(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” andfiler,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ¨(Check one):
Large accelerated filer ☐ | ¨ | Accelerated filer | ¨ ☐ |
Non-accelerated filer ☐ | | ¨ (Do not check if a smaller reporting company)
| Smaller reporting company☑ |
| þ | 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 7(a)(2)(B) of the Securities Act. ☐
CALCULATION OF REGISTRATION FEE
Title of Each Class of Securities to be Registered | | Proposed Maximum Aggregate Offering Price(1)(2) | | | Amount of Registration Fee (5) | |
Units consisting of: | | $ | 15,000,000 | | | $ | 2,046.00 | |
(i) Series C 8% Convertible Preferred Stock, $0.0001 par value per share | | | — | | | | — | |
(ii) Warrants to purchase common stock | | | — | (3) | | | — | |
Common Stock issuable upon conversion of the Series C 8% Convertible Preferred Stock and exercise of warrants(3) | | | — | (4) | | | — | |
Title of each class of securities to be registered | Proposed maximum aggregate offering price (1) | Amount of registration fee (2) |
Class A Units consisting of: | | |
(i) Shares of Common Stock, $0.0001 par value per share (3) | | |
(ii) Warrants to purchase Common Stock (3) (4) | | |
Class B Units consisting of: | | |
(i) Series A Convertible Preferred Stock, $0.0001 par value per share (3) | | |
(ii) Common Stock issuable upon conversion of Series A Preferred Stock (3) (5) | | |
(iii) Warrants to purchase Common Stock (3) (4) | | |
Common stock issuable upon exercise of Warrants (3) | |
|
Total | $10,000,000
| $1,212 |
(1) | Estimated solely for the purpose of calculatingcomputing the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”“Act”). Also includes the offering price of additional shares of common stock and/or warrants that the underwriters have the option to purchase. |
(2) | Calculated pursuant to Rule 457(o) based on an estimate of the proposed maximum aggregate offering price of all securities being registered. |
(3) | Pursuant to Rule 416 this registration statement shall be deemed to coverunder the additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby to be offered pursuant to terms that provide for a change inAct, the amount of securities being offered orregistered hereunder include such indeterminate number of additional shares of common stock as may be issued to prevent dilution resulting fromafter the date hereof as a result of stock splits, stock dividends or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend on, the registered securities.transactions. |
(3)(4) | No additional considerationseparate fee is payablerequired pursuant to Rule 457(g) under the Securities Act. |
(4)(5) | No additional considerationseparate fee is payablerequired pursuant to Rule 457(i) under the Securities Act. |
(5) | Previously paid |
The Registrantregistrant hereby amends this Registration Statementregistration statement on such date or dates as may be necessary to delay its effective date until the Registrantregistrant shall file a further amendment which specifically states that this Registration Statementregistration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statementregistration statement shall become effective on such date as the Commission acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.
THE INFORMATION IN THIS PROSPECTUS
Subject to Completion, Dated July 16, 2013 IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED November 6, 2018
PRELIMINARY PROSPECTUS
6,000 Shares
Tenax Therapeutics, Inc.
Class A Units consisting of one share of common stock and one common warrant
and
Class B Units consisting of one share of Series C 8%A Convertible Preferred Stock
(and [●] Shares of Common Stock Underlying the Series C 8% Convertible Preferred Stock)Warrants to Purchase up to [●] Shares of Common Stock
(and [●] Shares of Common Stock Issuable From Time to Time Upon Exercise of Warrants)one common warrant
We are offering 6,000 units to purchasers in this offering,Class A Units and Class B Units, with each unitClass A Unit consisting of (1) aone share of Series C 8% Convertible Preferred Stock which is convertible into approximately [—] sharescommon stock, par value $0.0001 per share and a warrant to purchase one share of our common stock (together with the shares of common stock underlying such warrants, are referred to herein as the Class A Units) at an assumed public offering price of $ per Class A Unit. Warrants included in the Class A Units have an exercise price of $ per share.
We are also offering Class B Units to purchasers who prefer not to beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock following the consummation of this offering or who elect in their sole discretion to purchase Class B Units. Each Class B Unit will consist of one share of Series A Convertible Preferred Stock, par value $0.0001 per share, or the Series A Preferred Stock, convertible at any time at the holder’s option into one share of common stock and (2)a warrant to purchase one share of our common stock (together with the shares of common stock underlying such shares of Series A Preferred Stock and such warrants, are referred to herein as the Class B Units, and, together with the Class A Units, the Units) at an assumed public offering price of $ per Class B Unit. Each warrant exercisable for [—] sharesincluded in the Class B Units entitles its holder to purchase one share of common stock at an exercise price of $[—]$ per share. This prospectus also covers up to [—]
The Class A Units and Class B Units have no stand-alone rights and will not be certificated and the shares of common stock, issuable upon conversion of the Series C 8% ConvertibleA Preferred Stock and up to [—] shares of common stock issuable upon exercise of the warrants. The Series C 8% Convertible Preferred Stock will have a stated dividend rate of 8% per annum, payable quarterly in cash or, at our election and subject to certain conditions described in this prospectus, in shares of our common stock, which are also being offered by this prospectus.
Thewarrants comprising such units will be sold for a purchase price equal to $1,000 per unit. Units will not be issued or certificated. The shares of Series C 8% Convertible Preferred Stock and the warrants are immediately separable and will be issued separately. Subject to certain ownership limitations, the Series C 8% Convertible Preferred Stock is convertible at any time at the option of the holder into sharesseparately in this offering.
The price of our common stock on the Nasdaq Capital Market during recent periods was only one of many factors in determining the public offering price. Other factors we considered in determining the public offering price included our history, our prospects, the industry in which we operate, our past and present operating results, the previous experience of our executive officers and the general condition of the securities markets at a conversionthe time of this offering. All share numbers included in this prospectus are based upon an assumed public offering price of $[—]$ per share. Subject to certain ownership limitations, the warrants are exercisable beginning [—] and expire on the sixth anniversary of the date of issuance.
For a more detailed description of the Series C 8% Convertible Preferred Stock, see the section entitled “Description of Capital Stock - Series C 8% Convertible Preferred Stock” beginning on page 16 of this prospectus. For a more detailed description of the warrants, see the section entitled “Description of Securities We Are Offering – Warrants” beginning on page 18 of this prospectus. For a more detailed description of our common stock, see the section entitled “Description of Capital Stock – Common Stock” beginning on page 12 of this prospectus.
As of the date of this filing, our common stock is quoted on the NASDAQ Capital Market under the symbol “OXBT.” Theshare (the last reported sale price of our common stock on July 15, 2013 was $2.98 per share.
We have retained Ladenburg Thalmann & Co. Inc. (the “Placement Agent”) to act as placement agent in connection with this offering and to use its “best efforts” to solicit offers to purchase the units. See “Plan of Distribution” beginningNasdaq Capital Market on page 19 of this prospectus for more information regarding this agreement., 2018).
ThereOur common stock is no public trading market forlisted on the Series C 8% Convertible Preferred Stock or warrants and we do not expect one to develop. In addition, weNasdaq Capital Market under the symbol “TENX.” On November 5, 2018 the last reported sale price of our common stock on the Nasdaq Capital Market was $5.08 per share. We do not intend to apply for listing oflist the Series C 8% Convertible Preferred Stockwarrants or warrantspreferred stock to be sold in this offering on any national securities exchange.exchange or trading system.
Investing in our securities involves a high degree of risk. You should review carefully the risks and uncertainties described under the headingSee “Risk Factors” beginning on page 87 of this prospectus and those containedelsewhere in any related free writing prospectusesthis prospectus for a discussion of information that we have authorized for useshould be considered in connection with this offering andan investment in our Securities and Exchange Commission filings that are incorporated by reference into this prospectus.securities.
| | Per | | | | |
Public offering price (1) | $ | $ | [●$]
| | | $ | [●] | |
Placement Agent fees(1)Underwriting discounts and commissions (2) | $ | $ | [●$]
| | | $ | [●] | |
Proceeds, before expenses, to us | | $ | [●] | | | $ | [●] | |
(1) | $ | In addition, we have agreed to issue to the Placement Agent warrants to purchase a number of shares of common stock equal to 2% of the aggregate number of shares of common stock issuable upon conversion of the Series C 8% Convertible Preferred Stock sold in this offering and to reimburse the expenses of the Placement Agent as described in the Plan of Distribution herein. $ |
(1)
The Placement Agent is not purchasing public offering price and underwriting discount corresponds to (x) in respect of the Class A Units (i) a public offering price per share of common stock of $ (or selling any$ after deducting the underwriting discount) and (ii) a public offering price per warrant of units pursuant to$ (or $ after deducting the underwriting discount) and (y) in respect of the Class B Units (i) a public offering price per share of Series A Preferred Stock of $ (or $ after deducting the underwriting discount) and (ii) a public offering price per warrant of $ (or $ after deducting the underwriting discount).
(2)
See “ Underwriting” beginning on page 33 of this offering, nor are we requiring any minimum purchase or sale of any specific number of units. Because there is no minimum offering amount required as a conditionprospectus for additional information regarding compensation payable to the closing of this offering, the actual public offering amount, placement agent fees and proceeds to us are not presently determinable and may be substantially less than the maximum amounts set forth above. We expect that delivery of the units being offered pursuant to this prospectus will be made to purchasers on or about [●underwriter.].
Neither the United States Securities and Exchange Commission nor any state securities commission has approved or disapproved of the common stock that may be offered under this prospectus, nor have any of these securities orregulatory authorities determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The underwriter has the option to purchase up to (i) additional shares of common stock, and/or (ii) additional warrants to purchase up to additional shares of common stock solely to cover over-allotments, if any, at the public offering price per share of common stock and the public offering price per warrant set forth above less the underwriting discounts and commissions. The over-allotment option may be used to purchase shares of common stock and/or warrants, in any combination thereof, as determined by the underwriter, but such purchases cannot exceed an aggregate of 15% of the number of shares of common stock (including the number of shares of common stock issuable upon conversion of shares of Series A Preferred Stock) and/or 15% of the warrants sold in the primary offering. The over-allotment option is exercisable for 45 days from the date of this prospectus.
The underwriter expects to deliver the securities to purchasers on or about , 2018.
Ladenburg Thalmann & Co. Inc.
The date of this prospectus is [●], 20132018
Table of Contents
Prospectus
About this Prospectus | | PROSPECTUS SUMMARY | 1 |
RISK FACTORS | 7 |
Special Note Regarding Forward-Looking StatementsSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | | | 1 | 22 |
Prospectus SummaryUSE OF PROCEEDS | | | 2 | 23 |
Risk FactorsCAPITALIZATION | | | 8 | 24 |
Use of ProceedsDILUTION | | | 10 | 25 |
DilutionMARKET PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS | | | 11 | 26 |
Description of Capital StockDIVIDEND POLICY | | | 12 | 26 |
Description of Securities We Are OfferingSECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | | | 18 | 27 |
Plan of DistributionDESCRIPTION OF SECURITIES | | | 19 | 28
|
Legal MattersUNDERWRITING | | | 20 | 34 |
ExpertsMATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS | | | 20 | 37
|
Disclosure of Commission Position on Indemnification for Securities Act LiabilitiesLEGAL MATTERS | | | 20 | 43
|
Where You Can Find More InformationEXPERTS | | | 21 | 43 |
Documents Incorporated by ReferenceWHERE YOU CAN FIND ADDITIONAL INFORMATION | 43 |
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE | | 21 | 43 |
About this Prospectus
In this prospectus, the “Company,” “we,” “us,” and “our” and similar terms refer to Oxygen Biotherapeutics, Inc. References to our “common stock” refer to the common stock, par value $.0001 per share, of Oxygen Biotherapeutics, Inc. All share prices and amounts in this prospectus are adjusted to reflect the 1-for-20 reverse stock split effective on May 10, 2013.
You should read this prospectus together with additional information described under the headings “Where You Can Find More Information” and “Documents Incorporated by Reference.” If there is any inconsistency between the information in this prospectus and the documents incorporated by referenced herein, you should rely on the information in this prospectus.
You should rely only on the information contained in or incorporated by reference into this prospectus. Neitherprospectus and any free-writing prospectus that we norauthorize to be distributed to you. We have not, and the placement agent haveunderwriter has not, authorized any other personanyone to provide you with information different from or in addition to that contained in this prospectus and the documents incorporated by reference herein.or any related free-writing prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. You should assume thatWe are offering to sell, and are seeking offers to buy, the Class A Units and the Class B Units only in jurisdictions where offers and sales are permitted. The information appearingcontained in this prospectus is accurate only as of the dates on the cover page,date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the Class A Units and the Class B Units. Our business, financial conditions, results of operations and prospects may have changed since that date.
The registration statement we filed with the Securities and Exchange Commission, or the SEC, includes exhibits that provide more detail of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC, together with the additional information described under the heading “Where You Can Find Additional Information,” before making your investment decision. You should rely only on the information provided or incorporated by reference in this prospectus or any amendment thereto. We have not, and the underwriter has not, authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, and that any information incorporated by reference is accurate only as of the date of the document incorporated by reference, unless we indicate otherwise, regardless of its time of delivery or any sale of our securities. Our business, financial condition, results of operationoperations and prospects may have changed since those dates.that date.
Special Note Regarding Forward-Looking StatementsThis prospectus is an offer to sell only the securities offered hereby, and only under circumstances and in jurisdictions where it is lawful to do so. We are not, and the underwriter is not, making an offer to sell these securities in any state or jurisdiction where the offer or sale is not permitted. For investors outside the United States: We have not, and the underwriter has not, done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of the securities and the distribution of this prospectus outside the United States.
Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations and market position, market opportunity and market size, is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the markets for our products. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to such estimates. We believe that the information from these industry publications that is included in this prospectus is reliable. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
Unless the context otherwise requires, references in this prospectus to “Tenax Therapeutics,” “the Company,” “we,” “us” and “our” or similar terms refer to Tenax Therapeutics, Inc.
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| PROSPECTUS SUMMARYThis summary is not complete and does not contain all of the information you should consider before investing in the securities offered by this prospectus. You should read this summary together with the entire prospectus, including our financial statements, the notes to those financial statements, and the other documents identified under the headings “Where You Can Find More Information” and “Documents Incorporated by Reference” in this prospectus before making an investment decision. See the Risk Factors section of this prospectus on page 7 for a discussion of the risks involved in investing in our securities. Tenax Therapeutics, Inc. Overview We are a specialty pharmaceutical company focused on identifying and developing products that address diseases with high unmet medical needs. On November 13, 2013, through our wholly owned subsidiary, Life Newco, Inc., or Life Newco, we acquired a license granting Life Newco an exclusive, sublicenseable right to develop and commercialize pharmaceutical products containing levosimendan, 2.5 mg/ml concentrate for solution for infusion / 5ml vial in the United States and Canada. Business Strategy Our principal business objective is to identify, develop, and commercialize novel therapeutic products for disease indications that represent significant areas of clinical need and commercial opportunity. The key elements of our business strategy are outlined below. Efficiently conduct clinical development to establish clinical proof of concept with our lead product candidates. Levosimendan represents novel therapeutic modalities for the treatment of pulmonary hypertension and other critical care conditions. We are conducting clinical development with the intent to establish proof of concept in several important disease areas where these therapeutics would be expected to have benefit. Our focus is on conducting well-designed studies to establish a robust foundation for subsequent development, partnership and expansion into complementary areas. Efficiently explore new high potential therapeutic applications, leveraging third-party research collaborations and our results from related areas. Our product candidates have shown promise in multiple disease areas. We are committed to exploring potential clinical indications where our therapies may achieve best-in-class profile, and where we can address significant unmet medical needs. In order to achieve this goal, we have established collaborative research relationships with investigators from research and clinical institutions and our strategic partners. These collaborative relationships have enabled us to cost effectively explore where our product candidates may have therapeutic relevance, and how it may be utilized to advance treatment over current clinical care. Additionally, we believe we will be able to leverage clinical safety data and preclinical results from some programs to support accelerated clinical development efforts in other areas, saving substantial development time and resources compared to traditional drug development. Continue to expand our intellectual property portfolio. Our intellectual property is important to our business and we take significant steps to protect its value. We have ongoing research and development efforts, both through internal activities and through collaborative research activities with others, which aim to develop new intellectual property and enable us to file patent applications that cover new applications of our existing technologies or product candidates. Enter into licensing or product co-development arrangements in certain areas, while out-licensing opportunities in non-core areas. In addition to our internal development efforts, an important part of our product development strategy is to work with collaborators and partners to accelerate product development, reduce our development costs, and broaden our commercialization capabilities. We believe this strategy will help us to develop a portfolio of high quality product development opportunities, enhance our clinical development and commercialization capabilities, and increase our ability to generate value from our proprietary technologies. | |
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| Our Current ProgramsLevosimendan Background Levosimendan was discovered and developed by Orion Corporation, a Finnish company, or Orion. Levosimendan is a calcium sensitizer/K-ATP activator developed for intravenous use in hospitalized patients with acutely decompensated heart failure. It is currently approved in over 60 countries for this indication and not available in the United States or Canada. It is estimated that to date over 1,000,000 patients have been treated worldwide with levosimendan. Levosimendan is a novel, first in class calcium sensitizer/K-ATP activator. The therapeutic effects of levosimendan are mediated through: ● Increased cardiac contractility by calcium sensitization of troponin C, resulting in a positive inotropic effect which is not associated with substantial increases in oxygen demand. ● Opening of potassium channels in the vasculature smooth muscle, resulting in a vasodilatory effect on all vascular beds. ● Opening of mitochondrial potassium channels in cardiomyocytes, resulting in a cardioprotective effect. This triple mechanism of action helps to preserve heart function during cardiac surgery. Several studies have demonstrated that levosimendan protects the heart and improves tissue perfusion while minimizing tissue damage during cardiac surgery. In 2013, we acquired certain assets of Phyxius Pharma, Inc., or Phyxius, including its North American rights to develop and commercialize levosimendan for any indication in the United States and Canada. In the countries where levosimendan is marketed, levosimendan is indicated for the short-term treatment of acutely decompensated severe chronic heart failure in situations where conventional therapy is not sufficient, and in cases where inotropic support is considered appropriate. In acute decompensated heart failure patients, levosimendan has been shown to significantly improve patients’ symptoms as well as acute hemodynamic measurements such as increased cardiac output, reduced preload and reduced afterload. The European Society of Cardiology, or the ESC, recommends levosimendan as a preferable agent over dobutamine to reverse the effect of beta blockade if it is thought to be contributing to hypotension. The ESC guidelines also state that levosimendan is not appropriate for patients with systolic blood pressure less than 85mmHg or in patients in cardiogenic shock unless it is used in combination with other inotropes or vasopressors. Other unique properties of levosimendan include sustained efficacy through the formation of a long acting metabolite, lack of impairment of diastolic function, and evidence of better compatibility with beta blockers than dobutamine. Levosimendan Development for Pulmonary Hypertension Patients We are currently developing levosimendan in North America for the treatment of patients with pulmonary hypertension associated with heart failure with preserved ejection fraction, or PH-HFpEF. PH-HFpEF is defined hemodynamically by a pulmonary artery pressure, or mPAP, ≥25 mmHg, a pulmonary capillary wedge pressure, or PCWP, >15 mmHg, and a diastolic pressure gradient, or diastolic PAP – PCWP, >7mmHg. Pulmonary hypertension in these patients initially develops from a passive backward transmission of elevated filling pressures from left-sided heart failure. These mechanical components of pulmonary venous congestion may trigger pulmonary vasoconstriction, decreased nitric oxide availability, increased endothelin expression, desensitization to natriuretic peptide induced vasodilation, and vascular remodeling. Finally, these changes often lead to advanced pulmonary vascular disease, increased right ventricle, or RV, afterload, and RV failure. PH-HFpEF is a common form of pulmonary hypertension with an estimated US prevalence exceeding 1.5 million patients. Currently, no pharmacologic therapies are approved for treatment of PH-HFpEF. Despite the fact that many therapies have been studied in PH-HFpEF patients, including therapies approved to treat pulmonary arterial hypertension patients, no therapies have been shown to be effective in treating PH-HFpEF patients. | |
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| Published pre-clinical and clinical studies indicate that levosimendan may provide important benefits to patients with pulmonary hypertension. Data from these published trials indicate that levosimendan may reduce pulmonary vascular resistance and improve important cardiovascular hemodynamics such as reduced pulmonary capillary wedge pressure in patients with pulmonary hypertension. In addition, several published studies provide evidence that levosimendan may improve right ventricular dysfunction which is a common comorbidity in patients with pulmonary hypertension. While none of these studies have focused specifically on PH-HFpEF patients, the general hemodynamic improvements in these published studies of various types of pulmonary hypertension provide an indication that levosimendan may be beneficial in PH-HFpEF patients. In March 2018, we met with the United States Food and Drug Administration, or FDA, to discuss development of levosimendan in PH-HFpEF patients. The FDA was in agreement with our planned Phase 2 design, patient entry criteria, and endpoints. The study may be conducted under the existing investigational new drug application with no additional nonclinical studies required to support full development. The FDA recognized there were no approved drug therapies to treat PH-HFpEF patients and acknowledged this provided an opportunity for a limited Phase 3 clinical program. This topic will be discussed further at the End-of-Phase 2 Meeting following completion of the planned Phase 2 study in PH-HFpEF patients. We plan to begin enrollment of the Phase 2 trial in the fourth quarter of 2018. Intellectual Property We rely on a combination of patent applications, patents, trade secrets, proprietary know-how, trademarks, and contractual provisions to protect our proprietary rights. We believe that to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies. Currently, we require our officers, employees, consultants, contractors, manufacturers, outside scientific collaborators and sponsored researchers, and other advisors to execute confidentiality agreements in connection with their employment, consulting, or advisoryrelationships with us, where appropriate. We also require our employees, consultants, and advisors who we expect to work on our products to agree to disclose and assign to us all inventions conceived during the work day, developed using our property, or which relate to our business. To date, we own or in-license the rights to seven U.S. and foreign patents. In addition, we have one U.S. patent application pending that is complemented by the appropriate foreign patent applications related to a product candidate and proprietary process, method and technology. Our issued and in-licensed patents, as well as our pending patents, expire between 2018 and 2031. We have: ● one Australian patent (759,557) pertaining to the use and application of perfluorocarbons as gas transport agents in blood substitutes and liquid ventilation, which expires in 2018; ● one U.S. patent (8,404,752), one Australian Patent (209,271,530) and one European patent (EPO9798325.8) held jointly with Virginia Commonwealth University Intellectual Property Foundation for the treatment of traumatic brain injury, which expires in 2031; ● one Israeli patent (215516) and numerous patent applications, including one U.S. patent application, for the formulation of perfluorocarbon emulsion, with an average remaining life of approximately 13 years; and ● two U.S. patents (6,730,673 and 6,943,164) for the intravenous formulation of levosimendan as in-licensed patent rights for our development and commercialization of levosimendan in the United States and Canada, both of which expire in September 2020. Our patent and patent applications include claims covering various uses of levosimendan, our sole product candidate currently under development. At this time, we are only pursuing claims relating to uses of levosimendan. The U.S. trademark registration for Simdax® is owned by Orion and is licensed to us for sales and marketing purposes for any pharmaceutical products containing levosimendan that are commercialized in the United States and Canada. | |
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| Recent DevelopmentsAs of October 30, 2018, we believe that our existing cash and cash equivalents, along with our investment in marketable securities, will be sufficient to fund our projected operating requirements through the first quarter of calendar year 2019. We will need substantial additional capital in the future in order to complete the development and commercialization of levosimendan and to fund the development and commercialization of other future product candidates. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such funding may not be available on favorable terms, if at all. In the event we are unable to obtain additional capital, we may delay or reduce the scope of our current research and development programs and other expenses. Corporate and Other Information Tenax Therapeutics was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. Effective June 30, 2008, we changed the domiciliary state of the corporation to Delaware and changed the company name to Oxygen Biotherapeutics, Inc. On September 19, 2014, we changed the company name to Tenax Therapeutics, Inc. Our principal executive offices are located at ONE Copley Parkway, Suite 490, Morrisville, North Carolina 27560, and our telephone number is (919) 855-2100. Available Information Our website address is www.tenaxthera.com, and our investor relations website is located at http://investors.tenaxthera.com. Information on, or that can be accessed through, our website is not incorporated by reference into this prospectus, and you should not consider it part of this prospectus. Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our Proxy Statements for our annual meetings of stockholders, and any amendments to those reports, as well as Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably practicable after we file the reports with, or furnish the reports to, the SEC. Our SEC filings are also available for reading and copying at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The information in or accessible through the websites referred to above are not incorporated into, and are not considered part of, this filing. | |
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| The Offering | |
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| Issuer | | Tenax Therapeutics, Inc. | |
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| Class A Units Offered | | We are offering Class A Units. Each Class A Unit consists of one share of common stock and a warrant to purchase one share of our common stock (together with the shares of common stock underlying such warrants). | |
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| Offering Price per Class A Unit | | $ per Class A Unit. | |
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| Class B Units Offered | | We are also offering Class B Units to purchasers who prefer not to beneficially own more than 4.99% (or, at the election of the purchaser, 9.99%) of our outstanding common stock following the consummation of this offering or who elect in their sole discretion to purchase Class B Units. Each Class B Unit will consist of one share of Series A Preferred Stock, par value $0.0001 per share, convertible into one share of common stock and a warrant to purchase one share of our common stock (together with the shares of common stock underlying such shares of Series A Preferred Stock and such warrants).
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| Offering Price per Class B Unit | | $ per Class B Unit.
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| Description of warrants | | The warrants will be exercisable beginning on the closing date and expire on the fifth anniversary of the closing date and have an initial exercise price per share equal to $ per share, subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock.
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| Description of Series A Preferred Stock | | Each share of Series A Preferred Stock is convertible at any time at the holder’s option into one share of common stock. Notwithstanding the foregoing, we shall not effect any conversion of Series A Preferred Stock, with certain exceptions, to the extent that, after giving effect to an attempted conversion, the holder of shares of Series A Preferred Stock (together with such holder’s affiliates, and any persons acting as a group together with such holder or any of such holder’s affiliates) would beneficially own a number of shares of our common stock in excess of 4.99% (or, at the election of the purchaser prior to the date of issuance, 9.99%) of the shares of our common stock then outstanding after giving effect to such exercise. For additional information, see “Description of Securities—Description of Series A Preferred Stock” on page 27 of this prospectus. | |
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| Shares of common stock underlying the warrants offered hereby
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| Shares of common stock outstanding before this offering | | 1,465,496 shares as of October 26, 2018.
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| Shares of common stock to be outstanding after this offering | | shares ( shares on an as-converted basis, assuming the conversion in full of the Series A Preferred Stock.)
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| Shares of Series A Preferred Stock outstanding before this offering | | None.
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| Shares of Series A Preferred Stock to be outstanding after this offering
| shares.
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| Over-allotment option
| We have granted the underwriter an option to purchase additional shares of common stock equal to 15% of the shares (including shares of common stock underlying the Series A Preferred Stock) in the offering and/or additional warrants equal to 15% of the warrants in the offering, in any combination thereof, at the public offering price per share of common stock and the public offering price per warrant set forth on the cover page hereto less the underwriting discounts and commission. This option is exercisable, in whole or in part, for a period of 45 days from the date of this prospectus.
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| Market for the Common Stock
| Our common stock is listed on the Nasdaq Capital Market under the symbol “TENX”.
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| No listing of warrants
| We do not intend to apply for listing of the warrants on any securities exchange or trading system.
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| No listing of Series A Preferred Stock | We do not intend to apply for listing of the Series A Preferred Stock on any securities exchange or trading system.
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| Use of proceeds | Assuming all Units are sold, we estimate that the net proceeds to us from this offering will be approximately $ million. We currently intend to use the net proceeds of this offering to further our clinical trials and efforts to obtain regulatory approval of levosimendan, for research and development and for general corporate purposes, including working capital and potential acquisitions. See “Use of Proceeds.”
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| Risk Factors | See “Risk Factors” beginning on page 7 and other information included in this prospectus for a discussion of factors that you should consider carefully before deciding to invest this offering.
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| The number of shares of our common stock that will be outstanding immediately before and after this offering is based on 1,465,496 shares outstanding as of October 26, 2018 and excludes: | |
| ● 120,773 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $52.29 per share; ● 241,744 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $75.70 per share; ● 19,914 shares of common stock issuable upon the vesting of outstanding restricted stock grants with a weighted average grant date fair value of $6.28 per share; ● 100,000 shares of common stock reserved for future grants and awards under our 2016 Stock Incentive Plan; and ● shares of common stock issuable upon the exercise of the warrants to be sold as part of this offering.
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| Unless otherwise indicated, all information in this prospectus also reflects and assumes no exercise by the underwriter of its option to purchase additional shares of our common stock and/or warrants to purchase shares of our common stock to cover overallotments, if any. | |
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RISK FACTORS
Investing in our securities involves a high degree of risk. You should consider the following risk factors, as well as other information contained in this prospectus, before deciding to invest in our securities. If any of the following risks actually occur, our business, results of operations, financial condition and cash flows could be materially adversely affected, the trading price of our common stock could decline significantly, and you might lose all or part of your investment. Additional risks and uncertainties that we are unaware of or that we believe are not material at this time could also materially adversely affect our business, financial condition or results of operations. In any case, the value of our securities could decline, and you could lose all or part of your investment, or our use of the offering proceeds may not yield a favorable return on your investment.
Risks Related to Our Financial Position and Need for Additional Capital
We have a limited operating history, and we expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
Our operations, to date, have been primarily limited to organizing and staffing our company, licensing our technology from Orion and undertaking preclinical studies and clinical trials of our product candidates. We have not yet obtained regulatory approvals our clinical product candidates. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had a longer operating history.
Specifically, our financial condition and operating results have varied significantly in the past and will continue to fluctuate from quarter-to-quarter and year-to-year in the future due to a variety of factors, many of which are beyond our control. Factors relating to our business that may contribute to these fluctuations include the following factors, among others:
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our ability to obtain additional funding to develop our product candidates, and any further product candidate which we may develop or in license in the future;
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the need to obtain regulatory approval of our product candidates;
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potential risks related to any collaborations we may enter into for our product candidates;
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delays in the commencement, enrollment and completion of clinical testing, as well as the analysis and reporting of results from such clinical testing;
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the success of clinical trials of our product candidates;
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any delays in regulatory review and approval of product candidates in development;
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our ability to establish an effective sales and marketing infrastructure;
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competition from existing products or new products that may emerge;
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the ability to receive regulatory approval or commercialize our products;
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potential side effects of our product candidates that could delay or prevent commercialization;
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potential product liability claims and adverse events;
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potential liabilities associated with hazardous materials;
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our ability to maintain adequate insurance policies;
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our dependency on third-party manufacturers to supply or manufacture our products;
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our ability to establish or maintain collaborations, licensing or other arrangements;
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our ability, our partners’ abilities, and third parties’ abilities to protect and assert intellectual property rights;
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costs related to and outcomes of potential litigation;
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compliance with obligations under intellectual property licenses with third parties;
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our ability to adequately support future growth; and
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our ability to attract and retain key personnel to manage our business effectively.
Due to the various factors mentioned above, and others, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance.
We will need additional funding and if we are unable to raise capital when needed, we would be forced to delay, reduce or eliminate our product development programs.
Developing biopharmaceutical products, including conducting preclinical studies and clinical trials and establishing manufacturing capabilities, is expensive. We expect our research and development expenses to increase in connection with our ongoing activities. In addition, our expenses could increase beyond expectations if applicable regulatory authorities, including the FDA, require that we perform additional studies to those that we currently anticipate, in which case the timing of any potential product approval may be delayed. As of June 30, 2018, we had $6.7 million of cash, including the fair value of our marketable securities on hand. Based on our current operating plans, we believe that our existing cash and cash equivalents will be sufficient to fund our projected operating requirements through the first quarter of calendar year 2019. We will need substantial additional capital in the future in order to complete the commercialization of levosimendan and to fund the development and commercialization of future product candidates. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such funding, if needed, may not be available on favorable terms, if at all.
In the event we are unable to obtain additional capital, we may delay or reduce the scope of our current research and development programs and other expenses. As a result of our historical operating losses and expected future negative cash flows from operations, we have concluded that there is substantial doubt about our ability to continue as a going concern. Similarly, the report of our independent registered public accounting firm on our December 31, 2017 Consolidated Financial Statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and make it more difficult to obtain financing.
If adequate funds are not available, we may also be required to eliminate one or more of clinical trials, delaying approval of levosimendan or our commercialization efforts. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience additional significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or to grant licenses on terms that may not be favorable to us. We may seek to access the public or private capital markets whenever conditions are favorable, even if we do not have an immediate need for additional capital at that time. We may also consider strategic alternatives, including a sale of the Company, merger, other business combination or recapitalization.
Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, including the factors discussed elsewhere in this “Risk Factors” section. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Our future funding requirements will depend on many factors, including, but not limited to:
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the scope, rate of progress and cost of our clinical trials and other research and development activities;
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the costs and timing of regulatory approval;
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the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
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the effect of competing technological and market developments;
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the terms and timing of any collaboration, licensing or other arrangements that we may establish;
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the cost and timing of completion of clinical and commercial-scale manufacturing activities; and
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the costs of establishing sales, marketing and distribution capabilities for our cosmetic products and any product candidates for which we may receive regulatory approval.
Risks Related to Commercialization and Product Development
We are limited in the number of products we can simultaneously pursue and therefore our survival depends on our success with a small number of product opportunities.
We have limited financial resources, so at present we are primarily focusing these resources on developing levosimendan for the treatment of pulmonary hypertension, in addition to exploring strategic alternatives in order to maximize stockholder value. If as a consequence of the results of our Phase 2 trial in PH-HFpEF that we plan to conduct, we are unable to receive regulatory approval of levosimendan, then we may not have resources to pursue development of any other products and our business could terminate.
We currently have no approved drug products for sale and we cannot guarantee that we will ever have marketable drug products.
We currently have no approved drug products for sale. The research, testing, manufacturing, labeling, approval, selling, marketing, and distribution of drug products are subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries, with regulations differing from country to country. We are not permitted to market our product candidates in the United States until we receive approval of an NDA from the FDA for such product candidate, or any future product candidates. We have not submitted an NDA or received marketing approval for our product candidates, and obtaining approval of an NDA is a lengthy, expensive and uncertain process. In addition, markets outside of the United States also have requirements for approval of drug candidates which we must comply with prior to marketing. Accordingly, we cannot guarantee that we will ever have marketable drug products.
Prior to obtaining approval to commercialize a product candidate in the United States or abroad, we or our collaborators must demonstrate with substantial evidence from well-controlled clinical trials, and to the satisfaction of the FDA, that such product candidates are safe and effective for their intended uses. Results from preclinical studies and clinical trials can be interpreted in different ways. Even if we believe the preclinical or clinical data for our product candidates are promising, such data may not be sufficient to support approval by the FDA and other regulatory authorities. Additionally, the FDA may also require us to conduct additional preclinical studies or clinical trials for our product candidates either prior to or post-approval, or it may object to elements of our clinical development program. For example, we held a meeting with the FDA to review the preliminary trial data for our Phase 3 LEVO-CTS trial and discuss a path forward to file an NDA for levosimendan. We explored the opportunity for submitting an NDA for use in CABG surgery patients on the basis of the robust reduction in 90-day mortality observed in the LEVO-CTS trial. However, the FDA advised that another study in CABG surgery patients would be required that prospectively tests levosimendan’s effectiveness in improving mortality. Accordingly, we have suspended development of levosimendan use in CABG due to the scope of the repeat study, as required by the FDA.
The development of levosimendan is subject to a high level of technological risk.
We have devoted a substantial portion of our financial and managerial resources to pursue Phase 3 clinical trials for levosimendan. The biomedical field has undergone rapid and significant technological changes. Technological developments may result in our products becoming obsolete or non-competitive before we are able to recover any portion of the research and development and other expenses we have incurred to develop and clinically test levosimendan. As our opportunity to generate substantial product revenues within the next three to four years is most likely dependent on successful testing and commercialization of levosimendan for pulmonary hypertension, any such occurrence would have a material adverse effect on our operations and could result in the cessation of our business.
We are required to conduct additional clinical trials in the future, which are expensive and time consuming, and the outcome of the trials is uncertain.
We expect to commit a substantial portion of our financial and business resources over the next three years to clinical testing of levosimendan and advancing this product to regulatory approval for use in one or more medical applications. All of these clinical trials and testing will be expensive and time consuming and the timing of the regulatory review process is uncertain. The applicable regulatory agencies may suspend clinical trials at any time if they believe that the subjects participating in such trials are being exposed to unacceptable health risks. We cannot ensure that we will be able to complete our clinical trials successfully or obtain FDA or other governmental or regulatory approval of levosimendan, or that such approval, if obtained, will not include limitations on the indicated uses for which levosimendan may be marketed. For example, the top-line results of our Phase 3 LEVO-CTS trial for levosimendan did not achieve statistically significant reductions in dual or quad primary endpoints but did meet two secondary endpoints with statistically significant reduction in incidence of LCOS and use of postoperative secondary inotropes. Our business, financial condition and results of operations are critically dependent on obtaining capital to advance our testing program and receiving FDA and other governmental and regulatory approvals of levosimendan. A significant delay in or failure of our planned clinical trials or a failure to achieve these approvals would have a material adverse effect on us and could result in major setbacks or jeopardize our ability to continue as a going concern. For instance, based on the results of our LEVO-CTS clinical trial and subsequent FDA feedback, we do not anticipate undertaking further development with levosimendan in the LCOS indication.
The market may not accept our products.
Even if regulatory approval is obtained, there is a risk that the efficacy and pricing of our products, considered in relation to our products’ expected benefits, will not be perceived by health care providers and third-party payers as cost-effective, and that the price of our products will not be competitive with other new technologies or products. Our results of operations may be adversely affected if the price of our products is not considered cost-effective or if our products do not otherwise achieve market acceptance.
Any collaboration we enter with third parties to develop and commercialize any future product candidates may place the development of our product candidates outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us.
We may enter into collaborations with third parties to develop and commercialize future product candidates. Our dependence on future partners for development and commercialization of our product candidates would subject us to a number of risks, including:
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we may not be able to control the amount and timing of resources that our partners may devote to the development or commercialization of our product candidates or to their marketing and distribution;
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partners may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
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disputes may arise between us and our partners that result in the delay or termination of the research, development or commercialization of our product candidates or that result in costly litigation or arbitration that diverts management’s attention and resources;
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partners may experience financial difficulties;
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partners may not properly maintain or defend our intellectual property rights, or may use our proprietary information, in such a way as to invite litigation that could jeopardize or invalidate our intellectual property rights or proprietary information or expose us to potential litigation;
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business combinations or significant changes in a partner’s business strategy may adversely affect a partner’s willingness or ability to meet its obligations under any arrangement;
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a partner could independently move forward with a competing product candidate developed either independently or in collaboration with others, including our competitors; and
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the collaborations with our partners may be terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates.
Delays in the enrollment and completion of clinical testing could result in increased costs to us and delay or limit our ability to obtain regulatory approval for our product candidates.
Delays in the enrollment and completion of clinical testing could significantly affect our ability to gain FDA approval of levosimendan and any other future product development costs. The completion of clinical trials requires us to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs for the same indication as our product candidates or may be required to withdraw from our clinical trial as a result of changing standards of care or may become ineligible to participate in clinical studies. The enrollment and completion of clinical trials can be delayed for a variety of other reasons, including delays related to:
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reaching agreements on acceptable terms with prospective trial sites, the terms of which can be subject to extensive negotiation and may vary significantly among trial sites;
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obtaining institutional review board, or IRB, approval to conduct a clinical trial at numerous prospective sites;
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recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including meeting the enrollment criteria for our study and competition from other clinical trial programs for the same indication as our product candidates;
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maintaining and supplying clinical trial material on a timely basis; and
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collecting, analyzing and reporting final data from the clinical trials.
In addition, a clinical trial may be suspended or terminated by us, the FDA or other regulatory authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold;
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unforeseen safety issues or any determination that a trial presents unacceptable health risks; and
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lack of adequate funding to continue the clinical trial, including unforeseen costs due to enrollment delays, requirements to conduct additional trials and studies and increased expenses associated with the services of our contract research organizations, or CROs, and other third parties.
Changes in regulatory requirements and guidance may occur and we may need to amend clinical trial protocols to reflect these changes with appropriate regulatory authorities. Amendments may require us to resubmit our clinical trial protocols to IRBs for re-examination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in the completion of, or if we terminate, our clinical trials, the commercial prospects for our product candidates will be harmed, and our ability to generate product revenues will be delayed. In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. Even if we are able to ultimately commercialize our product candidates, other therapies for the same or similar indications may have been introduced to the market and established a competitive advantage.
Risks Relating to Regulatory Matters
Our activities are and will continue to be subject to extensive government regulation, which is expensive and time consuming, and we will not be able to sell our products without regulatory approval.
Our development, marketing and distribution of levosimendan is, and will continue to be, subject to extensive regulation, monitoring and approval by the FDA and other regulatory agencies. There are significant risks at each stage of the regulatory scheme.
Product approval stage
During the product approval stage, we attempt to prove the safety and efficacy of our product for its indicated uses. There are numerous problems that could arise during this stage, including:
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the data obtained from laboratory testing and clinical trials are susceptible to varying interpretations, which could delay, limit or prevent FDA and other regulatory approvals;
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adverse events could cause the FDA and other regulatory authorities to halt trials;
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at any time the FDA and other regulatory agencies could change policies and regulations that could result in delay and perhaps rejection of our products; and
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even after extensive testing and clinical trials, there is no assurance that regulatory approval will ever be obtained for any of our products.
Post-commercialization stage
Discovery of previously unknown problems with our products, or unanticipated problems with our manufacturing arrangements, even after FDA and other regulatory approvals of our products for commercial sale may result in the imposition of significant restrictions, including withdrawal of the product from the market.
Additional laws and regulations may also be enacted that could prevent or delay regulatory approval of our products, including laws or regulations relating to the price or cost-effectiveness of medical products. Any delay or failure to achieve regulatory approval of commercial sales of our products is likely to have a material adverse effect on our financial condition, results of operations and cash flows.
The FDA and other regulatory agencies continue to review products even after they receive agency approval. If and when the FDA or another regulatory agency outside the United States approves one of our products, its manufacture and marketing will be subject to ongoing regulation, which could include compliance with current good manufacturing practices, adverse event reporting requirements and general prohibitions against promoting products for unapproved or “off-label” uses. We are also subject to inspection and market surveillance by the FDA for compliance with these and other requirements. Any enforcement action resulting from failure, even by inadvertence, to comply with these requirements could affect the manufacture and marketing of levosimendan or our other products. In addition, the FDA or other regulatory agencies could withdraw a previously approved product from the market upon receipt of newly discovered information. The FDA or another regulatory agency could also require us to conduct additional, and potentially expensive, studies in areas outside our approved indicated uses.
We must continually monitor the safety of our products once approved and marketed for signs that their use may elicit serious and unexpected side effects and adverse events, which could jeopardize our ability to continue marketing the products. We may also be required to conduct post-approval clinical studies as a condition to licensing a product.
As with all pharmaceutical products, the use of our products could sometimes produce undesirable side effects or adverse reactions or events (referred to cumulatively as adverse events). For the most part, we would expect these adverse events to be known and occur at some predicted frequency. When adverse events are reported to us, we will be required to investigate each event and circumstances surrounding it to determine whether it was caused by our product and whether it implies that a previously unrecognized safety issue exists. We will also be required to periodically report summaries of these events to the applicable regulatory authorities.
In addition, the use of our products could be associated with serious and unexpected adverse events, or with less serious reactions at a greater than expected frequency. This may be especially true when our products are used in critically ill or otherwise compromised patient populations. When these unexpected events are reported to us, we will be required to make a thorough investigation to determine causality and implications for product safety. These events must also be specifically reported to the applicable regulatory authorities. If our evaluation concludes, or regulatory authorities perceive, that there is an unreasonable risk associated with the product, we would be obligated to withdraw the impacted lot(s) of that product. Furthermore, an unexpected adverse event of a new product could be recognized only after extensive use of the product, which could expose us to product liability risks, enforcement action by regulatory authorities and damage to our reputation and public image.
A serious adverse finding concerning the risk of our products by any regulatory authority could adversely affect our reputation, business and financial results.
When a new product is approved, the FDA or other regulatory authorities may require post-approval clinical trials, sometimes called Phase 4 clinical trials. If the results of such trials are unfavorable, this could result in the loss of the license to market the product, with a resulting loss of sales.
After our products are commercialized, we expect to spend considerable time and money complying with federal and state laws and regulations governing their sale, and, if we are unable to fully comply with such laws and regulations, we could face substantial penalties.
Health care providers, physicians and others will play a primary role in the recommendation and prescription of our clinical products. Our arrangements with third-party payers and customers may expose us to broadly applicable fraud and abuse and other health care laws and regulations that may constrain the business or financial arrangements and relationships through which we will market, sell and distribute our products. Applicable federal and state health care laws and regulations are expected to include, but not be limited to, the following:
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the federal anti-kickback statute is a criminal statute that makes it a felony for individuals or entities knowingly and willfully to offer or pay, or to solicit or receive, direct or indirect remuneration, in order to induce the purchase, order, lease, or recommending of items or services, or the referral of patients for services, that are reimbursed under a federal health care program, including Medicare and Medicaid;
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the federal False Claims Act imposes liability on any person who knowingly submits, or causes another person or entity to submit, a false claim for payment of government funds, with penalties that include three times the government’s damages plus civil penalties of $5,500 to $11,000 per false claim; in addition, the False Claims Act permits a person with knowledge of fraud, referred to as a qui tam plaintiff, to file a lawsuit on behalf of the government against the person or business that committed the fraud, and, if the action is successful, the qui tam plaintiff is rewarded with a percentage of the recovery;
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Health Insurance Portability and Accountability Act imposes obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information;
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the Social Security Act contains numerous provisions allowing the imposition of a civil money penalty, a monetary assessment, exclusion from the Medicare and Medicaid programs, or some combination of these penalties; and
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many states have analogous state laws and regulations, such as state anti-kickback and false claims laws, which, in some cases, these state laws impose more strict requirements than the federal laws and may require pharmaceutical companies to comply with certain price reporting and other compliance requirements.
Our failure to comply with any of these federal and state health care laws and regulations, or health care laws in foreign jurisdictions, could have a material adverse effect on our business, financial condition, result of operations and cash flows.
Health care reform and controls on health care spending may limit the price we can charge for our products and the amount we can sell.
As a result of Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act of 2010, collectively, the ACA, enacted in March 2010, substantial changes have occurred and are expected to continue to occur in the system for paying for health care in the United States, including changes made in order to extend medical benefits to those who currently lack insurance coverage. This comprehensive health care reform legislation also included provisions to control health care costs and improve health care quality. Together with ongoing statutory and budgetary policy developments at a federal level, this health care reform legislation could include changes in Medicare and Medicaid payment policies and other health care delivery administrative reforms that could potentially negatively impact our business. Because not all the administrative rules implementing health care reform under the legislation have been finalized, and because of ongoing federal fiscal budgetary pressures not yet resolved for federal health programs, the full impact of the ACA and of further statutory actions to reform healthcare payment on our business is unknown, but there can be no assurances that health care reform legislation will not adversely impact either our operational results or the manner in which we operate our business. There have been judicial and Congressional challenges to the ACA and there may be additional challenges and amendments to the ACA in the future, particularly in light of the current presidential administration and U.S. Congress. For example, the Tax Cuts and Jobs Act enacted on December 22, 2017, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code, commonly referred to as the individual mandate, beginning in 2019, and on October 13, 2017, President Trump signed an executive order terminating the cost-sharing subsidies that reimburse the insurers under the ACA. We expect that the ACA, as well as other healthcare reform measures that may be adopted in the future, may result in more rigorous coverage criteria and lower reimbursement, and in additional downward pressure on the price that we receive for any approved product. Cost of care could be reduced by reducing the level of reimbursement for medical services or products (including those biopharmaceuticals that we intend to produce and market), or by restricting coverage (and, thereby, utilization) of medical services or products. In either case, a reduction in the utilization of, or reimbursement for, our products could have a materially adverse impact on our financial performance. Moreover, recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for their commercial products. We cannot predict what healthcare reform initiatives may be adopted in the future. Uncertainty of third-party reimbursement could affect our future results of operations.
Sales of medical products largely depend on the reimbursement of patients’ medical expenses by governmental health care programs and private health insurers. We will be required to report detailed pricing information, net of included discounts, rebates and other concessions, to the Centers for Medicare and Medicaid Services, or CMS, for the purpose of calculating national reimbursement levels, certain federal prices, and certain federal rebate obligations. If we report pricing information that is not accurate to the federal government, we could be subject to fines and other sanctions that could adversely affect our business. In addition, the government could change its calculation of reimbursement, federal prices, or federal rebate obligations which could negatively impact us. There is no guarantee that government health care programs or private health insurers will reimburse for the sales of our products, or permit us to sell our products at high enough prices to generate a profit.
Governments outside the United States tend to impose strict price controls and reimbursement approval policies, which may adversely affect our prospects for generating revenue outside the United States.
Although we only have distribution rights in the United States and Canada for levosimendan, in some countries, particularly European Union countries and Canada, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. In addition, there can be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment measures. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. To obtain or maintain reimbursement or pricing approval in some countries with respect to any product candidate that achieves regulatory approval, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products upon approval, if at all, is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our prospects for generating revenue, if any, could be adversely affected which would have a material adverse effect on our business and results of operations. Further, if we achieve regulatory approval of any product, we must successfully negotiate product pricing for such product in individual countries. As a result, the pricing of our products, if approved, in different countries may vary widely, thus creating the potential for third-party trade in our products in an attempt to exploit price differences between countries. This third-party trade of our products could undermine our sales in markets with higher prices.
Risks Relating to Our Dependence on Third Parties
We depend on third parties to manufacture our products.
We do not own or operate any manufacturing facilities for the commercial-scale production of our products.Pursuant to the terms of our license for levosimendan, Orion is our sole manufacturing source for levosimendan. Accordingly, our business is susceptible to disruption, and our results of operations can be adversely affected, by any disruption in supply or other adverse developments in our relationship with Orion. If supply from Orion is delayed or terminated, or if its facilities suffer any damage or disruption, we may need to successfully qualify an alternative supplier in a timely manner in order to not disrupt our business. If we cannot obtain an alternate manufacturer in a timely manner, we would experience a significant interruption in supply of levosimendan, which could negatively affect our financial condition, results of operations and cash flows.
We depend on the services of a limited number of key personnel.
Our success is highly dependent on the continued services of a limited number of scientists and support personnel. The loss of any of these individuals, in particular, Anthony DiTonno, our Chief Executive Officer, and Michael Jebsen, our Chief Financial Officer, could have a material adverse effect on us. In addition, our success will depend, among other factors, on the recruitment and retention of additional highly skilled and experienced management and technical personnel. There is a risk that we will not be able to retain existing employees or to attract and retain additional skilled personnel on acceptable terms given the competition for such personnel among numerous large and well-funded pharmaceutical and health care companies, universities, and non-profit research institutions, which could negatively affect our financial condition, results of operations and cash flows.
We have no experience in the sale and marketing of medical products.
We have no experience in the sale and marketing of approved medical products and marketing the licensing of such products before FDA or other regulatory approval. We have not decided upon a commercialization strategy in these areas. We do not know of any third party that is prepared to distribute our products should they be approved. If we decide to establish our own commercialization capability, we will need to recruit, train and retain a marketing staff and sales force with sufficient technical expertise. We do not know whether we can establish a commercialization program at a cost that is acceptable in relation to revenue or whether we can be successful in commercializing our product. Factors that may inhibit our efforts to commercialize our products directly and without strategic partners include:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
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the inability of sales personnel to obtain access to or persuade adequate numbers of physicians to prescribe our products;
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the lack of complementary products to be offered by sales personnel, which may put us at a competitive disadvantage relative to companies with more extensive product lines; and
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unforeseen costs and expenses associated with creating and sustaining an independent sales and marketing organization.
Failure to successfully commercialize our products or to do so on a cost effective basis would likely result in failure of our business.
We may enter into distribution arrangements and marketing alliances for certain products and any failure to successfully identify and implement these arrangements on favorable terms, if at all, may impair our ability to commercialize our product candidates.
We do not anticipate having the resources in the foreseeable future to develop global sales and marketing capabilities for all of the products we develop, if any. We may pursue arrangements regarding the sales and marketing and distribution of one or more of our product candidates and our future revenues may depend, in part, on our ability to enter into and maintain arrangements with other companies having sales, marketing and distribution capabilities and the ability of such companies to successfully market and sell any such products. Any failure to enter into such arrangements and marketing alliances on favorable terms, if at all, could delay or impair our ability to commercialize our product candidates and could increase our costs of commercialization. Any use of distribution arrangements and marketing alliances to commercialize our product candidates will subject us to a number of risks, including the following:
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we may be required to relinquish important rights to our products or product candidates;
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we may not be able to control the amount and timing of resources that our distributors or collaborators may devote to the commercialization of our product candidates;
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our distributors or collaborators may experience financial difficulties;
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our distributors or collaborators may not devote sufficient time to the marketing and sales of our products; and
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business combinations or significant changes in a collaborator’s business strategy may adversely affect a collaborator’s willingness or ability to complete its obligations under any arrangement.
We may need to enter into additional co-promotion arrangements with third parties where our own sales force is neither well situated nor large enough to achieve maximum penetration in the market. We may not be successful in entering into any co-promotion arrangements, and the terms of any co-promotion arrangements we enter into may not be favorable to us.
Risks Relating to Intellectual Property
It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.
Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection of our future product candidates, if any, and the methods used to manufacture them, as well as successfully defending these patents against third-party challenges. Our ability to stop third parties from making, using, selling, offering to sell or importing our products is dependent upon the extent to which we have rights under valid and enforceable patents or trade secrets that cover these activities.
We license certain intellectual property from Orion that covers our product candidate levosimendan. The two principal United States patents which we license from Orion expire in September 2020. We rely on Orion to file, prosecute and maintain patent applications and otherwise protect the intellectual property to which we have a license, and we have not had and do not have primary control over these activities for certain of these patents or patent applications and other intellectual property rights. We cannot be certain that such activities by third parties have been or will be conducted in compliance with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights. Our enforcement of certain of these licensed patents or defense of any claims asserting the invalidity of these patents would also be subject to the cooperation of the third parties.
The patent positions of pharmaceutical and biopharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biopharmaceutical patents has emerged to date in the United States. The biopharmaceutical patent situation outside the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents we own or to which we have a license from a third-party. Further, if any of our patents are deemed invalid and unenforceable, it could impact our ability to commercialize or license our technology.
The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. For example:
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others may be able to make compositions or formulations that are similar to our product candidates but that are not covered by the claims of our patents;
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we might not have been the first to make the inventions covered by our issued patents or pending patent applications;
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we might not have been the first to file patent applications for these inventions;
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others may independently develop similar or alternative technologies or duplicate any of our technologies;
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it is possible that our pending patent applications will not result in issued patents;
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our issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges by third parties;
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we may not develop additional proprietary technologies that are patentable; or
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the patents of others may have an adverse effect on our business.
We also may rely on trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors. Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States are sometimes less willing to protect trade secrets. Moreover, our competitors may independently develop equivalent knowledge, methods and know-how.
We rely on confidentiality agreements that, if breached, may be difficult to enforce and could have a material adverse effect on our business and competitive position.
Our policy is to enter agreements relating to the non-disclosure and non-use of confidential information with third parties, including our contractors, consultants, advisors and research collaborators, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. However, these agreements can be difficult and costly to enforce. Moreover, to the extent that our contractors, consultants, advisors and research collaborators apply or independently develop intellectual property in connection with any of our projects, disputes may arise as to the proprietary rights to the intellectual property. If a dispute arises, a court may determine that the right belongs to a third party, and enforcement of our rights can be costly and unpredictable. In addition, we rely on trade secrets and proprietary know-how that we seek to protect in part by confidentiality agreements with our employees, contractors, consultants, advisors or others. Despite the protective measures we employ, we still face the risk that:
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these agreements may be breached;
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these agreements may not provide adequate remedies for the applicable type of breach; or
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our trade secrets or proprietary know-how will otherwise become known.
Any breach of our confidentiality agreements or our failure to effectively enforce such agreements would have a material adverse effect on our business and competitive position.
We may incur substantial costs as a result of litigation or other proceedings relating to patent and other intellectual property rights and we may be unable to protect our rights to, or use, our technology.
If we or our partners choose to go to court to stop someone else from using the inventions claimed in our patents, that individual or company has the right to ask the court to rule that these patents are invalid and/or should not be enforced against that third party. These lawsuits are expensive and would consume time and other resources even if we were successful in stopping the infringement of these patents. In addition, there is a risk that the court will decide that these patents are not valid and that we do not have the right to stop the other party from using the inventions. There is also the risk that, even if the validity of these patents is upheld, the court will refuse to stop the other party on the ground that such other party’s activities do not infringe our rights to these patents.
Furthermore, a third party may claim that we or our manufacturing or commercialization partners are using inventions covered by the third party’s patent rights and may go to court to stop us from engaging in our normal operations and activities, including making or selling our product candidates. These lawsuits are costly and could affect our results of operations and divert the attention of managerial and technical personnel. There is a risk that a court would decide that we or our commercialization partners are infringing the third party’s patents and would order us or our partners to stop the activities covered by the patents. In addition, there is a risk that a court will order us or our partners to pay the other party damages for having violated the other party’s patents. We have agreed to indemnify certain of our commercial partners against certain patent infringement claims brought by third parties. The biotechnology industry has produced a proliferation of patents, and it is not always clear to industry participants, including us, which patents cover various types of products or methods of use. The coverage of patents is subject to interpretation by the courts, and the interpretation is not always uniform. If we are sued for patent infringement, we would need to demonstrate that our products or methods of use either does not infringe the patent claims of the relevant patent and/or that the patent claims are invalid, and we may not be able to do this. Proving invalidity, in particular, is difficult since it requires a showing of clear and convincing evidence to overcome the presumption of validity enjoyed by issued patents.
Because some patent applications in the United States may be maintained in secrecy until the patents are issued, because patent applications in the United States and many foreign jurisdictions are typically not published until eighteen months after filing and because publications in the scientific literature often lag behind actual discoveries, we cannot be certain that others have not filed patent applications for technology covered by our issued patents or our pending applications, or that we were the first to invent the technology. Our competitors may have filed, and may in the future file, patent applications covering technology similar to ours. Any such patent application may have priority over our patent applications or patents, which could further require us to obtain rights to issued patents by others covering such technologies. If another party has filed a U.S. patent application on inventions similar to ours, we may have to participate in an interference proceeding declared by the U.S. Patent and Trademark Office, or USPTO, to determine priority of invention in the United States. The costs of these proceedings could be substantial, and it is possible that such efforts would be unsuccessful if, unbeknownst to us, the other party had independently arrived at the same or similar invention prior to our own invention, resulting in a loss of our U.S. patent position with respect to such inventions.
Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. 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.
Our collaborations with outside scientists and consultants may be subject to restriction and change.
We work with chemists, biologists and other scientists at academic and other institutions, and consultants who assist us in our research, development, regulatory and commercial efforts, including the members of our scientific advisory board. These scientists and consultants have provided, and we expect that they will continue to provide, valuable advice on our programs. These scientists and consultants are not our employees, may have other commitments that would limit their future availability to us and typically will not enter into non-compete agreements with us. If a conflict of interest arises between their work for us and their work for another entity, we may lose their services. In addition, we will be unable to prevent them from establishing competing businesses or developing competing products. For example, if a key scientist acting as a principal investigator in any of our clinical trials identifies a potential product or compound that is more scientifically interesting to his or her professional interests, his or her availability to remain involved in our clinical trials could be restricted or eliminated.
Under current law, we may not be able to enforce all employees’ covenants not to compete and therefore may be unable to prevent our competitors from benefiting from the expertise of some of our former employees.
We have entered into non-competition agreements with certain of our employees. These agreements prohibit our employees, if they cease working for us, from competing directly with us or working for our competitors for a limited period. Under current law, we may be unable to enforce these agreements against certain of our employees and it may be difficult for us to restrict our competitors from gaining the expertise our former employees gained while working for us. If we cannot enforce our employees’ non-compete agreements, we may be unable to prevent our competitors from benefiting from the expertise of our former employees.
We may infringe or be alleged to infringe intellectual property rights of third parties.
Our products or product candidates may infringe on, or be accused of infringing on, one or more claims of an issued patent or may fall within the scope of one or more claims in a published patent application that may be subsequently issued and to which we do not hold a license or other rights. Third parties may own or control these patents or patent applications in the United States and abroad. These third parties could bring claims against us or our collaborators that would cause us to incur substantial expenses and, if successful against us, could cause us to pay substantial damages. Further, if a patent infringement suit were brought against us or our collaborators, we or they could be forced to stop or delay research, development, manufacturing or sales of the product or product candidate that is the subject of the suit.
If we are found to infringe the patent rights of a third party, or in order to avoid potential claims, we or our collaborators may choose or be required to seek a license from a third party and be required to pay license fees or royalties or both. These licenses may not be available on acceptable terms, or at all. Even if we or our collaborators were able to obtain a license, the rights may be nonexclusive, which could result in our competitors gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product, or be forced to cease some aspect of our business operations, if, as a result of actual or threatened patent infringement claims, we or our collaborators are unable to enter into licenses on acceptable terms.
There have been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical and biotechnology industries. In addition to infringement claims against us, we may become a party to other patent litigation and other proceedings, including interference proceedings declared by the USPTO and opposition proceedings in the European Patent Office, regarding intellectual property rights with respect to our products. Our products, after commercial launch, may become subject to Paragraph IV certification under the Hatch-Waxman Act, thus forcing us to initiate infringement proceedings against such third-party filers. The cost to us of any patent litigation or other proceeding, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation or proceedings more effectively than we can because of their substantially 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. Patent litigation and other proceedings may also absorb significant management time.
Many of our employees were previously employed at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. We try to ensure that our employees do not use the proprietary information or know-how of others in their work for us. We may, however, be subject to claims that we or these employees have inadvertently or otherwise used or disclosed intellectual property, trade secrets or other proprietary information of any such employee’s former employer. Litigation may be necessary to defend against these claims and, even if we are successful in defending ourselves, could result in substantial costs to us or be distracting to our management. If we fail to defend any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel.
Product liability lawsuits against us could cause us to incur substantial liabilities, limit sales of our existing products and limit commercialization of any products that we may develop.
Our business exposes us to the risk of product liability claims that are inherent in the manufacturing, distribution, and sale of biotechnology products. We face an inherent risk of product liability exposure related to the testing of our product candidates in human clinical trials and an even greater risk when we commercially sell any products. If we cannot successfully defend ourselves against claims that our product candidates or products caused injuries, we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:
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decreased demand for our products and any product candidates that we may develop;
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injury to our reputation;
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withdrawal of clinical trial participants;
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costs to defend the related litigation;
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substantial monetary awards to trial participants or patients;
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the inability to commercialize any products that we may develop.
We currently maintain limited product liability insurance coverage for our clinical trials in the total amount of $3 million. However, our profitability will be adversely affected by a successful product liability claim in excess of our insurance coverage. There can be no assurance that product liability insurance will be available in the future or be available on reasonable terms.
Our business and operations would suffer in the event of computer system failures, cyber-attacks or deficiencies in our cyber-security.
Despite the implementation of security measures, our internal computer systems, and those of third parties on which we rely, are vulnerable to damage from computer viruses, malware, natural disasters, terrorism, war, telecommunication and electrical failures, cyber-attacks or cyber-intrusions over the Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our organization. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusion, including by computer hackers, foreign governments, and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. If such an event were to occur and cause interruptions in our operations, it could result in a material disruption of our product development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach was to result in a loss of or damage to our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur material legal claims and liability, and damage to our reputation, and the further development of our product candidates could be delayed.
Our disclosure controls and procedures address cybersecurity and include elements intended to ensure that there is an analysis of potential disclosure obligations arising from security breaches. We also maintain compliance programs to address the potential applicability of restrictions against trading while in possession of material, nonpublic information generally and in connection with a cyber-security breach. However, a breakdown in existing controls and procedures around our cyber-security environment may prevent us from detecting, reporting or responding to cyber incidents in a timely manner and could have a material adverse effect on our financial position and value of our stock.
Risks Related to Owning Our Common Stock
Our share price has been volatile and may continue to be volatile which may subject us to securities class action litigation in the future.
Our stock price has in the past been, and is likely to be in the future, volatile. The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, our existing stockholders may not be able to sell their stock at a favorable price. The market price for our common stock may be influenced by many factors, including:
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actual or anticipated fluctuations in our financial condition and operating results;
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status and/or results of our clinical trials;
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status of ongoing litigation;
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results of clinical trials of our competitors’ products;
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regulatory actions with respect to our products or our competitors’ products;
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actions and decisions by our collaborators or partners;
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actual or anticipated changes in our growth rate relative to our competitors;
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actual or anticipated fluctuations in our competitors’ operating results or changes in their growth rate;
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competition from existing products or new products that may emerge;
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issuance of new or updated research or reports by securities analysts;
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fluctuations in the valuation of companies perceived by investors to be comparable to us;
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share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
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market conditions for biopharmaceutical stocks in general;
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status of our search and selection of future management and leadership; and
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general economic and market conditions.
On December 31, 2017 the last closing price of our common stock was $9.80, as compared to $5.26, as of September 30, 2018. During the first nine months of the year ending December 31, 2018 the lowest closing price for our common stock was $4.41 and the highest closing price was $12.63 All stock prices are as adjusted for the 1-for-20 reverse stock split effective on February 23, 2018 at 5:00 p.m.
Some companies that have had volatile market prices for their securities have had securities class action lawsuits filed against them. Such lawsuits, should they be filed against us in the future, could result in substantial costs and a diversion of management’s attention and resources. This could have a material adverse effect on our business, results of operations and financial condition.
Our failure to maintain compliance with Nasdaq’s continued listing requirements could result in the delisting of our common stock.
Our common stock is currently listed on The Nasdaq Capital Market. In order to maintain this listing, we must satisfy minimum financial and other requirements. In the past, we have received a notification letter from Nasdaq indicating that we were not in compliance with listing requirements because the minimum bid price of our common stock closed below $1.00 per share for 30 consecutive trading days. However, Nasdaq subsequently notified us that we had regained compliance with the minimum bid price requirement. If we fail to satisfy Nasdaq’s listing requirements in the future, we expect to take actions to regain compliance, but we can provide no assurance that any such action would prevent our common stock from dropping below the Nasdaq minimum bid price requirement or prevent future non-compliance with Nasdaq’s listing requirements. If our common stock is delisted from Nasdaq, the delisting could substantially decrease trading in our common stock and adversely affect the market liquidity of our common stock; adversely affect our ability to obtain financing on acceptable terms, if at all; and may result in the potential loss of confidence by investors, suppliers, customers, and employees and fewer business development opportunities. Additionally, the market price of our common stock may decline further, and stockholders may lose some or all of their investment.
We are likely to attempt to raise additional capital through issuances of debt or equity securities, which may cause our stock price to decline, dilute the ownership interests of our existing stockholders, and/or limit our financial flexibility.
Historically we have financed our operations through the issuance of equity securities and debt financings, and we expect to continue to do so for the foreseeable future. As of June 30, 2018, we had $6.7 million of cash and cash equivalents on hand. Based on our current operating plans, we believe our existing cash and cash equivalents are sufficient to continue to fund operations through the first quarter of calendar year 2019. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution of their ownership interests. Debt financing, if available, may involve restrictive covenants that limit our financial flexibility or otherwise restrict our ability to pursue our business strategies. Additionally, if we issue shares of common stock, or securities convertible or exchangeable for common stock, the market price of our existing common stock may decline. There can be no assurance that we will be successful in obtaining any additional capital resources in a timely manner, on favorable terms, or at all.
Risks Relating to this Offering
Our use of the offering proceeds may not yield a favorable return on your investment.
We currently intend to use the net proceeds of this offering to further our clinical trials and efforts to obtain regulatory approval of levosimendan, for research and development and for general corporate purposes, including working capital and potential acquisitions. Our management has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. Pending the use of the proceeds in this offering, we intend to invest them. However, the proceeds may not be invested in a manner that yields a favorable or any return. The failure of our management to use such funds effectively could have a material adverse effect on our business, results of operations and financial condition.
If you purchase Class A Units in this offering, you will incur substantial dilution as a result of this offering and future equity issuances, and as result, our stock price could decline.
The public offering price of the Class A Unit is substantially higher than the net tangible book value per share of our outstanding common stock. Investors purchasing Class A Units in this offering will pay a price per share of common stock that substantially exceeds the book value of our tangible assets after subtracting our liabilities. As a result, investors purchasing Class A Units in this offering will incur immediate dilution of $ per share of common stock, based on an assumed public offering price of $ per Class A Unit. See “Dilution.” In addition to this offering, subject to market conditions and other factors, it is likely that we will pursue additional financings in the future, as we continue to build our business. In future years, we will likely need to raise significant additional capital to finance our operations and to fund clinical trials, regulatory submissions and the development, manufacture and marketing of other products under development and new product opportunities. Accordingly, we may conduct substantial future offerings of equity or debt securities. The exercise of outstanding options and warrants and future equity issuances, including future public offerings or future private placements of equity securities and any additional shares issued in connection with acquisitions, will result in dilution to investors. In addition, the market price of our common stock could fall as a result of resales of any of these shares of common stock due to an increased number of shares available for sale in the market.
In addition, our board of directors has the authority to establish the designation of additional shares of preferred stock that may be convertible into common stock without any action by our stockholders, and to fix the rights, preferences, privileges and restrictions, including voting rights, of such shares. Any such additional shares of preferred stock may have rights, preferences and privileges senior to those of outstanding common stock, and the issuance and conversion of any such preferred stock would further dilute the percentage ownership of our stockholders.
There is no public market for the Series A Preferred Stock or warrants to purchase common stock in this offering.
There is no established public trading market for the Series A Preferred Stock or the warrants being offered in this offering, and we do not expect a market to develop. In addition, neither the Series A Preferred Stock nor the warrants are listed, and we do not intend to apply for listing of the Series A Preferred Stock or the warrants on any securities exchange or trading system. Without an active market, the liquidity of the Series A Preferred Stock and the warrants is limited, and investors may be unable to liquidate their investments in the Series A Preferred Stock or the warrants.
The warrants may not have any value.
The warrants will be exercisable for five years from the closing date at an initial exercise price of $ per share. In the event that the price of a share of our common stock does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
The warrants purchased in this offering do not entitle the holder to any rights as common stockholders until the holder exercises the warrant for shares of our common stock.
Until you acquire shares of our common stock upon exercise of your warrants purchased in this offering, such warrants will not provide you any rights as a common stockholder, except as set forth in the warrants. Upon exercise of your warrants purchased in this offering, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs on or after the exercise date.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information set forth in this prospectus and the information itsit incorporates by reference may contain various “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All information relative to future markets for our products and trends in and anticipated levels of revenue, gross margins and expenses, as well as other statements containing words such as “believe,” “project,” “may,” “will,” “anticipate,” “target,” “plan,” “estimate,” “expect” and “intend” and other similar expressions constitute forward-looking statements. These forward-looking statements are subject to business, economic and other risks and uncertainties, both known and unknown, and actual results may differ materially from those contained in the forward-looking statements. Examples of risks and uncertainties that could cause actual results to differ materially from historical performance and any forward-looking statements include, but are not limited to, the risks described under the heading “Risk Factors” beginning on page 8 7 of this prospectus, in our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q, as well as any subsequent filings with the SEC. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date such forward-looking statements are made. You should read carefully this prospectus and any related free writing prospectuses that we have authorized for use in connection with this offering, together with the information incorporated herein or therein by reference as described under the heading “Where You Can Find MoreAdditional Information,” completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify all of our forward-looking statements by these cautionary statements. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
Prospectus Summary
This summary is not complete and does not contain all of the information you should consider before investing in the securities offered by this prospectus. You should read this summary together with the entire prospectus, including our financial statements, the notes to those financial statements, and the other documents identified under the headings “Where You Can Find More Information” and “Documents Incorporated by Reference” in this prospectus before making an investment decision. See the Risk Factors section of this prospectus on page 8 for a discussion of the risks involved in investing in our securities.
Oxygen Biotherapeutics, Inc.
Company Overview
We are engaged in the business of developing biotechnology products with a focus on oxygen delivery to specific target tissues. We are currently developing Oxycyte®, a systemic perfluorocarbon, or PFC, product we believe is a safe and effective oxygen carrier for use in situations of acute ischemia. In addition, we have developed a family of perfluorocarbon-based oxygen carriers for use in personal care, topical wound healing, and other topical indications. While Oxycyte has been successful in two clinical trials and is currently being evaluated in a Phase II-b clinical trial for the treatment of traumatic brain injury, or TBI, we also plan to focus on developing our most advanced topical products: Dermacyte® and Wundecyte™, as we believe these products have a significant opportunity for near-term commercialization.
Oxycyte
Our Oxycyte oxygen carrier product is a PFC-based oil in water emulsion, which is provided to the patient intravenously. The physical-chemical properties of PFCs enable our product to concentrate oxygen from the lungs and transport it through the body releasing it along the way. Over a period of days Oxycyte is gradually exhaled through the lungs during the normal process of respiration. Oxycyte requires no cross matching, so it is immediately available and compatible with all patients’ blood types. Oxycyte has an extended shelf life compared to blood and is provided as a sterile emulsion ready for intravenous administration. Because it contains no biological components, there is reduced risk of transmission of blood-borne viruses from human blood products. Further, since Oxycyte is based on readily available inert compounds, we believe it can be manufactured on a cost-effective basis in amounts sufficient to meet demand.
We received approval of our Investigational New Drug application, or IND, for severe TBI filed with the U.S. Food and Drug Administration, or FDA, and began Phase I clinical studies in October 2003, which were completed in December 2003. We submitted a report on the results to the FDA along with a Phase II protocol in 2004. Phase II-A clinical studies began in the fourth quarter 2004, and were completed in 2006. A further Phase II study protocol was filed with the FDA in the spring of 2008, but remained on clinical hold by the FDA due to safety concerns raised by the regulatory agency. In March 2011, we received confirmation of a $2.07 million, two-year cost reimbursement award from the U.S. Army to conduct safety related studies for Oxycyte. PFC emulsions, as a therapeutic class, are known to interact with the reticuloendothelial system as part of the clearance mechanism, as well as affect the number of circulating platelets. The studies supported by this grant will examine the effects of Oxycyte on the immune system, platelet function and distribution, as well as the safety and efficacy of platelet transfusion, which can be necessary for patients with TBI and related polytrauma. Additional studies under this grant will be conducted to evaluate the pharmacokinetics of PFCs in relevant species. We believe the results of these studies will support the safety profile of Oxycyte PFC emulsion and adequately address the FDA’s safety concerns. The aforementioned comprehensive preclinical program is under way, and we have sought FDA input and guidance with the aim of ensuring that the data collected will answer the questions regulators raise. We expect to commit a substantial portion of our financial and business resources over the next three years to testing Oxycyte and advancing this product to regulatory approval for use in one or more medical applications.
Despite the FDA’s postponement of Oxycyte trials in the United States, we are authorized to continue our TBI clinical studies abroad. After receiving the FDA clinical hold, we filed a revised protocol as a dose-escalation study with the regulatory authorities in Switzerland and Israel. The relevant Swiss regulatory body approved the protocol in August 2009, and the Israel Ministry of Health approved the protocol in September 2009. The new study began in October 2009. In March 2010, we determined that it is feasible to simplify the trial design and also reduce the number of patients to be enrolled. In May 2010, we entered into a relationship with a contract research organization, or CRO, to assist us with plans to expand our study, possibly into India, and to initiate five to 10 new sites for our Phase IIb clinical trial. At that time, we believed study objectives as well as safety and efficacy endpoints would remain unchanged, and we believed the study could be concluded faster and more economically with these optimizations. The first of three cohorts has been completed and we were authorized by the Swiss and Israeli regulatory authorities to initiate the second cohort. Despite their authorization, we stopped enrollment in order to reevaluate the protocol’s patient enrollment parameters, secure our cGMP supply of Oxycyte, review our contractor and clinical sites, and examine the possibility of opening clinical sites in other countries. At this time, we have secured our cGMP supply of Oxycyte. We are in the process of reviewing our CRO agreement and existing clinical sites. Our objective is to resume enrollment in the second cohort during the first quarter of fiscal year 2014. Upon completion of the Phase II trials, a Phase III trial will need to be implemented. In that instance, we would seek a partner to either conduct the Phase III trials, or collaborate with us to conduct the trials.
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Should Oxycyte successfully progress in clinical testing and if it appears regulatory approval for one or more medical uses is likely, either in the United States or in another country, we intend to evaluate our options for commercializing the product. These options include licensing Oxycyte to a third party for manufacture and distribution, manufacturing Oxycyte ourselves for distribution through third party distributors, manufacturing and selling the product ourselves, or establishing some other form of strategic relationship for making and distributing Oxycyte with a participant in the pharmaceutical industry. We are currently investigating and evaluating all options.
Dermacyte
The Dermacyte line of topical cosmetic products contains our patented PFC technology and other known cosmetic ingredients to promote the appearance of skin health and other desirable cosmetic benefits. Dermacyte is designed to provide a moist and oxygen-rich environment for the skin when it is applied topically, even in small amounts. Dermacyte Concentrate has been formulated as a cosmetic in our lab and Dermacyte Eye Complex was created by a contract formulator, with the patent held by Oxygen Biotherapeutics. Both formulas have passed required safety and toxicity tests in the United States, and we have filed a Cosmetic Product Ingredient Statement, or CPIS with the FDA. The market for oxygen-carrying cosmetics includes anti-aging, anti-wrinkle, skin abrasions and minor skin defects.
In September 2009, we started production of our first commercial product under our topical cosmetic line, Dermacyte Concentrate. We produced and sold a limited pre-production batch in November 2009 as a market acceptance test. The product was sold in packs of 8 doses of 0.4ml. Based on the test market results we identified specific market opportunities for this product and reformulated Dermacyte Concentrate for better product stability. Marketing and shipments of the new Dermacyte Concentrate formulation began in April 2010. We worked with a contract formulator in California to develop the Dermacyte Eye Complex which contains PFC technology as well as other ingredients beneficial to the healthy appearance of the skin around the eyes.
Since June 2010 we had marketed and sold these products through www.DermacyteUS.com (previously www.buydermacyte.com) and to dermatologists, plastic surgeons and medical spas with a combination of in-house sales, independent sales agents and exclusive distributors. We had hired a sales director based in North Carolina, and had added sales people in South Florida and California. From October 2011 through February 2012, we evaluated that sales strategy. The outcome was that we adjusted our growth strategy to focus exclusively on the North Carolina and South Florida markets while we focused on developing new, improved packaging for the existing commercial products, as well as reformulating the products, and expanding the line to include more skin care products.
On February 5, 2013, we entered into a License and Supply Agreement, or the Dermacyte Agreement with the Cosmetics Division of Valor SA, or Valor, with respect to Dermacyte. The Dermacyte Agreement grants Valor the exclusive right to sell, import, export, distribute, package, label and otherwise commercialize Dermacyte worldwide for a five year term. Valor is also authorized to sublicense the license granted under the Dermacyte Agreement provided that such sublicenses are consistent with the terms of the Dermacyte Agreement. The Dermacyte Agreement will become effective upon our receipt from Valor of 75% of the estimated costs to complete certain product formulation and safety studies requested by Valor. As of June 26, 2013, Valor has not requested any additional formulation development or safety studies.
Under the Dermacyte Agreement, Valor will purchase bulk Dermacyte from us for 125% of our actual manufacturing cost, and must pay us an annual, non-refundable license fee of $140,000, payable on a quarterly basis, with the first year’s payment creditable against Dermacyte purchased by Valor in the first 12 months following the effective date of the Dermacyte Agreement. Valor must also pay us royalties of 5% of net sales of Dermacyte once Valor’s aggregate net sales of Dermacyte equals or exceeds $10,000,000.
Dermatology
We intend to develop additional clinical research protocols and conduct proof-of-concept studies for topical indications, such as the treatment of acne, rosacea, pruritis, psoriasis, and dermatitis. In January 2012 we initiated our first proof-of-concept study in India to assess the potential of our topical gel to reduce the itch (pruritis) associated with histamine-mediated allergic skin reactions. In May 2012, we revealed results of this study which showed that our topical gel elicited a larger reduction in Visual Analogue Scale scores following a standard histamine skin prick compared to placebo. The sample size of this study prevented a demonstration of statistical significance so further research is necessary to evaluate its effectiveness. We believe that we will need the support of partners in this sector to commercialize these dermatologic product candidates. We can provide no assurance that the topical indications we have under development will prove their claims and be successful commercial products.
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Wundecyte
Wundecyte is a novel gel developed under a contract agreement with a lab in Virginia that is designed to be used as a wound-healing gel. In July 2009, we filed a 510K medical device application for Wundecyte with the FDA. Several oxygen-producing and oxygen-carrying devices were cited as predicate devices. The FDA response was that the application likely would be classified as a combination device. The drug component of the combination device will require extensive preclinical and clinical studies to be conducted prior to potential commercialization of the product.
We have also developed a prototype for an oxygen-generating bandage that can be combined with Wundecyte gel. Wundecyte gel and the oxygen-generating bandage both entered preclinical testing in our first quarter of fiscal 2011. The studies were designed to measure factors such as time to wound closure and reduction in scar tissue formation as compared to a control group. Results showed an apparent increase in epithelial thickness versus the control. The treatment did not cause adverse effects and the models tolerated the treatment well. Our current product development plan is for Wundecyte to emerge into more complex wound-healing indications, also in combination with oxygen-producing technologies based on hydrogen peroxide. In December 2010 we signed a binding letter of intent with Sarasota Medical Products, Inc., or SMP, of Sarasota, Florida to determine the feasibility of pursuing a joint research and development venture for treating chronic ischemic wounds. The venture was to be based on combining Wundecyte with SMP’s topical medical devices. No significant development activities have resulted from this agreement as of April 30, 2013.
Recent Developments
As of July 11, 2013, we believe that our existing cash and cash equivalents will be sufficient to fund our projected operating requirements through July 31, 2013. We will need substantial additional capital in the future in order to complete the development and commercialization of Oxycyte and to fund the development and commercialization of our future product candidates. Until we can generate a sufficient amount of product revenue, if ever, we expect to finance future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Such funding, if needed, may not be available on favorable terms, if at all. In the event we are unable to obtain additional capital, we may delay or reduce the scope of our current research and development programs and other expenses.
While our common stock is currently listed on the NASDAQ Capital Market, or NASDAQ, we are not currently in compliance with NASDAQ’s continued listing standards. Continued listing of a security on NASDAQ is conditioned upon compliance with various continued listing standards, which require, among other things, that for 30 consecutive trading days (i) the closing minimum bid price for our listed securities not be lower than $1.00 per share and (ii) our market capitalization not be lower than $35 million. The closing bid price for our shares fell below $1.00 per share on August 21, 2012 and our market capitalization has been less than $35 million since August 8, 2012. As a result, NASDAQ notified us by letter dated March 20, 2013 of the Staff’s decision to delist our securities from NASDAQ. In addition, NASDAQ notified us by letter dated April 4, 2013 that our failure to maintain market capitalization not lower than $35 million serves as an additional basis to delist our securities from The NASDAQ Capital Market. We appealed NASDAQ’s determination by requesting a hearing before a NASDAQ Listing Qualifications Panel, or the Panel, to seek continued listing pending our return to compliance.
On May 15, 2013, we received notice from the Panel that the Panel has determined to grant our request for continued listing on The NASDAQ Capital Market pursuant to an extension through June 3, 2013 to evidence compliance with the minimum $1.00 bid price requirement, as set forth in NASDAQ Listing Rule 5550(a), and through July 31, 2013 to evidence compliance with the alternate minimum $2.5 million stockholders’ equity requirement, as set forth in NASDAQ Listing Rule 5550(b), for continued listing on The NASDAQ Capital Market. As of June 3, 2013, we have regained compliance with the minimum $1.00 bid price requirement, due in part to our 1-for-20 reverse stock split effective on May 13, 2013. We are working to timely evidence compliance with the additional terms of the Panel’s decision; however, there can be no assurance that we will be able to do so. See “Risk Factors” beginning on page 8 for additional information
Corporate Information
Our principal executive offices are located at ONE Copley Parkway, Suite 490, Morrisville, North Carolina 27560, and our telephone number is (919) 855-2100. Our Internet address is http://www.oxybiomed.com. The information on our website is not incorporated by reference into this prospectus, and you should not consider it part of this prospectus.
Our Company was originally formed as a New Jersey corporation in 1967 under the name Rudmer, David & Associates, Inc., and subsequently changed its name to Synthetic Blood International, Inc. Effective June 30, 2008, we changed the domiciliary state of the corporation to Delaware and changed the company name to Oxygen Biotherapeutics, Inc.
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The Offering
| Issuer | | Oxygen Biotherapeutics, Inc. |
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| Securities being offered by us | | 6,000 units, with each unit consisting of (1) one share of Series C 8% Convertible Preferred Stock and (2) one warrant exercisable for [—] shares of our common stock. Units will not be issued or certificated. The shares of Series C 8% Convertible Preferred Stock and the warrants are immediately separable and will be issued separately.
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| Offering Price | | $1,000 per unit |
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| Description of Series C 8% Convertible Preferred Stock | | Each unit includes one share of Series C 8% Convertible Preferred Stock. Series C 8% Convertible Preferred Stock has a liquidation preference. See “Description of Capital Stock – Series C 8% Convertible Preferred Stock” beginning on page 16.
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| Conversion Price of Series C 8% Convertible Preferred Stock | | $[●]
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| Shares of common stock underlying the shares of Series C 8% Convertible Preferred Stock included in units | | Based on an assumed conversion price of $2.24, which was 75% of the last reported sale price for our common stock on July 15, 2013, 2,678,572 shares.
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| | | Subject to certain ownership limitations, the Series C 8% Convertible Preferred Stock is convertible at any time at the option of the holder into shares of our common stock at a conversion ratio determined by dividing the stated value of the Series C 8% Convertible Preferred Stock (or $1,000) by a conversion price of $[—] per share. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.
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| Dividends and Make-Whole Payment
| | Until the third anniversary of the date of issuance of the Series C 8% Convertible Preferred Stock, each holder of the Series C 8% Convertible Preferred Stock is entitled to receive dividends at the rate of 8% per annum of the stated value for each share of Series C 8% Convertible Preferred Stock held by such holder payable quarterly on January 1, April 1, July 1 and October 1, beginning on the first such date after the original issue date, and on each dividend payment date. We can elect to pay the dividends in cash or in duly authorized, validly issued, fully paid and non-assessable shares of common stock, or a combination thereof. If we pay the dividends in shares of common stock, the shares used to pay the dividends will be valued at 90% of the average volume weighted average price for the 20 consecutive trading days ending on the trading day immediately prior to the applicable dividend payment date. From and after the third anniversary of the date of issuance of the Series C 8% Convertible Preferred Stock, each holder of Series C 8% Convertible Preferred Stock will be entitled to receive dividends equal, on an as-if-converted to common stock basis, to and in the same form as dividends actually paid on shares of common stock when, as, and if such dividends are paid on shares of common stock. We have never paid dividends on our common stock and we do not intend to do so for the foreseeable future.
In the event a holder converts his, her or its Series C 8% Convertible Preferred Stock prior to the third anniversary of the date of issuance of the Series C 8% Convertible Preferred Stock, we must also pay to the holder in cash, or at our option in common stock valued as described above, or a combination of cash and shares of common stock, with respect to the Series C 8% Convertible Stock so converted, an amount equal to $240 per $1,000 of the stated value of the Series C 8% Convertible Preferred Stock, less the amount of any dividends paid in cash or in common stock on such Series C 8% Convertible Preferred Stock on or before the date of conversion.
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| | | Subject to certain ownership limitations, the Series C 8% Convertible Preferred Stock is convertible at any time at the option of the holder into shares of our common stock at a conversion ratio determined by dividing the stated value of the Series C 8% Convertible Preferred Stock (or $1,000) by a conversion price of $[—] per share. The conversion price is subject to adjustment in the case of stock splits, stock dividends, combinations of shares and similar recapitalization transactions.
Until such time that for at least 25 trading days during any 30 consecutive trading days, the volume weighted average price of our common stock exceeds 250% of the initial conversion price, if we sell or grant any option to purchase or sell any common stock or common stock equivalents entitling any person to acquire shares of common stock at an effective price per share that is lower than the then conversion price, or the Base Conversion Price, then the conversion price shall be reduced to equal the Base Conversion Price
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| Covenants | | As long as any shares of Series C 8% Convertible Preferred Stock are outstanding, we may not, without the affirmative vote of the holders of 50.1% or more of the then outstanding shares of the Series C 8% Convertible Preferred Stock, (1) alter or change adversely the powers, preferences or rights given to the Series C 8% Convertible Preferred Stock or alter or amend the certificate of designation, (2) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon liquidation senior to, or otherwise pari passu with, the Series C 8% Convertible Preferred Stock, (3) amend our certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series C 8% Convertible Preferred Stock, (4) increase the number of authorized shares of Series C 8% Convertible Preferred Stock, or (5) enter into any agreement with respect to any of the foregoing.
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| Liquidation Preference | | Upon any liquidation, dissolution or winding up of the Company after payment or provision for payment of debts and other liabilities of the Company, but before any distribution or payment is made to the holders of any junior securities, the holders of Series C 8% Convertible Preferred Stock shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders an amount equal to $1,000 per share, after which any remaining assets of the Company shall be distributed among the holders of the other class or series of stock in accordance with the Company’s Certificate of Incorporation. |
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| Description of Warrants | | Each unit includes a warrant to purchase [—] shares of common stock. Warrants will entitle the holder to purchase shares of common stock for an exercise price equal to $[—] per share. The warrants will be exercisable beginning [—] and expire on the sixth anniversary of the initial exercise date. See “Description of Securities We Are Offering – Warrants” beginning on page 18.
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| Warrant Anti-Dilution Adjustments | | The exercise price and the number of shares issuable upon exercise of the warrants is subject to appropriate adjustment in the event of recapitalization events, stock dividends, stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock, and also upon any distributions of assets, including cash, stock or other property to our stockholders.
In addition, the warrants will be subject to anti-dilution provisions until such time that for 25 trading days during any 30 consecutive trading days period, the volume weighted average price of the Company’s common stock exceeds $[●] and the daily dollar trading volume exceeds $350,000 per trading day.
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| Fundamental Transactions | | In the event we consummate a merger or consolidation with or into another person or other reorganization event in which our common shares are converted or exchange for securities, cash or other property, or we sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of our assets or we or another person acquire 50% or more of our outstanding common shares, then following such event, the holders of the Series C 8% Convertible Preferred Stock and warrants will be entitled to receive upon conversion or exercise, as applicable, the same kind and amount of securities, cash or property which the holders would have received had they converted or exercised, as applicable, such securities immediately prior to such fundamental transaction.
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| Shares of common stock outstanding before this offering | | |
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| Common stock to be outstanding after this offering, including shares of common stock underlying shares of Series C 8% Convertible Preferred Stock included in units | | [●] shares
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| Use of proceeds | | Assuming all units are sold, we estimate that the net proceeds to us from this offering will be approximately $[—] million. We intend to use the net proceeds received from the sale of the securities for furthering our clinical trials and efforts to obtain regulatory approval for Oxycyte, developing our other product candidates, supporting manufacturing Oxycyte, distribution for Dermacyte, research and development and general corporate purposes. See “Use of Proceeds.”
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| Limitations on Beneficial Ownership | | Subject to limited exceptions, the Company will not permit the conversion of the Series C 8% Convertible Preferred Stock or exercise of the warrants of any holder, if after such conversion or exercise such holder would beneficially own more than 4.99% of the shares of common stock then outstanding.
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| Risk factors | | Investing in our securities involves a high degree of risk. See the “Risk Factors” section of this prospectus on page 8 and in the documents we incorporate by reference in this prospectus for a discussion of factors you should consider carefully before deciding to invest in our securities. |
The number of shares of common stock outstanding before and after the offering is based on 2,124,440 shares outstanding as of July 15, 2013 and excludes:
● | 757,749 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $11.26 per share; |
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● | 128,192 shares of common stock issuable upon the exercise of outstanding Series B-2 preferred stock with a weighted average exercise price of $3.37 per share; |
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● | 11,365 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $57.07 per share and 13,975 shares of common stock issuable upon the vesting of outstanding restricted stock grants; |
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● | 270,068 shares of common stock reserved for future grants and awards under our equity incentive plans; and |
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● | 108,648 shares of common stock issuable upon the conversion of outstanding convertible notes with a weighted average conversion price of $45.10. |
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● | [●] shares of common stock issuable upon exercise of warrants to be issued in connection with this offering. |
Risk Factors
An investment in our securities is speculative and involves a high degree of risk. You should carefully consider the risks under the heading “Risk Factors” beginning on page 11 of our Annual Report on Form 10-K for the fiscal year ended April 30, 2013, filed with the SEC on June 26, 2013, which information is incorporated by reference in this prospectus, and the additional risks described below and other information in this prospectus and the documents incorporated by reference before deciding to invest in our securities. If any of the following risks actually occur, our business, results of operations, financial condition and cash flows could be materially adversely affected, the trading price of our common stock could decline significantly, and you might lose all or part of your investment. Additional risks and uncertainties that we are unaware of or that we believe are not material at this time could also materially adversely affect our business, financial condition or results of operations. In any case, the value of our securities could decline, and you could lose all or part of your investment, or our use of the offering proceeds may not yield a favorable return on your investment. You should also refer to our financial statements and the notes to those statements, which are incorporated by reference in this prospectus. For more information, see “Where You Can Find More Information.”
Risks Relating to the Offering
Our use of the offering proceeds may not yield a favorable return on your investment.
We currently intend to use the net proceeds received from the sale of the securities to further our clinical trials and efforts to obtain regulatory approval of Oxycyte, develop our product candidates, including dermatologic indications using our topical gel, support manufacturing of Oxycyte, for research and development and for general corporate purposes, including working capital and potential acquisitions. Our management has broad discretion over how these proceeds are used and could spend the proceeds in ways with which you may not agree. Pending the use of the proceeds in this offering, we will invest them. However, the proceeds may not be invested in a manner that yields a favorable or any return.
As a new investor, you will incur substantial dilution as a result of this offering and future equity issuances, and as result, our stock price could decline.
The offering price is substantially higher than the net tangible book value per share of our outstanding common stock. As a result, based on our capitalization as of April 30, 2013, investors converting or exercising Series C 8% Convertible Preferred Stock or warrants for shares of common stock, as the case may be, will incur immediate dilution. In addition to this offering, subject to market conditions and other factors, it is likely that we will pursue additional financings in the future, as we continue to build our business. In future years, we will likely need to raise significant additional capital to finance our operations and to fund clinical trials, regulatory submissions and the development, manufacture and marketing of other products under development and new product opportunities. Accordingly, we may conduct substantial future offerings of equity or debt securities. The exercise of outstanding options and warrants and future equity issuances, including future public offerings or future private placements of equity securities and any additional shares issued in connection with acquisitions, will result in dilution to investors. In addition, the market price of our common stock could fall as a result of resales of any of these shares of common stock due to an increased number of shares available for sale in the market.
In addition, our board of directors has the authority to establish the designation of additional shares of preferred stock that may be convertible into common stock without any action by our stockholders, and to fix the rights, preferences, privileges and restrictions, including voting rights, of such shares. Any such additional shares of preferred stock may have rights, preferences and privileges senior to those of outstanding common stock, and the issuance and conversion of any such preferred stock would further dilute the percentage ownership of our stockholders.
Stockholders may incur additional dilution as a result of a subsequent exchange of equity securities for outstanding convertible debentures.
As of July 11, 2013, the Company had approximately $4,900,000 of outstanding convertible debentures, $4,600,000 of which are held by JP SPC 3 obo OXBT Fund, SP, an entity that is affiliated with Gregory Pepin, a member of our Board of Directors. These debentures carry an annual interest rate of 15% and mature on June 29, 2014 and July 1, 2014. The transaction documents related to this offering permit us to exchange the outstanding convertible debentures for a new series of preferred stock and warrants on terms substantially similar to the Series C 8% Convertible Preferred Stock and Warrants being issued this offering. In connection with continued listing requirements of NASDAQ, we may seek to carry out such exchange in the near future, though there can be no assurance as to the terms, timing or consummation of any such exchange. In the event such an exchange is completed, the issuance of shares of equity securities or conversion of any such shares of preferred stock or exercise of any warrants would further dilute the percentage ownership of our stockholders.
There is no public market for the Series C 8% Convertible Preferred Stock or warrants to purchase common stock in this offering.
There is no established public trading market for the Series C 8% Convertible Preferred Stock or warrants being offered in this offering, and we do not expect a market to develop. In addition, we do not intend to apply for listing of the Series C 8% Convertible Preferred Stock or warrants on any securities exchange. Without an active market, the liquidity of the Series C 8% Convertible Preferred Stock or warrants will be limited.
The warrants may not have any value.
The warrants will be exercisable for six years from the date of initial exercise at an initial exercise price per share equal to $[—]. In the event that our common stock price does not exceed the exercise price of the warrants during the period when the warrants are exercisable, the warrants may not have any value.
Holders of our warrants will have no rights as a common stockholder until they acquire our common stock.
Until you acquire shares of our common stock upon exercise of your warrants, you will have no rights with respect to our common stock. Upon exercise of your warrants, you will be entitled to exercise the rights of a common stockholder only as to matters for which the record date occurs after the exercise date.
If we cannot meet the NASDAQ Capital Market continued listing requirements, the common stock underlying the Series C 8% Convertible Preferred Stock may be delisted which could have an adverse impact on the liquidity and market price of our common stock.
While the shares of common stock underlying the Series C 8% Convertible Preferred Stock and warrants will be listed on NASDAQ, there can be no assurance they will continue to be listed in the future. Continued listing of a security on NASDAQ is conditioned upon compliance with various continued listing standards, which require, among other things, that for 30 consecutive trading days (i) the closing minimum bid price for our listed securities not be lower than $1.00 per share and (ii) our market capitalization not be lower than $35 million. The closing bid price for our shares fell below $1.00 per share on August 21, 2012 and our market capitalization has been less than $35 million since August 8, 2012.
On September 20, 2012 we received a deficiency notice from NASDAQ due to our market capitalization falling below $35 million for 30 consecutive days. We were required to regain compliance with this continued listing standard before March 19, 2013. On October 3, 2012 we received a deficiency notice from NASDAQ due to the closing bid price for our shares falling below $1.00 per share for 30 consecutive days. We were required to regain compliance with this continued listing standard before April 1, 2013.
However, we were not able to regain compliance with the market capitalization requirement by March 19, 2013. As a result NASDAQ notified us by letter dated March 20, 2013 of the Staff’s decision to delist our securities from NASDAQ. We appealed the Staff’s determination by requesting a hearing, or the Hearing, before a NASDAQ. Hearings Panel, or the Panel, to seek continued listing pending our return to compliance with the minimum market value requirement under Rule 5550(b)(2). In addition, we were not able to regain compliance with the minimum bid price listing standard by April 1, 2013. As a result NASDAQ notified us by letter dated April 4, 2013 that our failure to comply with Rule 5550(a)(2) serves as an additional basis to delist our securities from The NASDAQ Capital Market, and that the Panel, in connection with the Hearing, would consider this matter in rendering a determination regarding our continued listing on The NASDAQ Capital Market.
On May 15, 2013, we received notice from the Panel that the Panel has determined to grant our request for continued listing on The NASDAQ Capital Market pursuant to an extension through June 3, 2013 to evidence compliance with the minimum $1.00 bid price requirement, as set forth in NASDAQ Listing Rule 5550(a), and through July 31, 2013 to evidence compliance with the alternate minimum $2.5 million stockholders’ equity requirement, as set forth in NASDAQ Listing Rule 5550(b), for continued listing on The NASDAQ Capital Market. As of June 3, 2013, we have regained compliance with the minimum $1.00 bid price requirement, due in part to our 1-for-20 reverse stock split effective on May 13, 2013. We are working to timely evidence compliance with the additional terms of the Panel’s decision; however, there can be no assurance that we will be able to do so. Delisting from NASDAQ would negatively impact us and our stockholders by, among other things, reducing the liquidity and market price of our common stock and adversely affecting our ability to raise additional capital.
Use of Proceeds
Assuming all units are sold, we estimate that the net proceeds to us from this offering will be approximately $5.32 million. This amount does$ million, based on an assumed offering price of $ per Class A Unit and Class B Unit which is the last reported sales price per share of our common stock on the Nasdaq Capital Market on , 2018, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter exercises its over-allotment option in full, we estimate that our net proceeds will be approximately $ million, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not includereceive any additional proceeds from any future conversions of the Series A Preferred Stock. We will only receive additional proceeds which we may receive in connection withfrom the exercise of the warrants. We cannot predict when orwarrants issuable in connection with this offering if the warrants will beare exercised and it is possible that the holders of such warrants may expirepay the exercise price in cash upon such exercise and never be exercised. The offering doesdo not specify any minimum saleutilize the cashless exercise provision of any specific number of units and, as a result, the net proceeds actually received by us may be considerably less than the estimated net proceeds above.warrants.
We currently intend to use the net proceeds of this offering to further our clinical trials and efforts to obtain regulatory approval of Oxycyte, develop our product candidates, including dermatologic indications using our topical gel, support manufacturing of Oxycyte,levosimendan, for research and development and for general corporate purposes, including working capital and potential acquisitions. We currently do not have any arrangements or agreements for any acquisitions. We cannot precisely estimate the allocation of the net proceeds from this offering. Accordingly, our management will have broad discretion in the application of the net proceeds of this offering. Pending the use of net proceeds, we intend to invest these net proceeds in short-and intermediate-term, interest-bearing obligations, investment-grade instruments, demand deposits, certificates of deposit or direct or guaranteed obligations of the U.S. government.
In addition, our existing resources, together with the proceeds from this offering, will not be adequate to permit us to complete such clinical development or fund our operations over the longer term. We will need to secure significant additional resources to complete such development and to support our continued operations.
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The following table sets forth our actual cash and cash equivalents and our capitalization as of June 30, 2018 adjusted to give effect to the sale of the securities offered hereby and the use of proceeds, as described in the section entitled “Use of Proceeds:”
Dilution●
on an as adjusted basis to give effect to the sale of Class A Units and Class B Units in this offering, at an assumed public offering price of $ , the application of the net proceeds of this offering and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
The pro forma as adjusted information set forth in the table below is illustrative only and will be adjusted based on the actual public offering price and other terms of this offering determined at pricing.
You should read this information in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes appearing in our Annual Report on Form 10-K for the year ended December 31, 2017 and our Form 10-Q for the quarters ended March 31, 2018 and June 30, 2018, which are incorporated by reference into this prospectus.
| |
| | | |
| (in thousands) (unaudited) |
Cash and cash equivalents | $3,902,878 | - | - |
| | | |
Stockholders’ equity | | | |
Preferred stock, no par value; 10,000,000 shares authorized; Series A shares issued and outstanding on a pro forma as adjusted basis | -- | | |
Common stock, $0.0001 par value, 400,000,000 shares authorized;1,453,676 shares issued and outstanding, and shares issued and outstanding on a pro forma as adjusted basis | 145 | | |
Additional paid-in capital | 222,800,079 | | |
Accumulated deficit | (216,550,693) | | |
Total liabilities and stockholders’ equity | 7,025,872 | | |
The information in the table above is based on 1,465,496 shares of common stock outstanding as of June 30, 2018, and does not take into account any of the following:
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120,773 shares of common stock issuable upon the exercise of outstanding warrants with a weighted average exercise price of $52.29 per share;
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241,744 shares of common stock issuable upon the exercise of outstanding options with a weighted average exercise price of $75.70 per share;
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39,828 shares of common stock issuable upon the vesting of outstanding restricted stock grants with a weighted average grant date fair value of $6.28 per share;
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100,000 shares of common stock reserved for future grants and awards under our 2016 Stock Incentive Plan;
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shares of common stock issuable upon the exercise of the warrants to be sold as part of this offering; and
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any shares issued upon the exercise by the underwriter of the option to purchase additional shares of common stock and/or warrants from us to cover overallotments, if any.
DILUTION
Our net tangible book value as of AprilSeptember 30, 20132018 was approximately $(2,702,734),$4,937,961 or approximately $(1.40)$3.37 per share of common stock. Net tangible book value per share is equal to our total tangible assets less our total liabilities, with this amount divided by the number of shares of common stock outstanding as of AprilSeptember 30, 2013, as adjusted for the 1-for-20 reverse stock split effective on May 13, 2013.2018. After giving effect to the sale of 6,000 shares of Series C 8% Convertible Preferred Stock in this offering and assuming the conversion of all the shares of Series C 8% Convertible Preferred Stock sold in the offering at an assumed conversion price of $2.24 which was 75% of the last reported sale price for our common stock on July 15, 2013 (and excluding shares of common stock, issuableinclusive of the shares of common stock that the Series A Preferred Stock to be issued is convertible into, at an assumed public offering price of $ per Unit and after excluding shares that may be issued upon exercise of warrants),the underwriter's overallotment option and after deducting the placement agent’s feesunderwriting discounts and commissions and estimated offering expenses of this offering,payable by us, our as adjusted net tangible book value would have been approximately $2,617,266,$ , or $0.57$ per share of common stock. Assuming the completion of this offering, this represents an immediate increase in net tangible book value of $1.97$ per share to our existing stockholders and an immediate dilution of $1.67$ per share to anyone who purchases our Series C 8% Convertible Preferred Stock and warrantssecurities in this offering. The following table illustrates this calculation on a per share basis: