| Corporate overview | 1.
Corporate overview:
Overview
The accompanying unaudited condensed financial statements of
HedgePath Pharmaceuticals, Inc., a Delaware corporation (the
“Company”, “HPPI”, “we”,
“us” or similar terminology), have been prepared by the
Company without audit. In the opinion of management, all
adjustments (which include normal recurring adjustments) necessary
to present fairly the financial position, results of operations and
cash flows as of September 30, 2018, and for all periods
presented, have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with accounting
principles generally accepted in the United States of America
(“GAAP”) have been condensed or omitted pursuant to the
Securities and Exchange Commission (“SEC”) rules and
regulations. These unaudited condensed financial statements should
be read in conjunction with the audited financial statements and
notes thereto for the year ended December 31, 2017, which are
included in the Company’s Annual Report on
Form 10-K
As used herein, the term “Common Stock” means the
Company’s common stock, $0.0001 par value per share.
The results of operations for the three and nine month periods
ended September 30, 2018 are not necessarily indicative of
results that may be expected for any other interim period or for
the full fiscal year. Readers of this Quarterly Report are strongly
encouraged to review the risk factors relating to the Company which
are set forth in the Company’s 2017 Annual Report on
Form 10-K
Nature of the Business and Background
The Company is a clinical stage biopharmaceutical company that is
seeking to discover, develop and commercialize innovative
therapeutics for patients with certain cancers. The Company
may also explore acquiring or licensing other innovative
therapeutics addressing unmet needs and orphan indications beyond
cancer. The Company’s initial product candidate is based upon
the use of SUBA™-Itraconazole, which is a patented, oral
formulation of the currently marketed anti-fungal drug itraconazole
to which the Company holds an exclusive U.S. license.
The Company’s current focus is on the development of
therapies for skin, lung and prostate cancers in the U.S. market,
with the first indication targeting basal cell carcinoma in
patients with Basal Cell Carcinoma Nevus Syndrome (also known as
Gorlin Syndrome) (“BCCNS”), for which the Company
commenced an open label, Phase 2(b) clinical trial in the third
quarter of 2015. The Company continues to interact with the U.S.
Food and Drug Administration (“FDA”) regarding the
results of its Phase 2(b) trial in order to gain further guidance
regarding the filing of the New Drug Application
(“NDA”) for SUBA-Itraconazole for the treatment of
BCCNS (“SUBA BCCNS”).
In October 2018, the Company announced the results of its
September 25, 2018 meeting with FDA regarding the requirements
for filing the NDA. Specifically, FDA instructed the Company to
(i) update its efficacy and safety information to include more
recent data than its proposed cutoff date of December 2017 in order
to provide additional data on the ten remaining patients who were
still receiving therapy beyond December 2017, (ii) provide an
analysis of basal cell carcinoma tumor burden responses via
independent analysis of tumor photographs to confirm results
reported by the clinical investigators and (iii) submit an
Integrated Safety Summary (“ISS”) that includes data
not only from the Company’s clinical trial, but all human
trials of SUBA-Itraconazole regardless of strength and indication.
The consequence of FDA requiring the completion of the ISS module
is that the Company requires more time than previously anticipated
to submit the NDA, resulting in a revised anticipated NDA
submission date of sometime in the first quarter of 2019. Under the
Company’s supply and license agreement, originally dated
September 3, 2013, amended and restated on June 24, 2014
and May 15, 2015, and as further amended on November 22,
2016 and January 10, 2018 (collectively, the
“SLA”) with Mayne Pharma Ventures Pty Ltd., the
Company’s majority stockholder, and its affiliates
(“Mayne Pharma”), if the NDA is not accepted for filing
by December 31, 2018 (subject to limited extension if the NDA
is filed in December), Mayne Pharma may elect to take back the SUBA
BCCNS product in the United States (including by way of an
exclusive license from the Company of its clinical data) in
exchange for a royalty on any future net sales. Additionally, Mayne
Pharma will not be obligated to fund the Third Closing (as defined
below) of the Financing (as defined below) The Company and Mayne
Pharma have commenced discussions on this important matter. See
“ Relationship with Mayne Pharma Ventures Pty Ltd. –
Amendment to Supply and License Agreement Relationship with Mayne Pharma Ventures Pty Ltd. –
Series B Preferred Stock Purchase Agreement
The Company believes that the dosing of oral capsules of
SUBA-Itraconazole can affect the Hedgehog signaling pathway, a
major regulator of many fundamental cellular processes, which, in
turn, can impact the development and growth of cancers such as
basal cell carcinoma. Itraconazole has been approved by the FDA
for, and has been extensively used to treat, fungal infections and
has an extensive history of safe and effective use in humans. The
Company has developed, optioned and licensed intellectual property
and know-how
Relationship with Mayne Pharma Ventures Pty Ltd.
The Company has exclusive rights in the U.S. to develop and to
commercialize SUBA-Itraconazole capsules for the treatment of human
cancer via oral administration. SUBA-Itraconazole was developed and
is licensed to us by the Company’s manufacturing partner and
majority shareholder Mayne Pharma under the SLA. Mayne Pharma is an
Australian specialty pharmaceutical company that develops and
manufactures branded and generic products, which it distributes
directly or through distribution partners and also provides
contract development and manufacturing services. In addition to
being the Company’s licensor and supply partner, under the
SLA and related agreements, Mayne Pharma holds a majority equity
stake in the Company and holds important contractual rights with
respect to the Company, such as the right to appoint members to the
Company’s board of directors, and in particular with respect
to SUBA BCCNS, as further explained below.
Series B Preferred Stock Purchase Agreement
On January 8, 2018, the Company entered into a definitive
securities purchase agreement (the “Purchase
Agreement”) with Mayne Pharma, pursuant to which Mayne Pharma
agreed to purchase from the Company, and the Company agreed to
issue to Mayne Pharma (over three closings as described further
below, each a “Closing”):
(i)
up to 7,246,377 shares of the Company’s newly
designated Series B Convertible Preferred Stock (the “Series
B Preferred Stock”) at $0.69 per share of Series B Preferred
Stock (with each share of Series B Preferred Stock being
convertible into three (3) shares of the Common Stock for an
effective price per share of Common Stock of $0.23), for potential
gross proceeds of $5,000,000;
(ii)
Series A warrants (the “Series A
Warrants”) to purchase up to an aggregate 5,434,783 shares of
Common Stock, with a two-year
(iii)
Series B warrants (the “Series B
Warrants”) to purchase up to an aggregate of 5,434,783 shares
of Common Stock, with a five-year term from the date of issuance
and an exercise price per share of $0.275 (the “Series B
Warrants”, and together with the Series A Warrants, the
“Warrants”).
The transactions contemplated by the Purchase Agreement are
referred to herein as the “Financing.” The Financing
contemplates three closings (each, a “Closing”), as
follows:
(i)
$2.4 million was funded at an initial closing of
the Financing that occurred on January 10, 2018 (the
“Initial Closing”) resulting in the issuance of
3,478,261 Preferred Shares and a total of 5,217,392 Warrants
(ii)
$1.6 million was funded on July 5, 2018
resulting in the issuance of 2,318,841 Preferred Shares and a total
of 3,478,262 Warrants on July 5, 2018; and
(iii)
$1.0 million may be funded on or before
December 31, 2018 (the “Third Closing”) (see
below).
The funding of the Third Closing shall be conditioned upon the
acceptance of filing by the FDA of the Company’s NDA for SUBA
BCCNS, provided that such date shall be automatically extended in
the event that such NDA is filed with the FDA during December 2018
to a date which is 30 days from the date of such filing. In October
2018, the Company announced that it revised the anticipated NDA
submission date to sometime in the first quarter of 2019 which
would not meet the condition for the funding of the Third
Closing.
In addition, as part of the Financing, the Company and Mayne Pharma
agreed to amend the SLA, most notably to eliminate the provision
that would have allowed Mayne Pharma to terminate the SLA in the
event that the Company had not received an NDA approval for a
product covered by the SLA by October 31, 2018.
Under the Purchase Agreement, the Company has agreed to use the
proceeds from the Financing solely for purposes of funding the
continued development of SUBA BCCNS and for general corporate
purposes; provided, however, that the Company may use the proceeds
from the Third Closing (in a manner consistent with the SLA) for
the development of other SUBA-Itraconazole treatments for cancer
and for general operating purposes of the Company. In addition, the
Purchase Agreement provides for additional limitations on the use
of proceeds from the Financing including, without limitation, that
the Company shall not use the proceeds from any Closing for:
(i) the satisfaction of any portion of the Company’s
indebtedness (other than payment of trade payables in the ordinary
course of the Company’s business and prior practices) or
(ii) the redemption of any Common Stock or other Company
securities.
In addition, under the Purchase Agreement, the Company agreed that
for the period from the date of the Initial Closing through
December 31, 2018 (the “Market Standoff Period”),
the Company will not undertake external financing (which shall
specifically exclude exercise of existing options and warrants)
without the approval of Mayne Pharma, such approval not to be
unreasonably withheld, conditioned or delayed, and giving due
consideration to the fiduciary duties and business judgment of the
Company’s Board of Directors; provided, however, that if,
during the Market Standoff Period, any existing warrants or options
of the Company are exercised, the proceeds of such exercises may,
in the discretion of the Company’s Board of Directors, be
used for preliminary work on SUBA-Itraconazole cancer indications
other than SUBA BCCNS, in each case in accordance with the SLA.
Under the Purchase Agreement, Mayne Pharma has been afforded
certain demand and “piggyback” rights to cause the
Company to register the shares of Common Stock underlying the
Series B Preferred Stock and the Warrants for public resale;
provided, however, that such rights shall only become effective and
exercisable from and after the termination of the SLA.
The negotiations with Mayne Pharma and preparation of related
transaction documentation associated with Financing and amendment
to the SLA was undertaken on behalf of the Company by a special
committee of disinterested, independent members of the
Company’s Board of Directors.
Terms of the Series B Preferred Stock
The Series B Preferred Stock carries the following provisions:
Price Per Share
Dividends 6-month
Voluntary and Mandatory Conversion
Liquidation Preference
Seniority
Voting
Redemption
Terms of the Warrants
The Warrants are divided equally between the Series A Warrants and
the Series B Warrants (i.e., with each being exercisable for an
aggregate of 5,434,783 shares of Common Stock if all Closings
occur), which represents fifty percent (50%) warrant coverage on
the shares of Common Stock underlying the Series B Preferred Stock.
The Warrants have been and will continue to be issued, pro rata in
relation to the total investment in the Series B Preferred Stock,
at each Closing.
The Warrants are substantially identical in form, except that:
(i) the exercise price per share of the Series A Warrants
shall be $0.23 per share and the exercise price per share of the
Series B Warrants shall be $0.275 per share (collectively, the
“Warrant Exercise Price”) and (ii) The Series A
Warrants shall have a term of two (2) years from the date of
issuance and the Series B Warrants shall have term of five
(5) years from the date of issuance. The Warrant Exercise
Price shall be subject to customary stock-based, but not
price-based, anti-dilution protection. The Warrants will not be
eligible for “cashless” exercise.
Amendment to Supply and License Agreement
In connection with the Initial Closing, on January 10, 2018,
the Company and Mayne Pharma entered into an amendment to the SLA
to eliminate Mayne Pharma’s right to terminate the SLA if the
Company fails to secure NDA approval for
a SUBA-Itraconazole-based 60-day
Mayne Pharma’s election to trigger the Mayne BCCNS Assumption
Right shall not terminate the SLA or impact the Company’s
ability to pursue other product development opportunities under and
in accordance with the terms of the SLA.
The Company BCCNS License includes: (i) a cash royalty to the
Company from Mayne Pharma on all net sales of SUBA BCCNS in the
United States, (ii) the forfeiture by Mayne Pharma under the
Sublicense Agreement (as defined below) of (x) royalties from
the Company with respect to SUBA BCCNS sales and (y) a portion
of the milestone payments due by the Company to Mayne Pharma under
the Sublicense Agreement and (iii) indemnification of the
Company by Mayne Pharma for any claims incurred by the Company
arising out of Mayne Pharma’s SUBA BCCNS activities following
the exercise of the Mayne BCCNS Assumption Right.
The term “Target Failure” means if: (i) the FDA
has not accepted for filing the Company’s NDA for SUBA BCCNS
by December 31, 2018, provided that such date shall be
automatically extended in the event that such NDA is filed with FDA
during December 2018 to a date which is 30 days from the date of
such filing or (ii) the commercial launch of SUBA BCCNS is not
achieved by June 30, 2020. In October 2018, the Company
announced that it revised the anticipated NDA submission date to
sometime in the first quarter of 2019 which would constitute a
Target Failure under the amended SLA.
The SLA Amendment also amends corresponding provisions of that
certain Sublicense Agreement, dated August 31, 2015, between
Mayne Pharma International Pty Ltd, an affiliate of Mayne Pharma
(“Mayne Pharma International”), and the Company, in
order to conform to the business terms agreed to in the SLA
Amendment. |
