisitions and investments.
Pursuant to the underwritingamended and restated license agreement with H.C. Wainwright & Co., LLC (“H.C. Wainwright”)Stuart Weg, M.D., we soldare required to H.C. Wainwrightmake a cash payment to Dr. Weg in the amount of $0.125 million in January 2021 and, if certain conditions are not met, make an aggregateadditional cash payment of 5,030,000 units. Each unit consisted$0.2 million in January 2022. We believe that in order for us to meet our obligations arising from normal business operations for the next twelve months, we require additional capital in the form of one shareequity, debt or both. Without additional capital, our ability to continue to operate will be limited. These financial statements do not include any adjustments to the recoverability and classification of common stockrecorded assets amounts and one warrantclassification of liabilities that might be necessary should we not be able to purchase 0.75 ofcontinue as a share of common stock, sold at a public offering price of $1.40 per unit. At the time of the offering closing, we did notgoing concern.
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We currently have a sufficient number of authorized common stock to cover shares of common stock issuable upon the exercise of the warrants. The sufficient number of authorized common stock became available on May 17, 2017 when the Company received stockholder approval of the proposed amendment to our Amended and Restated Articles of Incorporation to increase the number of authorized shares of common stock (the “Charter Amendment”) and the Charter Amendment became effective. The warrants will expire five years from the date the warrants were exercisable, or May 17, 2017, and the exercise price of the warrants is $1.55 per share of common stock. In connection with this transaction, we issued to H.C. Wainwright warrants to purchase up to 251,500 shares of common stock (the “Underwriter Warrants”). The Underwriter Warrants have substantially the same terms as the warrants sold concurrently to the investors in the offering, except that the Underwriter Warrants have a term of five years from thean effective date of the related prospectus, or April 20, 2017, and an exercise price of $1.75 per share. The common shares, warrants and warrant shares were issued and sold pursuant to an
We evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year beyond the filing of this Quarterly Report on Form 10-Q. Based on such evaluation and our current plans, which are subject to change, management believes that our existing cash and cash equivalents as of September 30, 2020 are not sufficient to satisfy our operating cash needs for the year after the filing of this Quarterly Report on Form 10-Q.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming we will continue to operate as a going concern, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to our ability to continue as a going concern.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
We maywill need to raise substantial additional funds through one or more of the following: issuance of additional debt, equity, or equity,both and/or the completion of a licensing or other commercial transaction for one or more of our pipeline assets.product candidates. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. This could adversely affect future development and business activities, operations and business plans, such as potential commercialization activities for Vitaros in the United States and future clinical studies for RayVa.and/or other future ventures. There can be no assurance that we will be able to obtain the needed financing on acceptable terms or at all. Additionally, equity or convertible debt financings may have a dilutive effect on the holdings of our existing stockholders.
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Critical Accounting Estimates and Policies
The preparation of financial statements in accordance with United States generally accepted accounting principles ("GAAP") requires management to make estimates and analysis of our financial condition and results of operations is based uponassumptions that affect the amounts reported in our unaudited condensed consolidated financial statements which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an ongoing basis, we evaluate our estimates including those related to bad debts, inventories, other long-term assets, warrants, stock-based compensation, income taxes, and legal proceedings. We base ouraccompanying notes. Management bases its estimates on historical experience, market and onother conditions, and various other assumptions we believeit believes to be reasonable underreasonable. Although these estimates are based on management's best knowledge of current events and actions that may impact us in the circumstances,future, the resultsestimation process is, by its nature, uncertain given that estimates depend on events over which we may not have control. If market and other conditions change from those that we anticipate, our unaudited condensed consolidated financial statements may be materially affected. In addition, if our assumptions change, we may need to revise our estimates, or take other corrective actions, either of which formmay also have a material effect in our unaudited condensed consolidated financial statements. We review our estimates, judgments, and assumptions used in our accounting practices periodically and reflect the basis for making judgments abouteffects of revisions in the carrying values of assets and liabilities not readily apparent from other sources. Actualperiod in which they are deemed to be necessary. We believe that these estimates are reasonable; however, our actual results may differ from these estimates.
Our critical accounting policies and estimates are discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 20162019 and there have been no material changes to such policies or estimates during the nine months ended September 30, 2017.
Recent Accounting Pronouncements
Please refer to the notes to unaudited condensed consolidated financial statements (unaudited) for a discussion of recent accounting pronouncements.
Comparison of Operations
Operating Expense
Operating expense was as follows (in thousands, except percentages):
Three Months Ended September 30, | 2017 vs 2016 | Nine Months Ended September 30, | 2017 vs 2016 | ||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | ||||||||||||||||||||||
Operating expense | |||||||||||||||||||||||||||||
Research and development | $ | 1,960 | $ | 170 | $ | 1,790 | 1,053 | % | $ | 3,226 | $ | 5,274 | $ | (2,048 | ) | (39 | )% | ||||||||||||
General and administrative | 1,756 | 1,550 | 206 | 13 | % | 4,799 | 5,878 | (1,079 | ) | (18 | )% | ||||||||||||||||||
Total operating expense | 3,716 | 1,720 | 1,996 | 116 | % | 8,025 | 11,152 | (3,127 | ) | (28 | )% | ||||||||||||||||||
Loss from operations | $ | (3,716 | ) | $ | (1,720 | ) | $ | (1,996 | ) | 116 | % | $ | (8,025 | ) | $ | (11,152 | ) | $ | 3,127 | (28 | )% |
Three Months Ended September 30, | |||||||||||
Three Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Operating expense | |||||||||||
Research and development | $ | 2,015 | $ | 2,641 | $ | (626) | -24% | ||||
General and administrative | 2,070 | 1,415 | 655 | 46% | |||||||
Total operating expense | $ | 4,085 | $ | 4,056 | $ | 29 | 1% |
Research and Development Expenses from Continuing Operations
Research and development expenses were as follows (in thousands, except percentages):
Three Months Ended September 30, | |||||||||||
Three Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Research and development expenses | |||||||||||
Cash payments for licenses | $ | - | $ | 500 | $ | (500) | -100% | ||||
Clinical trial expenses | 381 | 1,150 | (769) | -67% | |||||||
Manufacturing expenses | 775 | 204 | 571 | 280% | |||||||
Employee compensation | 468 | 412 | 56 | 14% | |||||||
Contract consulting expenses | 249 | 326 | (77) | -24% | |||||||
Other research and development expenses | 142 | 49 | 93 | 190% | |||||||
Total research and development expenses | $ | 2,015 | $ | 2,641 | $ | (626) | -24% |
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Research and development ("R&D") costs are expensed as they are incurred and include the cost of compensation and related expenses, as well as expenses for third parties who conduct research and developmentR&D on our behalf. The $1.8 million increase$626,000 decrease in research and developmentR&D expense during the three months ended September 30, 2017,2020, as compared to the same period in the prior year, was2019, resulted primarily due to the $1.5 million milestone payment paid to Allergan during September 2017 following the FDA’s acknowledgmentfrom a decrease in license fees of receiptapproximately $500,000 and clinical trial costs of our Vitaros NDA resubmission. The $2.0 million decreaseapproximately $769,000. These decreases were partially offset by increases in manufacturing costs of approximately $571,000 and other research and development expense during the nine months ended September 30, 2017, as compared to the same period in the prior year, resulted primarily from decreases in outside services related to the developmentcosts of fispemifene and RayVa as well as decreased personnel-related expenses, partially offset by the $1.5 million payment to Allergan for the NDA resubmission. We expect to continue to incur additional expenses during the remainder of 2017 related primarily to activities as we prepare for commercialization of Vitaros in the United States, as well as personnel-related expenses.
General and Administrative Expenses from Continuing Operations
General and administrative expenses("G&A") costs include expenses for personnel, finance, legal, business development and investor relations. General and administrativeG&A expenses were comparableincreased by $655,000 during the three months ended September 30, 20172020, as compared to the same period of the prior year. Generalin 2019. This increase was primarily due to $424,000 for stock compensation expense and administrative$386,000 for employee and external consulting expenses decreased $1.1 millionand investor relations, during the ninethree months ended September 30, 2017, as compared2019. This increase was partially offset by decreases in costs including but not limited to, internal and external accounting costs, external legal and patent maintenance costs and general insurance costs of approximately $150,000 during the same period of the prior year due to lower professional services expenses, such as legal, accounting, and investor relations expenses.
Other Income and Expense from Continuing Operations
Other income and expense were as follows (in thousands, except percentages):
Three Months Ended September 30, | 2017 vs 2016 | Nine Months Ended September 30, | 2017 vs 2016 | ||||||||||||||||||||||||||
2017 | 2016 | $ Change | % Change | 2017 | 2016 | $ Change | % Change | ||||||||||||||||||||||
Other (expense) income | |||||||||||||||||||||||||||||
Interest income (expense), net | $ | 3 | $ | (234 | ) | $ | 237 | (101 | )% | $ | (89 | ) | $ | (771 | ) | $ | 682 | (88 | )% | ||||||||||
Loss on extinguishment of debt | — | — | $ | — | N/M | (422 | ) | — | (422 | ) | N/M | ||||||||||||||||||
Change in fair value of warrant liability | (296 | ) | 626 | (922 | ) | (147 | )% | (588 | ) | 5,063 | (5,651 | ) | (112 | )% | |||||||||||||||
Other financing expenses | — | (256 | ) | 256 | (100 | )% | — | (461 | ) | 461 | (100 | )% | |||||||||||||||||
Other expense, net | — | (12 | ) | 12 | (100 | )% | (26 | ) | (23 | ) | (3 | ) | 13 | % | |||||||||||||||
Total other income (expense) | $ | (293 | ) | $ | 124 | $ | (417 | ) | (336 | )% | $ | (1,125 | ) | $ | 3,808 | $ | (4,933 | ) | (130 | )% |
Three Months Ended September 30, | |||||||||||
Three Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Other income (expense) | |||||||||||
Interest income | $ | 4 | $ | 46 | $ | (42) | -91% | ||||
Interest expense | (6) | (1) | (5) | 500% | |||||||
Change in fair value of warrant liabilities | (3) | 415 | (418) | -101% | |||||||
Total other income (expense) | $ | (5) | $ | 460 | $ | (465) | -101% |
Interest Income
Interest income was $4,000 and $46,000 for the three months ended September 30, 2020 and 2019, respectively. The decrease in interest income primarily related to the Ferring Asset Purchase Agreement, we repaidlower average cash balances along with lower interest rates earned during the three months ended September 30, 2020 compared to the Lenders all amounts duethree months ended September 30, 2019.
Interest Expense
Interest expense was $6,000 and owed in full under$1,000 for the Credit Facility. The final payment included the outstanding balance of the term loans in full as well as (i) a prepayment fee contractually owed of approximately 2%, or $0.1 million, (ii) a final payment equal to 6% of the original principal amount of each term loan, or $0.6 million,three months ended September 30, 2020 and (iii) per diem interest of approximately $0.05 million, for a total payment of $6.6 million, which resulted in a loss on extinguishment of debt of $0.4 million.
Change in Fair Value of Warrant Liability
The fair value of these warrants is remeasuredwarrant liability was $725,000 at each financial reporting period with any changes in fair value recognized as aSeptember 30, 2020. For the three months ended September 30, 2020, the change in fair value of warrant liability inliabilities was $3,000, which expense was due to revaluation of the accompanying condensed consolidated statements of operations (see notes 1 and 6 to our condensed consolidated financial statements for further details). The positiveSeries A Warrants during such period. For the three months ended September 30, 2019, the change in fair value of warrant liabilityliabilities was $415,000, which income was due to the revaluation of the Series A Warrants and Series B Warrants during such period.
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Comparison of the Nine Months Ended September 30, 2020 and 2019
Operating Expense
Operating expense was as follows (in thousands, except percentages):
Nine Months Ended September 30, | |||||||||||
Nine Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Operating expense | |||||||||||
Research and development | $ | 7,152 | $ | 13,365 | $ | (6,213) | -46% | ||||
General and administrative | 5,762 | 6,427 | (665) | -10% | |||||||
Total operating expense | $ | 12,914 | $ | 19,792 | $ | (6,878) | -35% |
Research and Development Expenses
Research and development expenses were as follows (in thousands, except percentages):
Nine Months Ended September 30, | |||||||||||
Nine Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Research and development expenses | |||||||||||
Cash payments for licenses | $ | - | $ | 5,233 | $ | (5,233) | -100% | ||||
Non-cash payments licenses | 193 | 3,000 | (2,807) | -94% | |||||||
Clinical trial expenses | 2,670 | 1,219 | 1,451 | 119% | |||||||
Manufacturing expenses | 1,461 | 1,962 | (501) | -26% | |||||||
Employee compensation | 1,272 | 1,142 | 130 | 11% | |||||||
Contract consulting expenses | 1,272 | 665 | 607 | 91% | |||||||
Other research and development expenses | 284 | 144 | 140 | 97% | |||||||
Total research and development expenses | $ | 7,152 | $ | 13,365 | $ | (6,213) | -46% |
The $6.2 million decrease in R&D expense during the nine months ended September 30, 2020, as compared to the same period in 2019, resulted primarily from a decrease in license fees of approximately $8.0 million and manufacturing costs of approximately $501,000. These decreases were partially offset by increases in clinical trial costs of approximately $1.5 million and external consulting costs of approximately $607,000.
General and Administrative Expenses
G&A expenses decreased by $665,000 during the nine months ended September 30, 2020, as compared to the same period in 2019. This decrease was primarily due to $2.0 million for legal and administrative costs associated with the Merger incurred during the nine months ended September 30, 2019. This decrease was partially offset by increases in non-cash based stock-based compensation of approximately $764,000 and costs including, but not limited to, patent maintenance, insurance and internal control compliance, of approximately $462,000 during the nine months ended September 30, 2020.
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Other Income and Expense
Other income and expense were as follows (in thousands, except percentages):
Nine Months Ended September 30, | |||||||||||
Nine Months Ended September 30, | 2020 vs 2019 | ||||||||||
2020 | 2019 | $ Change | % Change | ||||||||
Other income (expense) | |||||||||||
Interest income | $ | 38 | $ | 110 | $ | (72) | -65% | ||||
Interest expense | (13) | (28) | 15 | -54% | |||||||
Loss on warrant issuance | - | (5,020) | 5,020 | -100% | |||||||
Change in fair value of warrant liabilities | 238 | (16,132) | 16,370 | -101% | |||||||
Change in fair value of convertible notes payable | - | (109) | 109 | -100% | |||||||
Total other expense | $ | 263 | $ | (21,179) | $ | 21,442 | -101% |
Interest Income
Interest income was $38,000 and $110,000 for the nine months ended September 30, 2020 and 2019, respectively. The decrease in interest income primarily related to the lower average cash balances along with lower interest rates earned during the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.
Interest Expense
Interest expense was $13,000 and $28,000 for the nine months ended September 30, 2020 and 2019, respectively. The decrease is due to the decreaseconversion of all the previously outstanding convertible notes on January 24, 2019 in the Company’s stock price for all periods presented.
Loss on warrant issuance
Loss on warrant issuance was $0 and $5.0 million for the nine months ended September 30, 2020 and 2019, respectively. The loss was due to the fair value of the warrants exceeding the net cash proceeds from the Merger.
Change in Fair Value of Warrant Liability
The fair value of thesewarrant liability was $725,000 at September 30, 2020. For the nine months ended September 30, 2020, the change in fair value of warrant liabilities when reclassifiedwas $238,000, which income was due to equityrevaluation of the Series A Warrants during such period. For the nine months ended September 30, 2019, the change in April 2017fair value of warrant liabilities was $0.8 million.
Change in Fair Value of Convertible Notes Payable
The operating results from our discontinued operations are as follows (in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Product sales | $ | — | $ | 172 | $ | 143 | $ | 541 | |||||||
Royalty revenue | — | 195 | 368 | 866 | |||||||||||
License fee revenue | — | 3,950 | — | 4,000 | |||||||||||
Cost of goods sold | — | (110 | ) | (74 | ) | (436 | ) | ||||||||
Cost of Sandoz rights | — | (3,380 | ) | — | (3,380 | ) | |||||||||
Operating expenses | (73 | ) | (504 | ) | (821 | ) | (1,363 | ) | |||||||
Other expense | — | (17 | ) | (16 | ) | (17 | ) | ||||||||
Gain on sale | 250 | — | 12,317 | — | |||||||||||
Income (loss) from discontinued operations | $ | 177 | $ | 306 | $ | 11,917 | $ | 211 |
Cash Flow Summary
The following table summarizes selected items in our unaudited condensed consolidated statements of cash flows (in thousands):
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Net cash used in operating activities from continuing operations | $ | (8,073 | ) | $ | (11,181 | ) | ||
Net cash provided by investing activities from continuing operations | — | 262 | ||||||
Net cash provided by financing activities from continuing operations | 2,369 | 11,828 | ||||||
Net cash provided by discontinued operations | 12,080 | 818 | ||||||
Net increase in cash | $ | 6,376 | $ | 1,727 |
Nine Months Ended September 30, | ||||||
2020 | 2019 | |||||
Net cash provided by (used in) operations | ||||||
Net cash used in operating activities | $ | (17,584) | $ | (14,187) | ||
Net cash provided by financing activities | 15,377 | 29,460 | ||||
Net (decrease) increase in cash | $ | (2,207) | $ | 15,273 |
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Operating Activities from Continuing Operations
Cash used in operating activities from continuing operations of $8.1$17.6 million during the nine months ended September 30, 20172020 was primarily due to a net loss from continuing operations of $9.2 million, net of adjustments to net loss for non-cash items such as the warrant liability revaluation of $0.6 million, stock-based compensation expense of $0.9$12.7 million, and the loss on extinguishmentchanges in operating assets and liabilities of debt$6.4 million.
Cash used in operating activities of $0.4 million.
Financing Activities
Cash provided by financing activities of $15.4 million during the nine months ended September 30, 2020 was due to net proceeds of $9.5 million from the issuance and sale of common stock, net of costs, of approximately $15.2 million and $147,000 received under the PPP Loan program during the nine months ended September 30, 2020.
Cash provided by financing activities of $29.5 million during the nine months ended September 30, 2019 was primarily due to the proceeds from the exercise of warrants in our April 2017 Financing, offset byand the repaymentsales of our Credit Facility of $7.1 million as a closing condition of the Ferring Asset Purchase Agreement.
>Off-Balance Sheet Arrangements
As of
September 30,We are a smaller reporting company, as defined by Rule 12b-2 of our sensitivitythe Exchange Act and are not required to market risk sinceprovide the presentation set forth in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” in our Annual Report on Form 10-K for the year ended December 31, 2016.
Evaluation of Disclosure Controls and Procedures
Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, communicated to our management to allow timely decisions regarding required disclosure, summarized and reported within the time periods specified in the SEC’sSEC's rules and forms.
Under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”("CEO"), who serves as the principal executive officer and the principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2017.2020. Based on this evaluation, our CEO concluded that our disclosure controls and procedures were effective as of September 30, 2017.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a15(f)13a-15(f). Our internal control over financial reporting is a process designed, under the supervision and, with the participation of our CEO who serves as our principal executive officer and principal financial officer, overseen by our Board of Directors and implemented by our management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that:
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Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management performed an assessment of the effectiveness of our internal control over financial reporting as of September 30, 20172020 using criteria established in the
Inherent Limitations on Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure system are met. Also, projections of any evaluation of effectiveness to future periods
Changes in Internal Control over Financial Reporting
There werehave been no changes in our internal control over financial reporting during the most recent fiscal quarternine months ended September 30, 2017,2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.
We are anot currently party to, and none of our property is currently the following litigation andsubject of, any material legal proceedings. We may be a party to certain other litigation that is either judged to be not material or that arises in the ordinary course of business from time to time. We intend to vigorously defend our interests in these matters. We expect that the resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations. However, due to the uncertainties inherent in litigation, no assurance can be given as to the outcome of these proceedings.
We operate in a dynamic and rapidly changing environment that involves numerous risks and uncertainties. Certain factors may have a material adverse effect on our business, prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Quarterly Report on Form 10-Q and our other public filings with the SEC. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
The risk factors set forth below with an asterisk (*) next to the title are new risk factors or risk factors containing material changes from the risk factors previously disclosed in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2016,2019, as filed with the SEC on March 13, 2017:
Risks Related to the Company
*We are a result of our sale of assets to Ferring, weclinical-stage company, the company has a very limited operating history, are not currently profitable, do not expect to generate revenuebecome profitable in the near future and may never become profitable.
We are a clinical-stage biopharmaceutical company. Since our incorporation, we have focused primarily on the development and acquisition of clinical-stage therapeutic candidates, which has not changed as a result of the completion of the business combination between Apricus Biosciences, Inc., a Nevada corporation ("Apricus"), and Seelos Therapeutics, Inc., a Delaware corporation ("STI"), in accordance with the terms of the Agreement and Plan of Merger and Reorganization entered into on July 30, 2018, pursuant to which (i) a subsidiary of Apricus merged with and into STI, with STI (renamed as "Seelos Corporation") continuing as a wholly owned subsidiary of Apricus and the surviving corporation of the merger and (ii) Apricus was renamed as "Seelos Therapeutics, Inc." (the "Merger"). All of our therapeutic candidates are in the clinical development stage and none of our pipeline therapeutic candidates have been approved for marketing or are being marketed or commercialized.
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As a result, we have no meaningful historical operations upon which to evaluate our business and prospects and have not yet demonstrated an ability to obtain marketing approval for any of our product candidates or successfully overcome the risks and uncertainties frequently encountered by companies in the biopharmaceutical industry. We also have generated minimal revenues from collaboration and licensing agreements and no revenues from product sales to date and continue to incur significant research and development and other expenses. As a result, we have not been profitable and have incurred significant operating losses in every reporting period since our inception. We have incurred an accumulated deficit of $68.7 million from our inception through September 30, 2020.
For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our drug development activities, seek partnering and/or regulatory approvals for our product candidates and begin to commercialize them if they are approved by the U.S. Food and Drug Administration (the "FDA") the European Medicines Agency (the "EMA") or comparable foreign authorities. Even if we succeed in developing and commercializing one or more product candidates, we may never become profitable.
We are dependent on the success of one or more of our current product candidates and we cannot be certain that any of them will receive regulatory approval or be commercialized.
We have spent significant time, money and effort on the licensing and development of our core assets, SLS-002, SLS-005 and SLS-006 and our other earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS-012. To date, no pivotal clinical trials designed to provide clinically and statistically significant proof of efficacy, or to provide sufficient evidence of safety to justify approval, have been completed with any of our pipeline product candidates. All of our product candidates will require additional development, including clinical trials as well as further preclinical studies to evaluate their toxicology, carcinogenicity and pharmacokinetics and optimize their formulation, and regulatory clearances before they can be commercialized. Positive results obtained during early development do not necessarily mean later development will succeed or that regulatory clearances will be obtained. Our drug development efforts may not lead to commercial drugs, either because our product candidates may fail to be safe and effective or because we have inadequate financial or other resources to advance our product candidates through the clinical development and approval processes. If any of our product candidates fail to demonstrate safety or efficacy at any time or during any phase of development, we would experience potentially significant delays in, or be required to abandon, development of the product candidate.
We do not anticipate that any of our current product candidates will be eligible to receive regulatory approval from the FDA, the EMA or comparable foreign authorities and begin commercialization for a number of years, if ever. Even if we ultimately receive regulatory approval for any of these product candidates, we or our potential future partners, if any, may be unable to commercialize them successfully for a variety of reasons. These include, for example, the availability of alternative treatments, lack of cost-effectiveness, the cost of manufacturing the product on a commercial scale and competition with other drugs. The success of our product candidates may also be limited by the prevalence and severity of any adverse side effects. If we fail to commercialize one or more of our current product candidates, we may be unable to generate sufficient revenues to attain or maintain profitability, and our financial condition and stock price may decline.
If development of our product candidates does not produce favorable results, we and our collaborators, if any, may be unable to commercialize these products.
To receive regulatory approval for the commercialization of our core assets, SLS-002, SLS-005 and SLS-006 and our earlier-stage assets, SLS-004, SLS-007, SLS-008, SLS-010 and SLS-012, or any other product candidates that we may develop, adequate and well-controlled clinical trials must be conducted to demonstrate safety and efficacy in humans to the satisfaction of the FDA, the EMA and comparable foreign authorities. In order to support marketing approval, these agencies typically require successful results in one or more Phase III clinical trials, which our current product candidates have not yet reached and may never reach. The development process is expensive, can take many years and has an uncertain outcome. Failure can occur at any stage of the process. We may experience numerous unforeseen events during, or as a result of, the development process that could delay or prevent commercialization of our current or future product candidates, including the following:
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Success in early development does not mean that later development will be successful because, for example, product candidates in later-stage clinical trials may fail to demonstrate sufficient safety and efficacy despite having progressed through initial clinical trials.
We have licensed or acquired all of the intellectual property related to our product candidates from third parties. All clinical trials, preclinical studies and other analyses performed to date with respect to our product candidates have been conducted by their original owners. Therefore, as a company, we have limited experience in conducting clinical trials for our product candidates. Since our experience with our product candidates is limited, we will need to train our existing personnel and hire additional personnel in order to successfully administer and manage our clinical trials and other studies as planned, which may result in delays in completing such planned clinical trials and preclinical studies. Moreover, to date our product candidates have been tested in less than the number of patients that will likely need to be studied to obtain regulatory approval. The data collected from clinical trials with larger patient populations may not demonstrate sufficient safety and efficacy to support regulatory approval of these product candidates.
We currently do not have strategic collaborations in place for clinical development of any of our current product candidates, except for our collaborative agreement with Team Sanfilippo Foundation ("TSF"), which we assumed in connection with the asset purchase agreement with Bioblast Pharma Ltd. for IV Trehalose, which is now known as SLS-005. Therefore, in the future, we or any potential future collaborative partner will be responsible for establishing the targeted endpoints and goals for development of our product candidates. These targeted endpoints and goals may be inadequate to demonstrate the safety and efficacy levels required for regulatory approvals. Even if we believe data collected during the development of our product candidates are promising, such data may not be sufficient to support marketing approval by the FDA, the EMA or comparable foreign authorities. Further, data generated during development can be interpreted in different ways, and the FDA, the EMA or comparable foreign authorities may interpret such data in different ways than us or our collaborators. Our failure to adequately demonstrate the safety and efficacy of our product candidates would prevent our receipt of regulatory approval, and ultimately the potential commercialization of these product candidates.
Since we do not currently possess the resources necessary to independently develop and commercialize our product candidates or any other product candidates that we may develop, we may seek to enter into collaborative agreements to assist in the development and potential future commercialization of some or all of these assets as a component of our strategic plan. However, our discussions with potential collaborators may not lead to the establishment of collaborations on acceptable terms, if at all, or it may take longer than expected to establish new collaborations, leading to development and potential commercialization delays, which would adversely affect our business, financial condition and results of operations.
We expect to continue to incur significant research and development expenses, which may make it difficult for us to attain profitability.
We expect to expend substantial funds in research and development, including preclinical studies and clinical trials of our product candidates, and to manufacture and market any product candidates in the event they are approved for commercial sale. We also may need additional funding to develop or acquire complementary companies, technologies and assets, as well as for working capital requirements and other operating and general corporate purposes. Moreover, our planned increases in staffing will dramatically increase our costs in the near and long-term.
However, our spending on current and future research and development programs and product candidates for specific indications may not yield any commercially viable products. Due to our limited financial and managerial resources, we must focus on a limited number of research programs and product candidates and on specific indications. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities.
Because the successful development of our product candidates is uncertain, we are unable to precisely estimate the actual funds we will require to develop and potentially commercialize them. In addition, we may not be successful in obtaining FDA approval for our recently resubmitted NDA for U.S. Vitaros. *
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*Given our lack of current cash flow, we will need to raise additional capital; however, it may be unavailable to us or, even if capital to fund our operations. In addition, our future growth will dependis obtained, may cause dilution or place significant restrictions on our ability to successfully implementoperate our strategy to focus solely on Vitaros in the United States, as well as RayVa.business. If we arefail to raise the necessary additional capital, we may be unable to successfully execute on this business strategy,complete the development and commercialization of our business, financial condition, results of operations and prospects wouldproduct candidates, or continue our development programs.
Since we will be materially and adversely affected.
As of September 30, 2017,2020, we had a cash and cash equivalentsbalance of approximately $8.5$8.1 million. In September 2017, we entered into the September 2017 SPA for net proceeds of approximately $3.1 million. In April 2017,On February 13, 2020, we completed aan underwritten public offering and raised net proceeds of approximately $5.9 million. In March 2017, we entered into the Ferring Asset Purchase Agreement with Ferring, pursuant to which we sold 6,666,667 shares of our common stock at a price to Ferringthe public of $0.75 per share. On February 19, 2020, we sold an additional 999,999 shares of our assets and rights relatedcommon stock at a price to Vitaros outsidethe public of $0.75 per share pursuant to the full exercise of the United States forunderwriters' option to purchase additional shares to cover over-allotments. The net proceeds to us from the offering were $4.8 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. On March 16, 2020, we completed an additional underwritten public offering pursuant to which we sold 7,500,000 shares of our common stock at a price to the public of $0.60 per share. The net proceeds to us from the offering were $4.0 million, after deducting underwriting discounts and commissions and other offering expenses payable by us. On September 4, 2020, we completed a registered direct offering and concurrent private placement pursuant to which we sold 8,865,000 shares of our common stock and warrants to purchase up to approximately $12.7 million. In addition6,648,750 shares of our common stock at a combined price of $0.79 per share. The net proceeds to us from the upfront payment of $11.5offering were $6.4 million, Ferring paid us approximately $0.7 million forafter deducting the delivery of certain product-related inventory. We were also eligible to receive two additional quarterly payments totaling $0.50 million related to transition services, which we received in July 2017placement agent's fees and September 2017. other offering expenses payable by us.
As part of the Ferring Asset Purchase Agreement, we have agreed to indemnify Ferring against losses suffered as a result of our breach of representations and warranties andrecurring losses from operations, there is uncertainty regarding our other obligations underability to maintain liquidity sufficient to operate our asset purchase agreement, and thereforebusiness effectively, which raises substantial doubt about our ability to continue as a going concern. If we are unsuccessful in our efforts to raise outside financing, we may be liablerequired to significantly reduce or cease operations. The report of our independent registered public accounting firm on our audited financial statements for the year ended December 31, 2019 included a portion of the consideration we received"going concern" explanatory paragraph indicating that our recurring losses from Ferring.
We currently have filed aan effective shelf registration statement on Form S-3 filed with the Securities and Exchange Commission (“SEC”), which if declared effective bySEC. We may use the SEC, will allow usshelf registration statement on Form S-3 to offer from time to time any combination of debt securities, common and preferred stock and warrants. We registered $100.0 million in aggregate securities which will be available for sale under our Form S-3 shelf registration statement if and when its declared effective by the SEC. However, underUnder current SEC regulations, at any time during whichin the event that the aggregate market value of our common stock held by non-affiliates (“("public float”float") is less than $75.0 million, the amount we can raise through primary public offerings of securities, including sales under an Equity Distribution Agreement with Piper Jaffray & Co. (the "Equity Distribution Agreement") (if we determine to un-suspend the continuous offering thereunder), in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float. SEC regulations permit us to use the highest closing sales price of our common stock (or the average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement. SinceAs of September 30, 2020, our public float was approximately $56.6 million based on 53.3 million shares of our common stock outstanding at a price of $1.13 per share, which was the closing sale price of our common stock on August 5, 2020. Our public float was less than $75.0 million as of the dateSeptember 30, 2020, therefore we filed the Form S-3 registration statement, our usageare limited to an aggregate of one-third of our Form S-3 will be limited if and when declared effective bypublic float in the SEC. Weamount we could raise through primary public offerings of securities in any twelve-month period using shelf registration statements. Although we would still maintain the ability to raise funds through other means, such as through additional publicthe filing of a registration statement on Form S-1 or in private placements. Theplacements, the rules and regulations of the SECSecurities and Exchange Commission (the "SEC") or any other regulatory agencies may restrict our ability to conduct certain types of financing activities, or may affect the timing of and amounts we can raise by undertaking such activities.
In addition, the Ferring Asset Purchase Agreement, we will no longer generate those revenues. Given our current lack of profitability and limited capital resources, we may not be able to fully execute allimpact of the elements ofCOVID-19 pandemic on the global financial markets may reduce our strategic plan, including commercializing Vitaros in the United States if approved, and progressing our development program for RayVa. If we are unable to accomplish these objectives, our business prospects will be diminished, we will likely be unable to achieve profitability, and we may be unable to continue as a going concern.
There can be no assurance can be given at this time as to whetherthat we will be able to achieve these objectives. Our financial statements do not include any adjustment relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.
Our future capital requirements will depend on many factors, including, but not be available to us, to conduct additional trials in supportlimited to:
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If we raise additional capital by issuing equity securities, the percentage ownership of our existing stockholders may be unablereduced, and accordingly these stockholders may experience substantial dilution. We may also issue equity securities that provide for rights, preferences and privileges senior to devote the resources necessary to realize the full commercial potentialthose of our products.
*As a result of our internal controls over financial reporting. Among other things,failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we must perform systems and processes evaluation testing. This includes an assessment of our internal controlswere previously ineligible to allow managementfile new short form registration statements on Form S-3. If we become ineligible to reportfile a new short form registration statement on and our independent public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In connection with our compliance efforts, we have incurred and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. Further, in connection with our management’s assessment of the effectiveness of our internal control over financial
Form S-3 permits eligible issuers to conduct registered offerings using a short form registration statement that allows the issuer to incorporate by reference its past and future filings and reports made under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition, Form S-3 enables eligible issuers to conduct primary offerings "off the shelf" under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"). The shelf registration process, combined with the ability to forward incorporate information, allows issuers to avoid delays and interruptions in the offering process and to access the capital markets in a more expeditions and efficient manner than raising capital in a standard registered offering pursuant to a Registration Statement on Form S-1. The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility.
The significant changes to the results of operations and presentation of financial statements required to account for the Merger in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, and the significant turnover in key personnel in connection with the Merger combined to cause a delay in the completion of our financial statements as of, and for the period ended, March 31, 2019. In particular, because the warrants issued in the Merger were subsequently amended on multiple occasions in the first quarter, and a number of warrants were exercised during the quarter, we were required to remeasure the value of the warrants at multiple points during the quarter. This, in turn, resulted in a non-cash modification of the fair value of the warrants during the quarter. Accordingly, we were unable to complete the compilation, analysis and review of information required to be included in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 until May 21, 2019, one day after the deadline for such filing.
As a result of our failure to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2019, we were previously ineligible to file new short form registration statements on Form S-3 and were no longer permitted to use our existing registration statements on Form S-3 as of March 17, 2020, the filing date of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. As a consequence, we were not permitted to sell all of the amount of common stock we could otherwise sell, subject to the limits of General Instruction I.B.6 of Form S-3, under the Equity Distribution Agreement (if we had determined to un-suspend the continuous offering thereunder).
On June 1, 2020, we regained the ability to file new short form registration statements on Form S-3 and to use our existing registration statement on Form S-3. However, if we become ineligible to file a new short form registration statement on Form S-3 or to use our existing registration statement on Form S-3, our ability to raise necessary capital to run our operations and progress our product development programs may be impaired. If we seek to access the capital markets through a registered offering during the period of time that we are unable to use Form S-3, we may be required to publicly disclose the proposed offering and the material terms thereof before the offering commences, we may experience delays in the offering process due to SEC review of a Form S-1 registration statement and we may incur increased offering and transaction costs and other considerations. Disclosing a public offering prior to the formal commencement of an offering may result in downward pressure
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on our stock price. If we are unable to raise capital through a registered offering, we would be required to conduct our equity financing transactions on a private placement basis, which may be subject to pricing, size and other limitations imposed under the rules of The Nasdaq Stock Market LLC, or seek other sources of capital.
Our product candidates may cause undesirable side effects that could delay or preclude us and our licensees from marketing our product candidatesprevent their regulatory approval or limit the commercial use of our product candidates, which could adversely affectcommercialization or have other significant adverse implications on our business, financial condition and results of operations.
Undesirable side effects observed in clinical trials or in supportive preclinical studies with our product candidates may also be soldcould interrupt, delay or halt their development and marketed outsidecould result in the United States, we and/denial of regulatory approval by the FDA, the EMA or our licensees may be subject tocomparable foreign regulatory requirements governingauthorities for any or all targeted indications or adversely affect the conductmarketability of clinical trials, product licensing, pricing and reimbursements. These requirements vary widely from country to country. The failure to meet each foreign country’s requirements could delay the introduction of our proposedany such product candidates that receive regulatory approval. In turn, this could eliminate or limit our ability to commercialize our product candidates.
Our product candidates may exhibit adverse effects in preclinical toxicology studies and adverse interactions with other drugs. There are also risks associated with additional requirements the FDA, the EMA or comparable foreign authorities may impose for marketing approval with regard to a particular disease.
Our product candidates may require a risk management program that could include patient and healthcare provider education, usage guidelines, appropriate promotional activities, a post- marketing observational study, and ongoing safety and reporting mechanisms, among other requirements. Prescribing could be limited to physician specialists or physicians trained in the respective foreign country and limit our revenues from salesuse of our proposed product candidates in foreign markets.
Undesirable side effects involving our product candidates may have other significant adverse implications on our abilitybusiness, financial condition and results of operations. For example:
In addition, if approved.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product and could substantially increase the costs and expenses of commercializing the product, which in part onturn could delay or prevent us from generating significant revenues from the availabilitysale of coveragethe product.
Our efforts to discover product candidates beyond our current product candidates may not succeed, and reimbursement from third-party payors such as United Statesany product candidates we recommend for clinical development may not actually begin clinical trials.
We intend to use our technology, including our licensed technology, knowledge and foreign government insurance programs, including Medicareexpertise to develop novel drugs to address some of the world's most widespread and Medicaid, private health insurers, health maintenance organizationscostly central nervous system, respiratory and other health care related organizations. Bothdisorders, including orphan indications. We intend to expand our existing pipeline of core assets by advancing drug compounds from current ongoing discovery programs into clinical development. However, the federalprocess of researching and state governments indiscovering drug compounds is expensive, time-consuming and unpredictable. Data from our current preclinical programs may not support the United Statesclinical development of our lead compounds or other compounds from these programs, and foreign governments continuewe may not identify any additional drug
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compounds suitable for recommendation for clinical development. Moreover, any drug compounds we recommend for clinical development may not demonstrate, through preclinical studies, indications of safety and potential efficacy that would support advancement into clinical trials. Such findings would potentially impede our ability to proposemaintain or expand our clinical development pipeline. Our ability to identify new drug compounds and pass new legislation affecting coverageadvance them into clinical development also depends upon our ability to fund our research and reimbursement policies, which are designed to contain or reduce the cost of health care. Further federal and state proposals and healthcare reforms are likely that could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunity. There may be future changes that result in reductions in current coverage and reimbursement levels for our productsdevelopment operations, and we cannot predict the scope of any future changes or the impactbe certain that those changes would have on our operations.
Delays in the commencement or completion of clinical trials are commoncould result in increased costs to us and have many causes, and if we experience significant delaysdelay our ability to establish strategic collaborations.
Delays in the clinical development and regulatory approvalcommencement or completion of our product candidates, our business may be substantially harmed.
In addition, once a clinical trial or return for post-treatment follow-up;
If we experience termination of, or delays in the completion, or termination, of any clinical trial of our product candidates, the commercial prospects forof our product candidates will be harmed, and our ability to commence product sales and generate product revenues from any of our product candidates will be delayed. In addition, any delays in completing our clinical trials will increase our costs and slow down our product candidate development and approval process and jeopardizeprocess. Delays in completing our abilityclinical trials could also allow our competitors to commence product sales and generate revenues fromobtain marketing approval before we do or shorten the patent protection period during which we may have the exclusive right to commercialize our
* A pandemic, epidemic or outbreak of an infectious disease, such as COVID-19, may materially and adversely affect our business and operations.
On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic is affecting the United States and global economies and may affect our operations and those of third parties on which we rely, including by causing disruptions in the supply of our product candidates and the conduct of future clinical trials. In addition, the COVID-19 pandemic may affect the operations of the FDA and other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. Additionally, while the potential economic impact brought by, and the duration of the COVID-19 pandemic is difficult to assess or predict, the impact of the COVID-19 pandemic on the global financial markets may reduce our ability to access capital, which could negatively impact our short-term and long-term liquidity. In addition, the loss of any of our employees as a result of COVID-19 or another pandemic, may have a material adverse effect on our operations. The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, financing or clinical trial activities or on healthcare systems or the global economy as a whole. However, these effects could have a material impact on our liquidity, capital resources, operations and business and those of the third parties on which we rely.
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Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. Product candidates in later stages of clinical trials may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, our future clinical trial results may not be successful for these or other reasons.
This product candidate development risk is heightened by any changes in the planned clinical trials compared to the completed clinical trials. As product candidates are unabledeveloped through preclinical to obtain regulatoryearly to late stage clinical trials towards approval and commercialization, it is customary that various aspects of the development program, such as manufacturing and methods of administration, are altered along the way in an effort to optimize processes and results. While these types of changes are common and are intended to optimize the product candidates for late stage clinical trials, approval and commercialization, such changes carry the risk that they will not achieve these intended objectives.
Any of these changes could make the results of our planned clinical trials or other future clinical trials we may initiate less predictable and could cause our product candidates to perform differently, including causing toxicities, which could delay completion of our clinical trials, delay approval of our product candidates, and/or jeopardize our ability to commence product sales and generate revenues.
* If we willexperience delays in the enrollment of patients in our clinical trials, our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities. In addition, the COVID-19 pandemic may result in a reduction of patient enrollment, a loss of patient enrollment and other delays affecting our clinical trials. Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors, including the size and nature of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, competing clinical trials and clinicians' and patients' perceptions as to the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for the indications we are investigating.
If we fail to enroll and maintain the number of patients for which the clinical trial was designed, the statistical power of that clinical trial may be reduced, which would make it harder to demonstrate that the product candidate being tested in such clinical trial is safe and effective. Additionally, enrollment delays in our clinical trials may result in increased development costs for our product candidates, which would cause the value of our company to decline and limit our ability to obtain additional financing. Our inability to enroll a sufficient number of patients for any of our current or future clinical trials would result in significant delays or may require us to abandon one or more clinical trials altogether.
We intend to rely on third parties to conduct our preclinical studies and clinical trials and perform other tasks. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business, willfinancial condition and results of operations could be adversely impacted.
We intend to rely upon third-party CROs, medical institutions, clinical investigators and contract laboratories to monitor and manage data for our ongoing preclinical and clinical programs. Nevertheless, we maintain responsibility for ensuring that each of our clinical trials and preclinical studies is conducted in accordance with the applicable protocol, legal, regulatory, and scientific standards and our reliance on these third parties does not relieve us of our regulatory responsibilities. We and our CROs and other vendors are required to comply with current requirements on good manufacturing practices ("cGMP") good clinical practices ("GCP") and good laboratory practice ("GLP"), which are a collection of laws and regulations enforced by the FDA, the EMA and comparable foreign authorities for all of our product candidates in clinical development. Regulatory authorities enforce these regulations through periodic inspections of preclinical study and clinical trial sponsors, principal investigators, preclinical study and clinical trial sites, and other contractors. If we failor any of our CROs or vendors fails to comply with applicable regulations, the data generated in our preclinical studies and clinical trials may be deemed unreliable and the FDA, the EMA or comparable foreign authorities may require us to perform additional preclinical studies and clinical trials before approving our marketing applications. We cannot assure you that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with GCP regulations. In addition, our clinical trials must be conducted with products produced consistent with cGMP regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the development and regulatory approval processes.
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We may not be able to enter into arrangements with CROs on commercially reasonable terms, or at all. In addition, our CROs will not be our employees, and except for remedies available to us under our agreements with such CROs, we will not be able to control whether or not they devote sufficient time and resources to our ongoing preclinical and clinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our protocols, regulatory requirements, or for other reasons, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for or successfully commercialize our product candidates. CROs may also generate higher costs than anticipated. As a result, our business, financial condition and results of operations and the commercial prospects for our product candidates could be materially and adversely affected, our costs could increase, and our ability to generate revenue could be delayed.
Switching or adding additional CROs, medical institutions, clinical investigators or contract laboratories involves additional cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work replacing a previous CRO. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. There can be no assurance that we will not encounter similar challenges or delays in the future or that these delays or challenges will not have a material adverse effect on our business, financial condition or results of operations.
Our product candidates are subject to extensive regulation under the FDA, the EMA or comparable foreign authorities, which can be costly and time consuming, cause unanticipated delays or prevent the receipt of the required approvals to commercialize our product candidates.
The clinical development, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution of our product candidates are subject to extensive regulation by the FDA and other U.S. regulatory agencies, the EMA or comparable authorities in foreign markets. In the U.S., neither we nor our collaborators are permitted to market our product candidates until we will be unable to sellor our product candidates, which will impair our ability to generate additional revenues. Tocollaborators receive approval we must, among other things, demonstrate with substantial evidenceof a new drug application ("NDA") from clinical trials, to the satisfaction of the FDA that the product candidateor receive similar approvals abroad. The process of obtaining these approvals is both safeexpensive, often takes many years, and effective for each indication for which approval is sought. Failure can occur in any stage of development. Satisfaction of the approval requirements is unpredictable but typically takes several years following the commencement of clinical trials, and the time and money needed to satisfy them may vary substantially based onupon the type, complexity and novelty of the pharmaceutical product. We cannot predictproduct candidates involved. Approval policies or regulations may change and may be influenced by the results of other similar or competitive products, making it more difficult for us to achieve such approval in a timely manner or at all. Any guidance that may result from recent FDA advisory panel discussions may make it more expensive to develop and commercialize such product candidates. In addition, as a company, we have not previously filed NDAs with the FDA or filed similar applications with other foreign regulatory agencies. This lack of experience may impede our ability to obtain FDA or other foreign regulatory agency approval in a timely manner, if or when our existing and planned clinical trials will generate the data necessary to support an NDA and if, or when, we might receive regulatory approvalsat all, for our product candidates. For example, an NDA was previously submittedcandidates for Vitaros, butwhich development and commercialization is our responsibility.
Despite the time and expense invested, regulatory approval is never guaranteed. The FDA, the EMA or comparable foreign authorities can delay, limit or deny approval of a product candidate for many reasons, including:
Even if our product candidates could fail to receive regulatory approval for many reasons, includingin the following:
In order to market any products outside of the proposed indications;
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Even if any of our product candidates will receive regulatory approval.
If the FDA does not conclude that certainany of our product candidates satisfy the requirements for the Section 505(b)(2)receive regulatory approval, pathway, or if the requirements for such product candidates under Section 505(b)(2) are not as we expect, the approval pathway for those product candidates will likely take significantly longer, cost significantly more and entail significantly greater complications and risks than anticipated, and in either case may not be successful.
The FDA, the EMA and comparable foreign authorities actively enforce the laws and regulations prohibiting the promotion of license approvals;
The FDA, the EMA and comparable foreign authorities strictly regulate the promotional claims that may be made about prescription products, such as our product seizurecandidates, if approved. In particular, a product may not be promoted for uses that are not approved by the FDA, the EMA or detention,comparable foreign authorities as reflected in the product's approved labeling. If we receive marketing approval for our product candidates for our proposed indications, physicians may nevertheless use our products for their patients in a manner that is inconsistent with the approved label, if the physicians personally believe in their professional medical judgment that our products could be used in such manner. However, if we are found to have promoted our products for any off-label uses, the federal government could levy civil, criminal or refusal to permitadministrative penalties, and seek fines against us. Such enforcement has become more common in the importindustry. The FDA, the EMA or exportcomparable foreign authorities could also request that we enter into a consent decree or a corporate integrity agreement, or seek a permanent injunction against us under which specified promotional conduct is monitored, changed or curtailed. If we cannot successfully manage the promotion of our product candidates;candidates, if approved, we could become subject to significant liability, which would materially adversely affect our business, financial condition and
If our competitors have product candidates that are approved faster, marketed more effectively, are better tolerated, have a more favorable safety profile or are demonstrated to be more effective than ours, our commercial opportunity may be reduced or eliminated.
The biopharmaceutical industry is characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, knowledge, experience and scientific resources provide us with competitive advantages, we face potential competition from many different sources, including commercial biopharmaceutical enterprises, academic institutions, government agencies and private and public research institutions. Any product candidates that we successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future.
Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical studies, clinical trials, regulatory approvals and marketing approved products than we do. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. Our competitors may succeed in developing technologies and therapies that are more effective, better tolerated or less costly than any which we are developing, or that would render our product candidates obsolete and noncompetitive. Even if we obtain regulatory approval for any of our product candidates, our competitors may succeed in obtaining regulatory approvals for their products earlier than we do. We will also face competition from these third parties in recruiting and retaining qualified scientific and management personnel, in establishing clinical trial sites and patient registration for clinical trials, and in acquiring and in-licensing technologies and products complementary to our programs or advantageous to our business.
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The key competitive factors affecting the success of each of our product candidates, if approved, are likely to be its efficacy, safety, tolerability, frequency and route of administration, convenience and price, the level of branded and generic competition and the availability of coverage and reimbursement from government and other third-party payors.
The pharmaceutical market for the treatment of major depressive disorder includes selective serotonin reuptake inhibitors ("SSRIs"), serotonin and norepinephrine reuptake inhibitors ("SNRIs") and atypical antipsychotics. A number of these marketed antidepressants will be generic and would be key competitors to SLS-002. These products include Forest Laboratory's Lexapro/Cipralex (escitalopram) and Viibryd (vilazodone), Pfizer, Inc.'s Zoloft (sertraline), Effexor (venlafaxine) and Pristiq (desvenlafaxine), GlaxoSmithKline plc's Paxil/Seroxat (paroxetine), Eli Lilly and Company's Prozac (fluoxetine) and Cymbalta (duloxetine), AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), among others.
Patients with treatment-resistant depression often require treatment with several antidepressants, such as an SSRI or SNRI, combined with an "adjunct" therapy such as an antipsychotic compound, such as AstraZeneca plc's Seroquel (quetiapine) and Bristol-Myers Squibb Company's Abilify (aripiprazole), or mood stabilizers, such as Janssen Pharmaceutica's Topamax (topiramate). In addition, Janssen's Spravato (intranasal esketamine), which has been approved for treatment-resistant depression and for depressive systems in adults with major depressive disorder with suicidal thoughts or actions, targets the NMDA receptor and is expected to have a faster onset of therapeutic effect as compared to currently available therapies.
Current treatments for Parkinson's Disease ("PD") are intended to improve the symptoms of patients. The cornerstone of PD therapy is levodopa, as it is the most effective therapy for reducing symptoms of PD. There are other drug therapies in development that will target the disease, such as gene and stem cell therapy and A2A receptor agonists.
We, or any future collaborators, may not be able to obtain orphan drug designation or orphan drug exclusivity for our product candidates.
Regulatory authorities in some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals annually in the United States. In the United States and Europe, obtaining orphan drug approval may allow us to obtain financial incentives, such as an extended period of exclusivity during which only we are allowed to market the orphan drug. While we plan to seek orphan drug designation from the FDA for SLS-005 for Sanfilippo syndrome and SLS-008 for the treatment of a pediatric indication, we, or any future collaborators, may not be granted orphan drug designations for our product candidates in the U.S. or in other jurisdictions.
Even if we, or any future collaborators, obtain orphan drug designation for a product candidate, we, or they, may not be able to obtain orphan drug exclusivity for that product candidate. Generally, a product with orphan drug designation only becomes entitled to orphan drug exclusivity if it receives the first marketing approval for the indication for which it has such designation, in which case the FDA or the impositionEMA will be precluded from approving another marketing application for the same drug for that indication for the applicable exclusivity period. The applicable exclusivity period is seven years in the United States and ten years in Europe. The European exclusivity period can be reduced to six years if a drug no longer meets the criteria for orphan drug designation or if the drug is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be lost if the FDA or the EMA determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of civilthe drug to meet the needs of patients with the rare disease or criminal penalties.
Even if we, or any future collaborators, obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because FDA has taken the position that, under certain circumstances, another drug with the same active chemical and pharmacological characteristics, or moiety, can be approved for the same condition. Specifically, the FDA's regulations provide that it can approve another drug with the same active moiety for the same condition if the FDA concludes that the later drug is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care.
* We are subject to a multitude of manufacturing risks, any of which could substantially increase our costs and limit supply of our product candidates.
The FDA’sprocess of manufacturing our product candidates is complex, highly regulated, and subject to several risks. For example, the process of manufacturing our product candidates is extremely susceptible to product loss due to contamination, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes for any of our product candidates could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our product candidates or in the manufacturing facilities in which our product candidates are made, such manufacturing facilities may need to be closed for an extended period of time to investigate and remedy the contamination. In addition, the manufacturing facilities in which our product candidates are
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made could be adversely affected by equipment failures, labor shortages, natural disasters, public health crises, pandemics and epidemics, such as the recent coronavirus disease 2019 (COVID-19), power failures and numerous other factors.
In addition, any adverse developments affecting manufacturing operations for our product candidates may result in shipment delays, inventory shortages, lot failures, withdrawals or recalls or other interruptions in the supply of our product candidates. We also may need to take inventory write-offs and incur other charges and expenses for product candidates that fail to meet specifications, undertake costly remediation efforts or seek costlier manufacturing alternatives.
We rely completely on third parties to manufacture our preclinical and clinical drug supplies, and our business, financial condition and results of operations could be harmed if those third parties fail to provide us with sufficient quantities of drug product, or fail to do so at acceptable quality levels or prices.
We do not currently have, nor do we plan to acquire, the infrastructure or capability internally to manufacture our preclinical and clinical drug supplies for use in our clinical trials, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale. We rely on our manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our clinical trials. There are a limited number of suppliers for raw materials that we use to manufacture our product candidates, and there may be a need to identify alternate suppliers to prevent a possible disruption of the manufacture of the materials necessary to produce our product candidates for our clinical trials, and, if approved, ultimately for commercial sale. We do not have any control over the process or timing of the acquisition of these raw materials by our manufacturers. Although we generally do not begin a clinical trial unless we believe we have a sufficient supply of a product candidate to complete such clinical trial, any significant delay or discontinuity in the supply of a product candidate, or the raw material components thereof, for an ongoing clinical trial due to the need to replace a third-party manufacturer could considerably delay completion of our clinical trials, product testing and potential regulatory authorities’approval of our product candidates, which could harm our business, financial condition and results of operations.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our product candidates. The manufacturing facilities on which we rely may not continue to meet regulatory requirements.
All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our contract manufacturers for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with cGMP. These regulations govern manufacturing processes and procedures and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of contaminants or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of an NDA or marketing authorization application ("MAA") on a timely basis and must adhere to GLP and cGMP regulations enforced by the FDA, the EMA or comparable foreign authorities through their facilities inspection program. Some of our contract manufacturers may not have produced a commercially approved pharmaceutical product and therefore may not have obtained the requisite regulatory authority approvals to do so. The facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the preparation of our product candidates or any of our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. Although we plan to oversee the contract manufacturers, we cannot control the manufacturing process of, and are completely dependent on, our contract manufacturing partners for compliance with the regulatory requirements. If these facilities do not pass a pre-approval plant inspection, regulatory approval of the products may not be granted or may be substantially delayed until any violations are corrected to the satisfaction of the regulatory authority, if ever.
The regulatory authorities also may, at any time following approval of a product for sale, audit the manufacturing facilities of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly or time consuming for us or a third party to implement, and that may include the temporary or permanent suspension of a clinical trial or commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract could materially harm our business, financial condition and results of operations.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA, the EMA or comparable foreign authorities can impose regulatory sanctions including, among other things, refusal to approve a pending application for a product candidate, withdrawal of an approval or suspension of production. As a result, our business, financial condition and results of operations may be materially and adversely affected.
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Additionally, if supply from one manufacturer is interrupted, an alternative manufacturer would need to be qualified through an NDA supplement or MAA variation, or equivalent foreign regulatory filing, which could result in further delay. The regulatory agencies may also require additional studies or trials if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause us to incur higher costs and could cause the delay or termination of clinical trials, regulatory submissions, required approvals, or commercialization of our product candidates. Furthermore, if our suppliers fail to meet contractual requirements and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Any collaboration arrangement that we may enter into in the future may not be successful, which could adversely affect our ability to develop and commercialize our current and potential future product candidates.
We may seek collaboration arrangements with biopharmaceutical companies for the development or commercialization of our current and potential future product candidates. To the extent that we decide to enter into collaboration agreements, we will face significant competition in seeking appropriate collaborators. Moreover, collaboration arrangements are complex and time consuming to negotiate, execute and implement. We may not be successful in our efforts to establish and implement collaborations or other alternative arrangements should we choose to enter into such arrangements, and the terms of the arrangements may not be favorable to us. If and when we collaborate with a third party for development and commercialization of a product candidate, we can expect to relinquish some or all of the control over the future success of that product candidate to the third party. The success of our collaboration arrangements will depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resources that they will apply to these collaborations.
Disagreements between parties to a collaboration arrangement can lead to delays in developing or commercializing the applicable product candidate and can be difficult to resolve in a mutually beneficial manner. In some cases, collaborations with biopharmaceutical companies and other third parties are terminated or allowed to expire by the other party. Any such termination or expiration would adversely affect our business, financial condition and results of operations.
If we are unable to develop our own commercial organization or enter into agreements with third parties to sell and market our product candidates, we may be unable to generate significant revenues.
We do not have a sales and marketing organization, and we have no experience as a company in the sales, marketing and distribution of pharmaceutical products. If any of our product candidates are approved for commercialization, we may be required to develop our sales, marketing and distribution capabilities, or make arrangements with a third party to perform sales and marketing services. Developing a sales force for any resulting product or any product resulting from any of our other product candidates is expensive and time consuming and could delay any product launch. We may be unable to establish and manage an effective sales force in a timely or cost-effective manner, if at all, and any sales force we do establish may not be capable of generating sufficient demand for our product candidates. To the extent that we enter into arrangements with collaborators or other third parties to perform sales and marketing services, our product revenues are likely to be lower than if we marketed and sold our product candidates independently. If we are unable to establish adequate sales and marketing capabilities, independently or with others, we may not be able to generate significant revenues and may not become profitable.
The commercial success of our product candidates depends upon their market acceptance among physicians, patients, healthcare payors and the medical community.
Even if our product candidates obtain regulatory approval, our products, if any, may not gain market acceptance among physicians, patients, healthcare payors and the medical community. The degree of market acceptance of any of our approved product candidates will depend on a number of factors, including:
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In addition, the potential market opportunity for our product candidates is difficult to precisely estimate. Our estimates of the potential market opportunity for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research reports and other surveys. Independent sources have not verified all of our assumptions. If any of these assumptions proves to be inaccurate, then the actual market for our product candidates could be smaller than our estimates of the potential market opportunity. If the actual market for our product candidates is smaller than we expect, our product revenue may be limited, it may be harder than expected to raise funds and it may be more difficult for us to achieve or maintain profitability. If we fail to achieve market acceptance of our product candidates in the U.S. and abroad, our revenue will be limited and it will be more difficult to achieve profitability.
If we fail to obtain and sustain an adequate level of reimbursement for our potential products by third-party payors, potential future sales would be materially adversely affected.
There will be no viable commercial market for our product candidates, if approved, without reimbursement from third-party payors. Reimbursement policies may changebe affected by future healthcare reform measures. We cannot be certain that reimbursement will be available for our current product candidates or any other product candidate we may develop. Additionally, even if there is a viable commercial market, if the level of reimbursement is below our expectations, our anticipated revenue and additionalgross margins will be adversely affected.
Third-party payors, such as government regulationsor private healthcare insurers, carefully review and increasingly question and challenge the coverage of and the prices charged for drugs. Reimbursement rates from private health insurance companies vary depending on the company, the insurance plan and other factors. Reimbursement rates may be enactedbased on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. There is a current trend in the U.S. healthcare industry toward cost containment.
Large public and private payors, managed care organizations, group purchasing organizations and similar organizations are exerting increasing influence on decisions regarding the use of, and reimbursement levels for, particular treatments. Such third-party payors, including Medicare, may question the coverage of, and challenge the prices charged for, medical products and services, and many third-party payors limit coverage of or reimbursement for newly approved healthcare products. In particular, third-party payors may limit the covered indications. Cost-control initiatives could decrease the price we might establish for products, which could result in product revenues being lower than anticipated. We believe our drugs will be priced significantly higher than existing generic drugs and consistent with current branded drugs. If we are unable to show a significant benefit relative to existing generic drugs, Medicare, Medicaid and private payors may not be willing to provide reimbursement for our drugs, which would significantly reduce the likelihood of our products gaining market acceptance.
We expect that private insurers will consider the efficacy, cost-effectiveness, safety and tolerability of our potential products in determining whether to approve reimbursement for such products and at what level. Obtaining these approvals can be a time consuming and expensive process. Our business, financial condition and results of operations would be materially adversely affected if we do not receive approval for reimbursement of our potential products from private insurers on a timely or satisfactory basis. Limitations on coverage could also be imposed at the local Medicare carrier level or by fiscal intermediaries. Medicare Part D, which provides a pharmacy benefit to Medicare patients as discussed below, does not require participating prescription drug plans to cover all drugs within a class of products. Our business, financial condition and results of operations could be materially adversely affected if Part D prescription drug plans were to limit access to, or deny or limit reimbursement of, our product candidates or other potential products.
Reimbursement systems in international markets vary significantly by country and by region, and reimbursement approvals must be obtained on a country-by-country basis. In many countries, the product cannot be commercially launched until reimbursement is approved. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. The negotiation process in some countries can exceed 12 months. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our products to other available therapies.
If the prices for our potential products are reduced or if governmental and other third-party payors do not provide adequate coverage and reimbursement of our drugs, our future revenue, cash flows and prospects for profitability will suffer.
Current and future legislation may increase the difficulty and cost of commercializing our product candidates and may affect the prices we may obtain if our product candidates are approved for commercialization.
In the U.S. and some foreign jurisdictions, there have been a number of adopted and proposed legislative and regulatory changes regarding the healthcare system that could prevent limit or delay regulatory approval of our product candidates.candidates, restrict or regulate post-marketing activities and affect our ability to profitably sell any of our product candidates for which we obtain regulatory approval.
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In the U.S., the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 ("MMA") changed the way Medicare covers and pays for pharmaceutical products. Cost reduction initiatives and other provisions of this legislation could limit the coverage and reimbursement rate that we receive for any of our approved products. While the MMA only applies to drug benefits for Medicare beneficiaries, private payors often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the MMA may result in a similar reduction in payments from private payors.
In March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (collectively the "PPACA"), was enacted. The PPACA was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The PPACA increased manufacturers' rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate amount for both branded and generic drugs and revised the definition of "average manufacturer price", which may also increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The legislation also expanded Medicaid drug rebates and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the rebates due on those drugs. The Centers for Medicare & Medicaid Services, which administers the Medicaid Drug Rebate Program, also has proposed to expand Medicaid rebates to the utilization that occurs in the territories of the U.S., such as Puerto Rico and the Virgin Islands. Further, beginning in 2011, the PPACA imposed a significant annual fee on companies that manufacture or import branded prescription drug products and required manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the "donut hole." Legislative and regulatory proposals have been introduced at both the state and federal level to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products.
There have been recent public announcements by members of the U.S. Congress, President Trump and his administration regarding their plans to repeal and replace the PPACA and Medicare. For example, on December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act of 2017, which, among other things, eliminated the individual mandate requiring most Americans (other than those who qualify for a hardship exemption) to carry a minimum level of health coverage, effective January 1, 2019. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes on the marketing approvals of our product candidates, if any, may be. In addition, increased scrutiny by the U.S. Congress of the FDA's approval process may significantly delay or prevent marketing approval, as well as subject us to more stringent product labeling and post-marketing approval testing and other requirements.
In Europe, the United Kingdom withdrew from the European Union on January 31, 2020. A significant portion of the regulatory framework in the United Kingdom is derived from the regulations of the European Union, and European Union pharmaceutical law remains applicable to the United Kingdom until December 31, 2020. We cannot predict what consequences the withdrawal of the United Kingdom from the European Union might have on the regulatory frameworks of the United Kingdom or the European Union, or on our future operations, if any, in these jurisdictions.
Changes in government funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other personnel, properly administer drug innovation, or prevent our product candidates from being developed or commercialized, which could negatively impact our business, financial condition and results of operations.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including budget and funding levels, ability to hire and retain key personnel, and statutory, regulatory and policy changes. Average review times at the agency have fluctuated in recent years as a result. In addition, government funding of other agencies that fund research and development activities is subject to the political process, which is inherently fluid and unpredictable.
In December 2016, the 21st21st Century Cures Act, or Cures Act was signed into law. The Cures Act, amongThis new legislation is designed to advance medical innovation and empower the FDA with the authority to directly hire positions related to drug and device development and review. However, government proposals to reduce or eliminate budgetary deficits may include reduced allocations to the FDA and other things,related government agencies. These budgetary pressures may result in a reduced ability by the FDA to perform their respective roles; including the related impact to academic institutions and research laboratories whose funding is intendedfully or partially dependent on both the level and timing of funding from government sources.
Disruptions at the FDA and other agencies may also slow the time necessary for our product candidates to modernize the regulation of drugs and spur innovation, but its ultimate implementation is unclear. If we are slowbe reviewed 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,approved by necessary government agencies, which wouldcould adversely affect our business, prospects, financial condition and results of operations.
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We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDA’s ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of guidance, and review and approval of marketing applications. Notably, on January 23, 2017, President Trump ordered a hiring freeze for all executive departments and agencies, including the FDA, which prohibits the FDA from filling employee vacancies or creating new positions. Under the terms of the order, the freeze will remain in effect until implementation of a plan to be recommended by the Director for the Office of Management and Budget, or OMB, in consultation with the Director of the Office of Personnel Management, to reduce the size of the federal workforce through attrition. An under-staffed FDA could result in delays in FDA’s responsiveness or in its ability to review submissions or applications, issue regulations or guidance, or implement or enforce regulatory requirements in a timely fashion or at all. Moreover, on January 30, 2017, President Trump issued an Executive Order, applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed, unless prohibited by law. These requirements are referred to as the “two-for-one” provisions. This Executive Order includes a budget neutrality provision that requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory Affairs within OMB on February 2, 2017, the administration indicates that the “two-for-one” provisions may apply not only to agency regulations, but also to significant agency guidance documents. In addition, on February 24, 2017, President Trump issued an executive order directing each affected agency to designate an agency official as a “Regulatory Reform Officer” and establish a “Regulatory Reform Task Force” to implement the two-for-one provisions and other previously issued executive orders relating to the review of federal regulations, however it is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDA’s ability to exercise its regulatory authority. If these executive actions impose constraints on FDA’s ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
In the U.S., we are subject to various federal and state healthcare regulatory"fraud and abuse" laws, which could expose usincluding anti-kickback laws, false claims laws and other laws intended, among other things, to penalties.
The federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui tam actions, against individuals or entities forprohibits anyone from, among other things, knowingly presenting or causing to be presented for payment to the government, including the federal government,healthcare programs, claims for paymentreimbursed drugs or services that are false or fraudulent, claims for items or making a false statement to avoid, decreaseservices that were not provided as claimed, or conceal an obligation to pay money toclaims for medically unnecessary items or services. Under the federal government;
Many states have adopted laws similar to the federal Anti-Kickback Statute, a person or entity does not need to have actual knowledgesome of the statute or specific intent to violate it to have committed a violation;
Neither the relevant compliancegovernment nor the courts have provided definitive guidance promulgated byon the federal government; stateapplication of fraud and abuse laws to our business. Law enforcement authorities are increasingly focused on enforcing these laws, and it is possible that require drug manufacturers to report information related to payments and other transferssome of value to physicians and other healthcare providers or marketing expenditures; and state and foreign laws governing the privacy and security of health information in some circumstances, many of which differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
If we face allegations of noncompliance with the law and encounter sanctions, our reputation, revenues and liquidity may suffer, and any of our product candidates that are ultimately approved for commercialization could be subject to restrictions or withdrawal from the market.
Any government investigation of alleged violations of law could require us to expend significant time and resources in Medicare, Medicaidresponse, and could generate negative publicity. Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to generate revenues from any of our product candidates that are ultimately approved for commercialization. If regulatory sanctions are applied or if regulatory approval is withdrawn, our business, financial condition and results of operations will be adversely affected. Additionally, if we are unable to generate revenues from product sales, our potential for achieving profitability will be diminished and our need to raise capital to fund our operations will increase.
*If we fail to retain current members of our senior management and scientific personnel, or to attract and keep additional key personnel, we may be unable to successfully develop or commercialize our product candidates.
Our success depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. As of November 6, 2020, we have 8 employees. Our organization will rely primarily on outsourcing research, development and clinical trial activities, and manufacturing operations, as well as other functions critical to our business. We believe this approach enhances our ability to focus on our core product opportunities, allocate resources efficiently to different projects and allocate internal resources more effectively. We have filled several key open positions and are currently recruiting for a few remaining positions. However, competition for qualified personnel is intense. We may not be successful in attracting qualified personnel to fulfill our current or future needs and there is no guarantee that any of these individuals will join us on a
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full-time employment basis, or at all. In the event we are unable to fill critical open employment positions, we may need to delay our operational activities and goals, including the development of our product candidates, and may have difficulty in meeting our obligations as a public company. We do not maintain "key person" insurance on any of our employees.
In addition, competitors and others are likely in the future to attempt to recruit our employees. The loss of the services of any of our key personnel, the inability to attract or retain highly qualified personnel in the future or delays in hiring such personnel, particularly senior management and other federal healthcare programs, contractual damages, reputational harm, diminished profitstechnical personnel, could materially and future earnings,adversely affect our business, financial condition and curtailmentresults of operations. In addition, the replacement of key personnel likely would involve significant time and costs, and may significantly delay or prevent the achievement of our business objectives.
From time to time, our management seeks the advice and guidance of certain scientific advisors and consultants regarding clinical and regulatory development programs and other customary matters. These scientific advisors and consultants are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. In addition, our scientific advisors may have arrangements with other companies to assist those companies in developing products or technologies that may compete with us.
We will need to increase the size of our organization and may not successfully manage our growth.
We are a clinical-stage biopharmaceutical company with a small number of planned employees, and our management system currently in place is not likely to be adequate to support our future growth plans. Our ability to grow and to manage our growth effectively will require us to hire, train, retain, manage and motivate additional employees and to implement and improve our operational, financial and management systems. These demands also may require the hiring of additional senior management personnel or the development of additional expertise by our senior management personnel. Hiring a significant number of additional employees, particularly those at the management level, would increase our expenses significantly. Moreover, if we fail to expand and enhance our operational, financial and management systems in conjunction with our potential future growth, it could have a material adverse effect on our business, financial condition and results of operations.
Our management's lack of public company experience could put us at greater risk of incurring fines or regulatory actions for failure to comply with federal securities laws and could put us at a competitive disadvantage, and could require our management to devote additional time and resources to ensure compliance with applicable corporate governance requirements.
Our executive officer does not have experience in managing and operating a public company, which could have an adverse effect on his ability to quickly respond to problems or adequately address issues and matters applicable to public companies. Any failure to comply with federal securities laws, rules or regulations could subject us to fines or regulatory actions, which may materially adversely affect our business, financial condition and results of operations. Further, since our executive officer does not have experience managing and operating a public company, we may need to dedicate additional time and resources to comply with legally mandated corporate governance policies relative to our competitors whose management teams have more public company experience.
We are exposed to product liability, non-clinical and clinical liability risks which could place a substantial financial burden upon us, should lawsuits be filed against us.
Our business exposes us to potential product liability and other liability risks that are inherent in the testing, manufacturing and marketing of pharmaceutical formulations and products. In addition, the use in our clinical trials of pharmaceutical products and the subsequent sale of these products by us or our potential collaborators may cause us to bear a portion of or all product liability risks. A successful liability claim or series of claims brought against us could have a material adverse effect on our business, financial condition and results of operations.
We currently carry product liability insurance for our clinical development activities. On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.
Our research and development activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.
Our research and development activities involve the controlled use of hazardous materials and chemicals, and we will need to develop additional safety procedures for the handling and disposing of hazardous materials. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be
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adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate any of whichthese laws or regulations.
We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could adversely affectharm our ability to operate our business effectively.
Despite the implementation of security measures, our internal computer systems and our resultsthose of operations. Defending against any such actions can be costly, time-consumingthird parties with which we contract are vulnerable to damage from cyber-attacks, computer viruses, unauthorized access, natural disasters, terrorism, war and may require significant financialtelecommunication and personnel resources. Therefore, even if we are successful in defending against any such actions that may be brought against us, our business may be impaired.
Our employees independent contractors, principal investigators, CROs,and consultants commercial partnersmay engage in misconduct or other improper activities, including noncompliance with regulatory standards and vendors are subject to a number of regulations and standards.
We are exposed to the risk that employees, independent contractors, principal investigators, CROs,of employee or consultant and vendors may engage in fraudulentfraud or other illegal activity for which we may be held responsible.misconduct. Misconduct by these partiesour employees or consultants could include intentional reckless and/or negligent conduct or disclosure of unauthorized activitiesfailures to us that violates: (1) the laws of thecomply with FDA and other similar foreign regulatory bodies; including those laws that require the reporting of true, complete andregulations, provide accurate information to the FDA, and other similar foreign regulatory bodies, (2)comply with manufacturing standards, (3)comply with federal and state healthcare fraud and abuse laws in the United States and similar foreign fraudulent misconduct laws, or (4) laws that require the true, complete and accurate reporting ofregulations, report financial information or data. These laws may impact, among other things, our currentdata accurately or disclose unauthorized activities with principal investigators and research subjects, as well as proposed and futureto us. In particular, sales, marketing and education programs. In particular, the promotion, sales and marketing of healthcare items and services, as well as certain business arrangements in the healthcare industry are subject to extensive laws designedand regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, structuring and commission(s), certainsales commissions, customer incentive programs and other business arrangements generally. Activities subject to these lawsarrangements. Employee and consultant misconduct also could involve the improper use of information obtained in the course of patient recruitment for clinical trials. Iftrials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter such misconduct, and the precautions we obtain FDA approval for any of our product candidatestake to detect and begin commercializing those productsprevent this activity may not be effective in the United States, our potential exposure under such laws will increase significantly, and our costs associated withcontrolling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws are also likely to increase.or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impactmaterial adverse effect on our business, includingfinancial condition and results of operations, and result in the imposition of civil, criminalsignificant fines or other sanctions against us.
Business disruptions such as natural disasters could seriously harm our future revenues and administrative penalties, damages, monetary fines, contractual damages, reputational harm, diminished profitsfinancial condition and future earnings,increase our costs and curtailmentexpenses.
We and our suppliers may experience a disruption in our and their business as a result of natural disasters. A significant natural disaster, such as an earthquake, hurricane, flood or fire, could severely damage or destroy our headquarters or facilities or the facilities of our operations, anymanufacturers or suppliers, which could have a material and adverse effect on our business, financial condition and results of operations. In addition, terrorist acts or acts of war targeted at the U.S., and specifically the greater New York, New York region, could cause damage or disruption to us, our employees, facilities, partners and suppliers, which could have a material adverse effect on our business, financial condition and results of operations.
We may engage in strategic transactions that could impact our liquidity, increase our expenses and present significant distractions to our management.
From time to time, we may consider strategic transactions, such as acquisitions of companies, asset purchases and out-licensing or in-licensing of products, product candidates or technologies. Additional potential transactions that we may consider include a variety of different business arrangements, including spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments. Any such transaction may require us to incur non-recurring or other charges, may increase our near- and long-term expenditures and may pose significant integration challenges or disrupt our management or business, which could adversely affect our business, financial condition and results of operations. For example, these transactions may entail numerous operational and financial risks, including:
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Accordingly, although there can be no assurance that we will undertake or successfully complete any transactions of the nature described above, any transactions that we do complete may be subject to the foregoing or other risks, and could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Intellectual Property
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
Because several of our programs require the use of proprietary rights held by third parties, the growth of our business will likely depend in part on our ability to maintain and exploit these proprietary rights. In addition, we may need to acquire or in-license additional intellectual property in the future. We may be unable to acquire or in-license any compositions, methods of use, processes or other intellectual property rights from third parties that we identify as necessary for our product candidates. We face competition with regard to acquiring and in-licensing third-party intellectual property rights, including from a number of more established companies. These established companies may have a competitive advantage over us due to their size, cash resources and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license intellectual property rights to us. We also may be unable to acquire or in-license third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
We may enter into collaboration agreements with U.S. and foreign academic institutions to accelerate development of our current or future preclinical product candidates. Typically, these agreements include an option for the company to negotiate a license to the institution's intellectual property rights resulting from the collaboration. Even with such an option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to license rights from a collaborating institution, the institution may offer the intellectual property rights to other parties, potentially blocking our ability to pursue our desired program.
If we are unable to successfully obtain required third-party intellectual property rights or maintain our existing intellectual property rights, we may need to abandon development of the related program and our business, financial condition and results of operations could be materially and adversely affected.
If we fail to comply with our obligations in the agreements under which we in-license intellectual property and other rights from third parties or otherwise experience disruptions to our business relationships with our licensors, we could lose intellectual property rights that are important to our business.
Our license agreement with Ligand Pharmaceuticals Incorporated, Neurogen Corporation and CyDex Pharmaceuticals, Inc. (the "Ligand License Agreement"), our license agreement with the Regents of the University of California (the "UC Regents License Agreement") and our license agreement with Duke University (the "Duke License Agreement", together with the Ligand License Agreement and the UC Regents License Agreement, the "License Agreements") are important to our business and we expect to enter into additional license agreements in the future. The License Agreements impose, and we expect that future license agreements will impose, various milestone payments, royalties and other obligations on us. If we fail to comply with our obligations under these agreements, or if we file for bankruptcy, we may be required to make certain payments to the licensor, we may lose the exclusivity of our license, or the licensor may have the right to terminate the license, in which event we would not be able to develop or market products covered by the license. Additionally, the milestone and other payments associated with these licenses could materially and adversely affect our business, financial condition and results of operations.
Pursuant to the terms of the Ligand License Agreement, the licensors each have the right to terminate the Ligand License Agreement with respect to the programs licensed by such licensor under certain circumstances, including, but not limited to: (i) if we do not pay an amount that is not disputed in good faith, (ii) if we willfully breach the Ligand License Agreement in a manner for which legal remedies would not be expected to make such licensor whole, or (iii) if we file or have filed against us a petition in bankruptcy or make an assignment for the benefit of creditors. In the event the Ligand License Agreement is terminated by a licensor, all licenses granted to us by such licensor will terminate immediately. Further, pursuant to the terms of the UC Regents License Agreement, the licensor has the right to terminate the UC Regents License Agreement or reduce our license to a nonexclusive license if we fail to achieve certain milestones within a specified timeframe. Similarly, pursuant to the terms of the Duke License Agreement, the licensor has the right to terminate the Duke License Agreement if we fail to achieve certain milestones within a specified timeframe.
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In some cases, patent prosecution of our licensed technology may be controlled solely by the licensor. If our licensor fails to obtain and maintain patent or other protection for the proprietary intellectual property we in-license, then we could lose our rights to the intellectual property or our exclusivity with respect to those rights, and our competitors could market competing products using the intellectual property. In certain cases, we may control the prosecution of patents resulting from licensed technology. In the event we breach any of our obligations related to such prosecution, we may incur significant liability to our licensing partners. Licensing of intellectual property is of critical importance to our business and involves complex legal, business and scientific issues. Disputes may arise regarding intellectual property subject to a licensing agreement, including, but not limited to:
If disputes over intellectual property and other rights that we have in-licensed prevents or impairs our ability to maintain our current licensing arrangements on acceptable terms, we may be unable to successfully develop and commercialize the affected product candidates. If we fail to comply with any such obligations to our licensor, such licensor may terminate their licenses to us, in which case we would not be able to market products covered by these licenses. The loss of our licenses would have a material adverse effect on our business.
*We are required to make certain cash payments and may be required to pay milestones and royalties pursuant to certain commercial agreements, which could adversely affect the overall profitability for us of any products that we may seek to commercialize.
Under the terms of the Ligand License Agreement, we may be obligated to pay the licensors under the License Agreement up to an aggregate of approximately $135 million in development, regulatory and sales milestones. We will also be required to pay royalties on future worldwide net product sales. In addition pursuant to the asset purchase agreement, as amended (the "Vyera APA"), with Phoenixus AG f/k/a Vyera Pharmaceuticals AG and Turing Pharmaceuticals AG ("Vyera") we will be required to pay royalties to Vyera on net sales of SLS-002. We will also be required to pay up to an aggregate of approximately $17 million in development and regulatory milestones and royalties on net sales of SLS-005 pursuant to our asset purchase agreement with Bioblast Pharma Ltd. These cash, milestone and royalty payments could adversely affect the overall profitability for us of any products that we may seek to commercialize. Pursuant to the amended and restated license agreement with Stuart Weg, M.D., we will be required to make cash payments to Dr. Weg in the amount of $0.125 million in January 2021 and, if certain conditions are not met, we will be required to make an additional cash payment of $0.2 million in January 2022.
We may not be able to protect our proprietary or licensed technology in the marketplace.
We depend on our ability to protect our proprietary or licensed technology. We rely on trade secret, patent, copyright and trademark laws, and confidentiality, licensing and other agreements with employees and third parties, all of which offer only limited protection. Our success depends in large part on our ability and any licensor's or licensee's ability to obtain and maintain patent protection in the U.S. and other countries with respect to our proprietary or licensed technology and products. We currently in-license some of our intellectual property rights to develop our product candidates and may in-license additional intellectual property rights in the future. We cannot be certain that patent enforcement activities by our current or future licensors have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents or other intellectual property rights. We also cannot be certain that our current or future licensors will allocate sufficient resources or prioritize their or our enforcement of such patents. Even if we are not a party to these legal actions, an adverse outcome could prevent us from continuing to license intellectual property that we may need to operate our business, which would have a material adverse effect on our business, financial condition and our results of operations.
We relybelieve we will be able to obtain, through prosecution of patent applications covering our owned technology and technology licensed from others, adequate patent protection for our proprietary drug technology, including those related to our in-licensed intellectual property. If we are compelled to spend significant time and money protecting or enforcing our licensed patents and future patents we may own, designing around patents held by others or licensing or acquiring, potentially for large fees, patents or other proprietary rights held by others, our business, financial condition and results of operations may be materially and adversely affected. If we are unable to effectively protect the intellectual property that we own or in-license, other companies
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may be able to offer the same or similar products for sale, which could materially adversely affect our business, financial condition and results of operations. The patents of others from whom we may license technology, and any future patents we may own, may be challenged, narrowed, invalidated or circumvented, which could limit our ability to stop competitors from marketing the same or similar products or limit the length of term of patent protection that we may have for our products.
Obtaining and maintaining patent protection depends on third partiescompliance with various procedural, document submission, fee payment and other requirements imposed by governmental patent agencies, and our patent protection for licensed patents, pending patent applications and potential future patent applications and patents could be reduced or eliminated for non-compliance with these requirements.
Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or patent applications will be due to conduct our preclinical studiesbe paid to the U.S. Patent and clinical trials. These third parties may not perform as contractually required Trademark Office ("USPTO") and various governmental patent agencies outside of the U.S. in several stages over the lifetime of the applicable patent and/or expectedpatent application. The USPTO and issues may arise that could delayvarious non-U.S. governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the completionpatent application process. In many cases, an inadvertent lapse can be cured by payment of clinical trials and impact regulatory approval of our product candidates.
The patent positions of pharmaceutical products are often complex and uncertain. The breadth of claims allowed in pharmaceutical patents in the U.S. and many jurisdictions outside of the U.S. is not consistent. For example, in many jurisdictions, the support standards for pharmaceutical patents are becoming increasingly strict. Some countries prohibit method of treatment claims in patents. Changes in either the patent laws or interpretations of patent laws in the U.S. and other countries may diminish the value of our licensed or owned intellectual property or create uncertainty. In addition, publication of information related to our current product candidates and potential products may prevent us from obtaining or enforcing patents relating to these product candidates and potential products, including without limitation composition-of-matter patents, which are generally believed to offer the strongest patent protection.
Patents that we currently license and patents that we may own or license in the future do not necessarily ensure the protection of our licensed or owned intellectual property for a number of reasons, including, without limitation, the following:
If we encounter delays in our development or clinical trials, is conductedthe period of time during which we could market our potential products under patent protection would be reduced.
Our competitors may be able to circumvent our licensed patents or future patents we may own by developing similar or alternative technologies or products in accordance with its general investigational plan and protocol. Thea non-infringing manner. Our competitors may seek to market generic versions of any approved products by submitting abbreviated new drug applications to the FDA and the European Medicines Agency require usin which our competitors claim that our licensed patents or any future patents we may own are invalid, unenforceable or not infringed. Alternatively, our competitors may seek
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approval to comply with good laboratory practices for conducting and recording the results of our preclinical studies and GCP, for conducting, monitoring, recording and reporting the results of clinical trialsmarket their own products similar to assure that the data gathered and reported results are accurate and that the clinical trial participants are adequately protected. Our reliance on third parties does not relieve us of these responsibilities. If the third parties conducting our clinical trials do not perform their contractual duties or obligations, do not meet expected deadlines, fail to comply with GCP, do not adhere to our clinical trial protocols or otherwise fail to generate reliable clinical data,competitive with our products. In these circumstances, we may need to enter into new arrangementsdefend or assert our licensed patents or any future patents we may own, including by filing lawsuits alleging patent infringement. In any of these types of proceedings, a court or other agency with alternativejurisdiction may find our licensed patents or any future patents we may own invalid or unenforceable. We may also fail to identify patentable aspects of our research and development before it is too late to obtain patent protection. Even if we own or in-license valid and enforceable patents, these patents still may not provide protection against competing products or processes sufficient to achieve our business objectives.
The issuance of a patent is not conclusive as to its inventorship, scope, ownership, priority, validity or enforceability. In this regard, third parties may challenge our licensed patents or any future patents we may own in the courts or patent offices in the U.S. and abroad. Such challenges may result in loss of exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our clinical trialsability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and potential products. In addition, given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such product candidates might expire before or shortly after such product candidates are commercialized.
We may infringe the intellectual property rights of others, which may prevent or delay our drug development efforts and prevent us from commercializing or increase the costs of commercializing our products.
Our commercial success depends significantly on our ability to operate without infringing the patents and other intellectual property rights of third parties. For example, there could be issued patents of which we are not aware that our current or potential future product candidates infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe.
Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be morecurrently pending applications of which we are unaware that may later result in issued patents that our product candidates or potential products infringe. For example, pending applications may exist that claim or can be amended to claim subject matter that our product candidates or potential products infringe. Competitors may file continuing patent applications claiming priority to already issued patents in the form of continuation, divisional, or continuation-in-part applications, in order to maintain the pendency of a patent family and attempt to cover our product candidates.
Third parties may assert that we are employing their proprietary technology without authorization and may sue us for patent or other intellectual property infringement. These lawsuits are costly than expected or budgeted, extended, delayed or terminated or mayand could adversely affect our business, financial condition and results of operations and divert the attention of managerial and scientific personnel. If we are sued for patent infringement, we would need to be repeated,demonstrate that our product candidates, potential products or methods either do not infringe the claims of the relevant patent or that the patent claims are invalid, and we may not be able to obtain regulatory approval fordo this. Proving invalidity is difficult. For example, in the U.S., proving invalidity requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents. Even if we are successful in these proceedings, we may incur substantial costs and the time and attention of our management and scientific personnel could be diverted in pursuing these proceedings, which could have a material adverse effect on us. In addition, we may not have sufficient resources to bring these actions to a successful conclusion. If a court holds that any third-party patents are valid, enforceable and cover our products or commercializetheir use, the product candidate being tested in such trials.
We may not be able to enter into licensing arrangements or make other arrangements at a reasonable cost or on reasonable terms. Any inability to secure licenses or alternative technology could result in delays in the introduction of our products or lead to prohibition of the manufacture or sale of products by us. Even if we are able to obtain a license, it may be non-exclusive, thereby giving our competitors access to the same technologies licensed to us. We could be forced, including by court order, to cease commercializing the infringing technology or product. In addition, in any such proceeding or litigation, we could be found liable for monetary damages, including treble damages and attorneys' fees, if we are found to have willfully infringed a patent. A finding of infringement could prevent us from commercializing our product candidates or force us to cease some of our business operations, which could materially and adversely affect our business, financial condition and results of operations. Any claims by third parties that we have misappropriated their confidential information or trade secrets could have a similar material and adverse effect on our business, financial condition and results of operations. In addition, any uncertainties resulting from the initiation and continuation of any litigation could have a material adverse effect on our ability to raise the funds necessary to continue our operations.
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Any claims or lawsuits relating to infringement of intellectual property rights brought by or against us will be costly and time consuming and may adversely affect our business, financial condition and results of operations.
We may be required to initiate litigation to enforce or defend our licensed and owned intellectual property. Lawsuits to protect our intellectual property rights can be very time consuming and costly. There is a substantial amount of litigation involving patent and other intellectual property rights in the biopharmaceutical industry generally. Such litigation or proceedings could substantially increase our operating expenses and reduce the resources available for development activities or any future sales, marketing or distribution activities.
In any infringement litigation, any award of monetary damages we receive may not be commercially valuable. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during litigation. Moreover, there can be no assurance that we will have sufficient financial or other resources to file and pursue such infringement claims, which typically last for years before they are resolved. Further, any claims we assert against a perceived infringer could provoke these parties to assert counterclaims against us alleging that we have infringed their patents. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their greater financial resources. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to compete in the marketplace.
In addition, our licensed patents and patent applications, and patents and patent applications that we may apply for, own or license in the future, could face other challenges, such as interference proceedings, opposition proceedings, re-examination proceedings and other forms of post-grant review. Any of these challenges, if successful, could result in the invalidation of, or in a narrowing of the scope of, any of our licensed patents and patent applications and patents and patent applications that we may apply for, own or license in the future subject to challenge. Any of these challenges, regardless of their success, would likely be time consuming and expensive to defend and resolve and would divert our management and scientific personnel's time and attention.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our products.
As is the case with other biopharmaceutical companies, our success is heavily dependent on intellectual property, particularly patents. Obtaining and enforcing patents in the biopharmaceutical industry involves both technological and legal complexity and is costly, time-consuming and inherently uncertain. For example, the U.S. previously enacted and is currently implementing wide-ranging patent reform legislation. Specifically, on September 16, 2011, the Leahy-Smith America Invents Act (the "Leahy-Smith Act") was signed into law and included a number of significant changes to U.S. patent law, and many of the provisions became effective in March 2013. However, it may take the courts years to interpret the provisions of the Leahy-Smith Act, and the implementation of the statute could increase the uncertainties and costs surrounding the prosecution of our licensed and future patent applications and the enforcement or defense of our licensed and future patents, all of which could have a material adverse effect on our business, financial condition and results of operations.
In addition, the U.S. Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courts and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we might obtain in the future.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates throughout the world would be prohibitively expensive. Competitors may use our licensed and owned technologies in jurisdictions where we have not licensed or obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain or license patent protection, but where patent enforcement is not as strong as that in the U.S. These products may compete with our products in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biopharmaceuticals, which could make it difficult for us to stop the infringement of our licensed patents and future patents we may own, or marketing of competing products in violation of our proprietary rights generally. Further, the laws of some foreign countries do not protect proprietary rights to the same extent or in the same manner as the laws of the U.S. As a result, we may encounter significant problems in protecting and
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defending our licensed and owned intellectual property both in the U.S. and abroad. For example, China currently affords less protection to a company's intellectual property than some other jurisdictions. As such, the lack of strong patent and other intellectual property protection in China may significantly increase our vulnerability regarding unauthorized disclosure or use of our intellectual property and undermine our competitive position. Proceedings to enforce our future patent rights, if any, in foreign jurisdictions could result in substantial cost and divert our efforts and attention from other aspects of our business.
We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.
In order to protect our proprietary and licensed technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, manufacturers, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of our confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may be subject to claims that our employees, consultants or independent contractors have wrongfully used or disclosed confidential information of third parties.
We expect to employ individuals who were previously employed at other biopharmaceutical companies. Although we have no knowledge of any such claims against us, we may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise used or disclosed confidential information of our employees' former employers or other third parties. Litigation may be necessary to defend against these claims. There is no guarantee of success in defending these claims, and even if we are successful, litigation could result in substantial cost and be a distraction to our management and other employees. To date, none of our employees have been subject to such claims.
We may be subject to claims challenging the inventorship of our licensed patents, any future patents we may own and other intellectual property.
Although we are not currently experiencing any claims challenging the inventorship of our licensed patents or our licensed or owned intellectual property, we may in the future be subject to claims that former employees, collaborators or other third parties have an interest in our licensed patents or other licensed or owned intellectual property as an inventor or co-inventor. For example, we may have inventorship disputes arise from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business, financial condition and results of operations. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we do not obtain additional protection under the Hatch-Waxman Amendments and similar foreign legislation extending the terms of our licensed patents and any future patents we may own, our business, financial condition and results of operations may be materially and adversely affected.
Depending upon the timing, duration and specifics of FDA regulatory approval for or successfully commercialize our product candidates.
The application for patent term extension is subject to approval by the USPTO, in conjunction with the FDA. It takes at least six months to obtain approval of the application for patent term extension. We may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, the period during which we will have the right to exclusively market and/or experience other adverse consequences, including delays, whichour product will be shortened and our competitors may obtain earlier approval of competing products, and our ability to generate revenues could be materially harm our business.
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Risks Related to Owning Our Common Stock
The market price of our common stock is expected to be volatile.
The trading price of our common stock is likely to be volatile. Our stock price could be subject to wide fluctuations in response to a variety of factors, including the following:
In addition, the stock market in general, and small biopharmaceutical companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. Further, a decline in the financial markets and related factors beyond our control may cause our stock price to decline rapidly and unexpectedly.
*If we are not ablefail to comply with the applicable continued listing requirements or standards of the NASDAQNasdaq Capital Market, NASDAQ could delist our Common Stock.*
We must continue to satisfy the Nasdaq Capital Market (“NASDAQ”). In order to maintain that listing, we must satisfy minimum financial and otherMarket's continued listing requirements, and standards, including, those regarding director independence
A delisting of our common stock from the Nasdaq Capital Market could materially reduce the liquidity of our common stock and result in a corresponding material reduction in the price of our common stock. In addition, delisting could harm our ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors and employees.
On April 14, 2020, we received written notice from Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were granted aprovided an initial period of 180 calendar day compliance period,days, or until November 7, 2016,October 12, 2020, to regain compliance. On June 5, 2020, we received a letter from Nasdaq notifying us that we had regained full compliance with the minimum bid price requirement. Duringrequirement of the Nasdaq Capital
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Market under Nasdaq Listing Rule 5550(a)(2). We regained compliance period, our shares of common stock continued to be listed and traded on NASDAQ. To regain compliance,after the closing bid price of our shares of common stock needed to meet or exceedhad been at $1.00 per share or greater for at least 10ten consecutive business days, duringfrom May 21, 2020 through June 4, 2020.
On April 21, 2020, we received an additional written notice from Nasdaq indicating that, for the last thirty consecutive business days, the market value of our listed securities has been below the minimum requirement of $35 million for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(2). In accordance with Nasdaq Listing Rule 5810(c)(3)(C), we were provided a period of 180 calendar day compliance period, which was accomplished through a 1-for-10 reverse stock split of our common stock, effected ondays, or until October 21, 2016.19, 2020, to regain compliance. On November 8, 2016,May 14, 2020, we received a letter from NASDAQ confirmingNasdaq notifying us that we are inhad regained full compliance with NASDAQthe continued listing standards of the Nasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2).
In addition, we have previously received similar notices from Nasdaq that our request for continued listing on NASDAQ pursuant to an extension through May 30, 2017 to evidence compliance with all applicable criteria for continued listing on NASDAQ was granted. On May 2, 2017,bid price of our common stock had closed below the Company was notified by NASDAQ that it had evidenced full compliance with all criteriaminimum $1.00 per share requirement for continued listing on the NASDAQ StockNasdaq Capital Market under Nasdaq Listing Rule 5550(a)(2). Even though we regained compliance with the Nasdaq Capital Market's minimum market value of listed securities requirement and the matter has now been closed.
An active trading market for our common stock may not be conducted onlysustained, and you may not be able to resell your common stock at a desired market price.
If no active trading market for our common stock is sustained, you may be unable to sell your shares when you wish to sell them or at a price that you consider attractive or satisfactory. The lack of an active market may also adversely affect our ability to raise capital by selling securities in the over-the-counter marketfuture or on an electronic bulletin board establishedimpair our ability to acquire or in-license other product candidates, businesses or technologies using our shares as consideration.
*Our management owns a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
As of September 30, 2020, Dr. Mehra, our sole executive officer and a director, owns approximately 6.0% of our outstanding common stock. Therefore, Dr. Mehra will have the ability to influence us through this ownership position.
This significant concentration of stock ownership may adversely affect the trading price for unlisted securities such asour common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. As a result, Dr. Mehra could significantly influence all matters requiring approval by our stockholders, including the Pink Sheetselection of directors and the approval of mergers or other business combination transactions. Dr. Mehra may be able to determine all matters requiring stockholder approval. The interests of these stockholders may not always coincide with our interests or the OTC Bulletin Board. interests of other stockholders. This may also prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may feel are in your best interests as one of our stockholders and he may act in a manner that advances his best interests and not necessarily those of other stockholders, including seeking a premium value for his common stock, and might affect the prevailing market price for our common stock.
Our internal control over financial reporting may not meet the standards required by Section 404 of the Sarbanes-Oxley Act, and failure to achieve and maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act, could have a material adverse effect on our business and share price.
Our management is required to report on the effectiveness of our internal control over financial reporting. The rules governing the standards that must be met for our management to assess our internal control over financial reporting are complex and require significant documentation, testing and possible remediation.
In such event,connection with the implementation of the necessary procedures and practices related to internal control over financial reporting, we may identify deficiencies or material weaknesses that we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, we may encounter problems or delays in completing the implementation of any requested improvements and, when required, receiving a favorable
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attestation in connection with the attestation provided by our independent registered public accounting firm. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business, financial condition and results of operations and could limit our ability to report our financial results accurately and in a timely manner.
We will incur significant costs as a result of operating as a public company, our management has limited experience managing a public company, and our management will be required to devote substantial time to new compliance initiatives.
The Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act") as well as rules subsequently implemented by the SEC and Nasdaq have imposed various requirements on public companies. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact (in ways we cannot currently anticipate) the manner in which we operate our business. Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect these rules and regulations to make it could become more difficult to dispose of, or obtain accurate price quotations for, our Common Stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our Common Stock to decline further. Also, it may be difficultmore expensive for us to raise additional capital ifobtain director and officer liability insurance and we may be required to incur substantial costs to maintain our current levels of such insurance coverage.
As a publicly traded company, we will incur legal, accounting and other expenses associated with the SEC reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as corporate governance requirements, including those under the Sarbanes-Oxley Act, the Dodd-Frank Act and other rules implemented by the SEC and Nasdaq. The expenses incurred by public companies generally to meet SEC reporting, finance and accounting and corporate governance requirements have been increasing in recent years as a result of changes in rules and regulations and the adoption of new rules and regulations applicable to public companies.
If securities or industry analysts do not listedpublish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline.
The trading market for our common stock depends, in part, on a major exchange.the research and reports that securities or industry analysts publish about us or our business. If one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. In addition, following delisting, unlessif our operating results fail to meet the forecast of analysts, our stock price would likely decline. If one or more of these analysts cease coverage of us or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline.
*Sales of a substantial number of shares of Common Stock were immediately thereafter trading onour common stock in the OTC Bulletin Boardpublic market by our existing stockholders, future issuances of our common stock or rights to purchase our common stock, could cause our stock price to fall.
Sales of a substantial number of shares of our common stock by our existing stockholders in the public market, or the OTCQB or OTCQX market places of the OTC Markets, we would no longer be able to sell shares to Aspire Capital under the Purchase Agreement.
*The Financing Warrants contain price-based adjustment provisions which, if triggered, may cause substantial additional dilution to our stockholders.
On October 16, 2018, we entered into a Securities Purchase Agreement with the investors listed on the Schedule of Buyers attached thereto, as amended, pursuant to which, among other things, we issued warrants to purchase shares of our common stock (the "Financing Warrants").
The outstanding Financing Warrants contain price-based adjustment provisions, pursuant to which the exercise price of the Financing Warrants may be adjusted downward in the event of certain dilutive issuances by us.
If the Financing Warrants are exercised, additional shares of our common stock will be issued, which will result in dilution to our then-existing stockholders and increase the number of shares eligible for resale in the public market. As of November 6, 2020, the Financing Warrants were exercisable for approximately 0.8 million shares of our common stock at an exercise price of $0.2957 per share of common stock. Sales of substantial numbers of such shares in the public market could depress the market price of our common stock.
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Anti-takeover provisions in our charter documents and under Nevada law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our management.
Provisions in our articles of incorporation and bylaws may delay or prevent an acquisition or a change in management. These provisions include a classified board of directors and the ability of the board of directors to issue preferred stock has been volatile, holderswithout stockholder approval. Although we believe these provisions collectively will provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our board of directors, they would apply even if the offer may be considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove then current management by making it more difficult for stockholders to replace members of the board of directors, which is responsible for appointing the members of management.
Certain provisions of Nevada corporate law deter hostile takeovers. Specifically, NRS 78.411 through 78.444 prohibit a publicly held Nevada corporation from engaging in a "combination" with an "interested stockholder" for a period of two years following the date the person first became an interested shareholder, unless (with certain exceptions) the "combination" or the transaction by which the person became an interested shareholder is approved in a prescribed manner. Generally, a "combination" includes a merger, asset or stock sale, or certain other transactions resulting in a financial benefit to the interested shareholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, beneficially owns or within two years prior to becoming an "interested shareholder" did own, 10% or more of a corporation's voting power. While these statutes permit a corporation to opt out of these protective provisions in its articles of incorporation, our articles of incorporation do not include any such opt-out provision.
Nevada's "acquisition of controlling interest" statutes, NRS 78.378 through 78.3793, contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These "control share" laws provide generally that any person that acquires a "controlling interest" in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested stockholders of the corporation elects to restore such voting rights. These statutes provide that a person acquires a "controlling interest" whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares that it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or offered to acquire a controlling interest become "control shares" to which the voting restrictions described above apply. While these statutes permit a corporation to opt out of these protective provisions in its articles of incorporation or bylaws, our articles of incorporation and bylaws do not include any such opt-out provision.
Further, NRS 78.139 also provides that directors may resist a change or potential change in control of the corporation if the board of directors determines that the change or potential change is opposed to or not in the best interest of the corporation upon consideration of any relevant facts, circumstances, contingencies or constituencies pursuant to NRS 78.138(4).
Our pre-Merger net operating loss carryforwards and certain other tax attributes may be subject to limitations. The pre-Merger net operating loss carryforwards and certain other tax attributes of us may also be subject to limitations as a result of ownership changes resulting from the Merger.
In general, a corporation that undergoes an "ownership change" as defined in Section 382 of the United States Internal Revenue Code of 1986, as amended, is subject to limitations on its ability to utilize its pre-change net operating loss carryforwards to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders, generally stockholders beneficially owning five percent or more of a corporation's common stock, applying certain look-through and aggregation rules, increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period, generally three years. We may have been more likelyexperienced ownership changes in the past and may experience ownership changes in the future. It is possible that our net operating loss carryforwards and certain other tax attributes may also be subject to initiate securities class action litigation againstlimitation as a result of ownership changes in the company that issuedpast and/or the stock. If anyclosing of the Merger. Consequently, even if we achieve profitability, we may not be able to utilize a material portion of our stockholders broughtnet operating loss carryforwards and certain other tax attributes, which could have a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the timematerial adverse effect on cash flow and attentionresults of our management.
We do not expect tomay never pay dividends on our common stock inso any returns would be limited to the appreciation of our stock.
We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and does not anticipate it will declare or pay any cash dividends for the foreseeable future.
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Not applicable.
Not applicable.
Not applicable.
Not applicable.
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EXHIBITS | DESCRIPTION | |
2.1* | ||
Agreement and Plan of Merger, dated | ||
Amendment | ||
Amendment No. 2 Agreement and Plan of Merger, dated December 14, 2018, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 14, 2018). | ||
Amendment No. 3 Agreement and Plan of Merger, dated January 16, 2019, by and among the Company, Arch Merger Sub, Inc. and Seelos Therapeutics, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2019). | ||
2.5* | Asset Purchase Agreement, dated February 15, 2019, by and between the Company and Bioblast Pharma Ltd. (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 19, 2019). | |
Amended and Restated Articles of Incorporation of the Company (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on March 14, 1997). | ||
Certificate of Amendment to Articles of Incorporation of |
Certificate of Amendment to Articles of Incorporation of | |||
Certificate of Amendment to Amended and Restated Articles of Incorporation of | |||
Certificate of Correction to Certificate of Amendment to Amended and Restated Articles of Incorporation of |
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Certificate of Designation for Series D Junior-Participating Cumulative Preferred Stock (incorporated herein by reference to Exhibit 3.1 to the | ||
Certificate of Change filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.1 to the | ||
Certificate of Amendment to Amended and Restated Articles of Incorporation of | |||
Certificate of Withdrawal of Series D Junior Participating Cumulative Preferred Stock, dated May 15, 2013 (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May 16, 2013). | |||
Certificate of Change filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.1 to the | |||
Certificate of Amendment filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit 3.10 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 2, 2017). | |||
Certificate of Amendment filed with the Nevada Secretary of State (incorporated herein by reference to Exhibit | |||
Certificate of | |||
Certificate of Amendment related to the Name Change, filed January 23, 2019 (incorporated herein by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2019 at 8:05 Eastern Time). | |||
Amended and Restated Bylaws, dated January 24, 2019 (incorporated herein by reference to Exhibit 3.3 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on January 24, 2019 at 8:05 Eastern Time). | |||
Certificate of Correction to Certificate of Amended and Restated Articles of Incorporation of the Company, dated March 25, 2020 (incorporated herein by reference to Exhibit 3.16 to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 7, 2020). | |||
Certificate of Amendment to the Amended and Restated Articles of Incorporation of Seelos Therapeutics, Inc., filed May 18, 2020 (incorporated herein by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on May | |||
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Certificate of Correction to | |||
Form of Common Stock Certificate (incorporated herein by reference to Exhibit 4.1 to the | |||
Form of Warrant issued to the lenders under the Loan and Security Agreement, dated as of October 17, 2014, by and among | |||
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the | |||
Form of Warrant issued to Sarissa Capital Domestic Fund LP and Sarissa Capital Offshore Master Fund LP (incorporated herein by reference to Exhibit 4.1 to the | |||
Form of Warrant issued to other purchasers (incorporated herein by reference to Exhibit 4.2 to the | |||
Form of Warrant Amendment (incorporated herein by reference to Exhibit 4.3 to the | |||
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the | |||
Form of Warrant (incorporated herein by reference to Exhibit 4.9 of Amendment No. 1 to | |||
Form of Warrant Amendment (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 21, 2017). | |||
Form of Indenture (incorporated herein by reference to Exhibit 4.13 to the Company's Form S-3 (File No. 333-221285) filed with the Securities and Exchange Commission on November 2, 2017). | |||
Amendment to Warrant to Purchase Common Stock (incorporated herein by reference to Exhibit 4.12 of Amendment No. 1 to the Company's Registration Statement on Form S-3 (File No. 333-223353) filed with the Securities and Exchange Commission on March 22, 2018). | |||
Amendment to Warrant to Purchase Common Stock, dated as of March 27, 2018 (incorporated herein by reference to Exhibit 4.1 to the Company's 8-K filed with the Securities and Exchange Commission on March 29, 2018). |
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Form of Warrant (incorporated herein by reference to Exhibit 4.2 to the Company's 8-K filed with the Securities and Exchange Commission on March 29, 2018). | |||
Form of Placement Agent Warrant (incorporated herein by reference to Exhibit 4.3 to the Company's 8-K filed with the Securities and Exchange Commission on March 29, 2018). | |||
Amendment to Warrant to Purchase Common Stock, dated as of June 22, 2018, by and between the Company and Sarissa Offshore (incorporated herein by reference to Exhibit 4.1 to the Company's 8-K filed with the Securities and Exchange Commission on June 22, 2018). | |||
Form of Warrant (incorporated herein by reference to Exhibit 4.1 to the | |||
Form of | |||
Form of Registration Rights Agreement | |||
Form of | |||
Registration Rights Agreement, dated October 16, 2018, by and among the Company and certain investors named therein (incorporated herein by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2018). | |||
Form of Series A Warrant, issued to investors on January 31, 2019 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on February 6, 2019). | |||
Form of Warrant, issued to investors on August 27, 2019 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2019). | |||
Form of Warrant, issued to investors on September 9, 2020 (incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September |
Securities Purchase Agreement, dated September 4, 2020 (incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 9, 2020). | |||
Placement Agency Agreement, dated September 4, 2020 (incorporated herein by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 9, 2020). |
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Certification of Principal Executive Officer and Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |||
Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||
XBRL Instance Document. (1) | |||
XBRL Taxonomy Extension Schema. (1) | |||
XBRL Taxonomy Extension Calculation Linkbase. (1) | |||
XBRL Taxonomy Extension Definition Linkbase. (1) | |||
XBRL Taxonomy Extension Label Linkbase. (1) | |||
XBRL Taxonomy Extension Presentation Linkbase. (1) |
(1) Furnished, not filed.
* All schedules and exhibits to the agreement have been omitted and filed
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Seelos Therapeutics, Inc. | |
Date: November 12, 2020 | /s/ Raj Mehra, Ph.D. |
Raj Mehra, Ph.D. | |
President, Chief Executive Officer, |
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