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TABLE OF CONTENTS
As filed with the Securities and Exchange Commission on May 12, 2014June 4, 2018
Registration Statement No. 333- 333-225041
UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,Washington, D.C. 20549
Amendment No. 2
To
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONTRAVIR PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
| Delaware (State or other jurisdiction of incorporation or organization) | 2834 (Primary Standard Industrial Classification Code Number) | 46-2783806 (I.R.S. Employer Identification Number) |
420 Lexington Avenue, Suite 300399 Thornall Street, First FloorNew York, New York 10170Edison, NJ 08837(212) 297-0020
(732) 902-4000
(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)
James R. Sapirstein
Chief Executive Officer
ContraVir Pharmaceuticals, Inc.420 Lexington Avenue, Suite 300399 Thornall Street, First FloorNew York, New York 10170Edison, NJ 08837(212) 297-6149(732) 902-4000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
| Copies to: | ||
Jeffrey J. Fessler, Esq. New York, New York Tel: (212) Fax: (212) 653-8701 | Ellenoff Grossman & New York, New York (212) | |
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement becomes effective.Registration Statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: oý
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
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. o
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. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer"filer," "smaller reporting company" and "smaller reporting"emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company ý Emerging growth company ý |
The If an emerging growth company, indicate by check mark if the registrant is an "emerging growth company," as defined inhas elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 2(a)7(a)(2)(B) of the Securities Act. This registration statement complies with the requirements that apply to an issuer that is an emerging growth company.ý
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1) | Amount of Registration Fee | ||
|---|---|---|---|---|
Common Stock, par value $0.0001 per share(2)(3)(4) | $18,227,500.00 | $2,347.70 | ||
Representative's Warrants to Purchase Common Stock(5) | — | — | ||
Common Stock Underlying Representative's Warrants(4)(6) | $594,375.00 | $76.56 | ||
Total Registration Fee | $18,821,875.00 | $2,424.26 | ||
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The registrant hereby amends this registration 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 Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary 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 these securities and we areit is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, dated June 4, 2018
PRELIMINARY PROSPECTUS
SharesCommon Stock
Consisting of an Aggregate of Up to 20,000 Shares of Series C Convertible Preferred
Stock and Warrants to Purchase Up to 6,460,000 Shares of Common Stock
at a Subscription Price of $1,000 Per Unit
We are offering sharesdistributing to holders of our common stock and to certain warrant holders, at no charge, non-transferable subscription rights to purchase units. Each unit consists of one share of Series C Convertible Preferred Stock and 323 warrants. Each warrant will be exercisable for one share of our common stock. We expectrefer to the public offering that is the subject of this prospectus as the rights offering. In the rights offering, you will receive one subscription right for every share of common stock owned or deemed owned at 5:00 p.m., Eastern Time, on June 14, 2018, the record date of the rights offering. Shares that are "deemed owned" refer to the shares issuable upon exercise of outstanding warrants that we issued in October 2015, April 2016 and April 2017, whose holders have the right to participate in this rights offering. The Series C Convertible Preferred Stock and the warrants comprising the units will be separate upon the closing of the rights offering and will be issued separately, however, they may only be purchased as a unit, and the units will not trade as a separate security. The subscription rights will not be tradable.
Each subscription right will entitle you to purchase one unit, at a subscription price of $1,000 per unit, which we refer to as the basic subscription right. Each warrant entitles you to purchase one share of common stock at an exercise price of $1.55 per share from the date of issuance through its expiration five (5) years after the date of issuance. If you fully exercise your basic subscription right, you may also exercise an over-subscription privilege to purchase additional units that remain unsubscribed to at the expiration of the rights offering, subject to the availability and pro rata allocation of units among stockholders exercising this over-subscription privilege. This over-subscription privilege may be exercised for a period of days following the expiration of the subscription rights offering period. If all the rights are exercised, the total purchase price of the units offered in the rights offering will be approximately $20 million.
The subscription rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on June 28, 2018, unless we extend the rights offering period. You should carefully consider whether to exercise your subscription rights prior to the expiration of the rights offering. All exercises of subscription rights are irrevocable, even if the rights offering is extended by our board of directors.
We have not entered into any standby purchase agreement or other similar arrangement in connection with the rights offering. The rights offering is being conducted on a best-efforts basis and there is no minimum amount of proceeds necessary to be received in order for us to close the rights offering.
Our board of directors is making no recommendation regarding your exercise of the subscription rights. The subscription rights may not be sold, transferred or assigned and will not be listed for trading on any stock exchange or market or on the NASDAQ Capital Market. Our board of directors may cancel the rights offering at any time prior to the expiration of the rights offering for any reason. In the event the rights offering is cancelled, all subscription payments received by the subscription agent will be returned, without interest, as soon as practicable.
We have engaged Maxim Group LLC to act as dealer-manager for this offering.
Philadelphia Stock Transfer, Inc. will serve as the subscription agent for the rights offering. The subscription agent will hold in escrow the funds we receive from subscribers until we complete, abandon or terminate the rights offering. If you want to participate in this rights offering and you are the record holder of your shares of common stock, we recommend that you submit your subscription documents to the subscription agent well before the deadline of the rights offering period. If you want to participate in this rights offering and you hold shares through your broker, dealer, custodian bank or other nominee, you should promptly contact your broker, dealer, custodian, bank or other nominee and submit your subscription documents in accordance with the instructions and within the time period provided by your nominee.
Our board of directors reserves the right to terminate the rights offering for any reason any time before the closing of the rights offering. If we terminate the rights offering, all subscription payments received will be between $returned within 10 business days, without interest or deduction. We expect the rights offering to expire on or about June 28, 2018, subject to our right to extend the rights offering as described above, and $ per share.that we would close on subscriptions within five business days.
Our common stock is presentlycurrently quoted on the Over-the-Counter Bulletin Board, or OTCBB,NASDAQ Capital Market under the symbol "CTRV.""CTRV". On May 8, 2014,June 1, 2018, the last reported sale price per share of our common stock on the OTCBBNASDAQ Capital Market was $1.60 per share.$1.55. We do not currently intend to apply for listing of the Series C Convertible Preferred Stock or warrants on any securities exchange or recognized trading system.
Our principal executive offices are located at 399 Thornall Street, First Floor, Edison, New Jersey 08837.
| | Per Unit | Total(2) | ||
|---|---|---|---|---|
Subscription price | $1,000 | $20,000,000 | ||
Dealer-manager fees and expenses(1) | $60 | $1,200,000 | ||
Proceeds to us, after fees and before expenses | $940 | $18,800,000 | ||
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Investing in our common stocksecurities involves a high degree of risk. Before investing in our common stock, yourisks. You should carefully readconsider the discussion of "Risk Factors"Risk Factors beginning on page 10.22 of this prospectus before you make an investment in our securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
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We have granted a 45-day option to the representative of the underwriters to purchase up to additional shares of common stock solely to cover over-allotments, if any.
The underwriters expect to deliver our shares of common stock in the offering on or about , 2014.
Aegis Capital Corp
The date of this prospectus is , 2018
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You should rely only onNeither we nor the information provided in this prospectus or amendment thereto. We have notdealer-manager has authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectus 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. This prospectus is an offer to you.sell only the units offered hereby, but only under the circumstances and in the jurisdictions where it is lawful to do so. The information contained in this prospectus or in any applicable free writing prospectus is current only as of its date, regardless of its time of delivery or any sale of shares of our common stock. Our business, financial condition, results of operations and prospects may have changed since that date. We are not, and the dealer-manager is not, making an offer of these securities in any jurisdiction where such offer is not permitted.
For investors outside the United States: Neither we nor the dealer-manager has 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 securities and the distribution of this prospectus outside the United States.
You should read this prospectus, any applicable prospectus supplement and the information incorporated by reference in this prospectus before making an investment in the securities of ContraVir Pharmaceuticals, Inc. See "Where You Can Find Additional Information" on page 60 for more information. You should rely only on the information contained in or incorporated by reference in this prospectus or a prospectus supplement. The Company has not authorized anyone to provide you with different information. This document may be used only in jurisdictions where offers and sales of these securities are permitted. You should assume that information contained in this prospectus, or in any document incorporated by reference, is accurate only as of any date on the front cover of the applicable document. Our business, financial condition, results of operations and prospects may have changed since that date.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain, in addition to historical information, certain forward-looking statements. within the meaning of Section 27A of the Securities Act or 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended, that include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Such forward-looking statements include those that express plans, anticipation, intent, contingency, goals, targets or future development and/or otherwise are not statements of historical fact. These forward-looking statements are based on our current expectations and projections about future events and they are subject to risks and uncertainties known and unknown that could cause actual results and developments to differ materially from those expressed or implied in such statements.
In some cases, you can identify forward-looking statements by terminology, such as "expects," "anticipates," "intends," "estimates," "plans," "believes," "seeks," "may," "should", "could" or the negative of such terms or other similar expressions. Accordingly, these statements involve estimates, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Any forward-looking statements are qualified in their entirety by reference to the factors discussed throughout this prospectus or incorporated herein by reference.
You should read this prospectus and the documents we have incorporated by reference or filed as exhibits to the registration statement, of which this prospectus is part, completely and with the understanding that our actual future results may be materially different from what we expect. You should not assume that the information contained in this prospectus or any prospectus supplement or free writing prospectus is accurate as of any date other than the date on the front cover of those documents, or that the information contained in any document incorporated by reference is accurate as of any date other than the date of this prospectus,the document incorporated by reference, regardless of the time of delivery of this prospectus or any sale of a security.
Risks, uncertainties and other factors that may cause our common stock.actual results, performance or achievements to be different from those expressed or implied in our written or oral forward-looking statements may be found in this prospectus under the heading "Risk Factors" and in our Transition Report on Form 10-KT for the transition period from July 1, 2017 to December 31, 2017, under the headings "Risk Factors" and "Business," as updated in our Quarterly Report(s) on Form 10-Q.
Forward-looking statements speak only as of the date they are made. You should not put undue reliance on any forward-looking statements. We assume no obligation to update forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information, except to the extent required by applicable securities laws. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
UnlessNew factors emerge from time to time, and it is not possible for us to predict which factors will arise. In addition, we cannot assess the context requires otherwise, referencesimpact of each factor on our business or the extent to "ContraVir,"which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of the information presented in this prospectus and incorporated herein by reference, and particularly our "company," "we," "us" or "our" refer to ContraVir Pharmaceuticals, Inc., a Delaware corporation and "Synergy" refers to Synergy Pharmaceuticals, Inc., a Delaware corporation, our former majority shareholder.forward-looking statements, by these cautionary statements.
The following summary highlights certain of the information contained elsewhere in or incorporated by reference into this prospectus. Because this is only a summary, of the prospectus andhowever, it does not contain all of the information you should consider before investing in our common stock. Yousecurities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information included elsewhere in or incorporated by reference into this prospectus. Before you make an investment decision, you should read thethis entire prospectus carefully, including the risks of investing in our securities discussed under the section of this prospectus entitled "Risk Factors" section and similar headings in the other documents that are incorporated by reference into this prospectus. You should also carefully read the information incorporated by reference into this prospectus, including our financial statements, and the notes relatingexhibits to the financial statements, before making an investment decision.registration statement of which this prospectus is a part.
Unless the context otherwise requires, references to "we," "our," "us," "ContraVir" or the "Company" in this prospectus mean ContraVir Pharmaceuticals, Inc. on a consolidated basis with its wholly-owned subsidiary, as applicable. All share and per share information in this prospectus gives effect to a 1-for-8 reverse stock split of our issued and outstanding common stock effected on May 25, 2018.
OverviewOur Company
We were incorporated in Delaware on May 15, 2013 for the purpose of holding certain FV-100 assets of Synergy. We were a majority-owned subsidiary of Synergy until February 18, 2014, the date Synergy completed the spinout of our shares of common stock. We are now an independent publicly traded company and Synergy retains no ownership interest in us.
We are a biopharmaceutical company (incorporated in Delaware, May 15, 2013) focused primarily on the development of antiviral drugs with a primary emphasis on the treatment of Hepatitis B virus ("HBV") infection.
We are developing two orally dosed compounds to treat herpes zoster, or shingles,HBV infection, Tenofovir Exalidex ("TXL™"), formerly known as CMX157, and CRV431. TXL™ is a highly potent oral lipid conjugated prodrug of tenofovir, which is an infection causedthe active moiety of the approved drugs Viread® ("TDF") and Vemlidy® ("TAF"), marketed by Gilead Sciences, Inc. Prodrugs are designed to improve the reactivationcharacteristics of varicella zoster virus, or VZV. The varicella zoster virusdrugs, such as better organ-specific targeting and efficacy, lower pill burden, improved safety, etc. CRV431 is commonly known as chicken pox upon initial exposure to the virus. The virus can lay dormant in nerve endings for many years and if reactivated, causes a extremely painful condition called shingles. We are currently developing a compound called FV-100novel drug candidate also designed for the treatment of shingles. FV-100 ischronic HBV infection.
On December 18, 2014, we and Chimerix, Inc. ("Chimerix"), entered into a Licensing Agreement pursuant to which we licensed TXL™ from Chimerix for further clinical development and commercialization. On June 10, 2016, we completed the acquisition of Ciclofilin Pharmaceuticals, Inc. ("Ciclofilin"), a Delaware corporation, pursuant to an orally available small molecule, nucleoside analogue. Nucleoside analogs are capableAgreement and Plan of disrupting replicationMerger dated May 26, 2016. At the closing of the virus. FV-100merger we acquired all of the outstanding equity interests in Ciclofilin in exchange for Ciclofilin having the right to receive future milestone payments. These milestone payments, if received, will be allocated among the holders of Ciclofilin common stock and certain creditors who converted their debt into equity immediately prior to the Closing. The milestone payments consist of up to $17 million cash and up to 10% of our issued and outstanding common stock as of June 10, 2016, and will be paid upon the achievement of certain developmental and/or regulatory milestones related to CRV431, Ciclofilin's lead development candidate.
Our Programs Under Development
Hepatitis B Therapies
TXL™—Background
TXL™ is a pro-drugnucleoside analog lipid prodrug of CF-1743, which meanstenofovir that FV-100utilizes a proprietary technology developed by Chimerix. The proprietary technology is more readily absorbed when given orally andutilized to covalently modify a drug molecule with a lipid side-chain that mimics a naturally occurring phospholipid component of cell membranes. The lipid-conjugated molecule can then broken downutilize natural lipid uptake pathways to optimize delivery to the active portion of the compound, or active moiety, CF-1743 upon entry to the blood stream. FV-100target organ (liver) and subsequent sequestration in liver (hepatic) cells. This molecular modification is the compound under development for the treatment of shingles. Published preclinical studies demonstrate that FV-100 is significantly more potent based on plaque inhibition in VZV infected human embryonic lung cells (HEL cells) than currently marketed compounds acyclovir, valacyclovir, and famciclovir, the FDA-approved drugs used for the treatment of shingles. Preclinical studies further demonstrate that FV-100 has a more rapid onset of antiviral activity, and may fully inhibit the replication of VZV more rapidly than these drugs at significantly lower concentration levels. In addition, pharmacokinetic data from completed Phase 1 and 2 clinical trials suggest that FV-100 has the potential to demonstrate antiviral activity when dosed orally once-a-day at significantly lower blood levels than valacyclovir, acyclovir, and famciclovir (ICAR, 2008, abst. 137; ICAAC, 2008, abst. A-951; ICAR, 2009, abst. 105; ICAR, 2009, abst. 106).
FV-100 was previously in development by Inhibitex, Inc., or Inhibitex. In January 2012, Bristol-Myers Squibb Company, or BMS acquired Inhibitex. In August 2012, Synergy acquired the FV-100 assets from BMS. The FV-100 assets are licensed from University College Cardiff Consultants Limited ("Cardiff") pursuant to the terms of that certain Patent and Technology License Agreement, dated as of February 2, 2005, between Cardiff and Contravir Research Incorporated, an entity with no prior relationship with the Company, as amended March 27, 2007. After acquiring the FV-100 assets from BMS, Synergy did not engage in any clinical study of FV-100 or materially advance the development of FV-100.
The Phase 2 clinical trial for FV-100 was completed by Inhibitex in December 2010 (ICAAC, 2011, abst. G1-765). This trial represented the first clinical trial of FV-100 in shingles patients, and was a well-controlled, double blind study comparing two different dosing arms of FV-100 to an active control (valacyclovir). A total of 350 patients, aged 50 years and older, were enrolled in one of three treatment arms: 200 mg FV-100 administered once daily; 400 mg FV-100 administered once daily; and 1,000 mg valacyclovir administered three times per day.
In addition to further evaluating its safety and tolerability, the main objectives of the trial were to evaluate the potential therapeutic benefit of FV-100 in reducing the severity and duration of shingles-related pain, the incidence of post-herpetic neuralgia (burning pain that follows healing of the shingles rash), or PHN, and the time to lesion healing. The primary endpoint for the FV-100 study was developed by Inhibitex and was defined as a 25% reduction in the severity and duration of shingles-related pain during the first 30 days as compared to valacyclovir. The trial missed its primary endpoint, as the results
fromdesigned to yield higher hepatic intracellular concentrations of the active tenofovir species (tenofovir diphosphate) while simultaneously reducing the concentration of tenofovir circulating outside the liver. This latter property is intended to reduce the overall likelihood of encountering potential off-target toxicities and side-effects. Chimerix tested TXL™ in a Phase 1 trial in 2010. The study was a randomized, double blind, placebo controlled, single dose escalation study conducted in healthy volunteers. The purpose of the study showed a lackwas to evaluate the safety, tolerability, and pharmacokinetics of statistical significance. There were, however, numerically favorable treatment differences compared to valacyclovir 1000 mg TID, particularly in those patients that received 400 mg FV-100, relative to valacyclovir patients, with respect to the primary endpoint: FV100 200 mg = 114.49 (p = 0.88); FV-100 400 mg = 110.31 (p = 0.55) vs. valacyclovir = 117.96. There were also favorable, non-statistically significant treatment differences observed for key secondary pain endpoints, including the reduction in the severity and duration of shingles-associated pain over 90 days (FV-100 400 mg showing a 14% relative reduction as compared to valacyclovir) and the incidence of PHN (FV-100 400 mg showing a 39% relative reduction as compared to valacyclovir)TXL™. The secondary endpoints were not, however, powered to demonstrate statistically significant treatment differences between the arms. FV-100 was generally well tolerated at both dose levels, and demonstrated a similar adverse event profile as compared to valacyclovir.
We in-licensed TXL™ from Chimerix in exchange for an upfront payment of 120,000 shares of our preferred stock, valued at $1.2 million (as at the time of the deal). We are currently reviewingdeveloping TXL™ globally for the clinical datatreatment of chronic HBV infection. A recently issued composition of matter patent for TXL™ provides intellectual property protection to at least 2031.
The overall development strategy for TXL™ is to develop the compound to serve as a critical backbone therapy in future HBV curative combination therapies. It is thought that the cure for chronic HBV will necessarily include a nucleos(t)ide such as TXL™ to reduce viremia.
We completed a Phase 1b safety and pharmacokinetic study in 2016. Data from the Phase 2 trial1b study demonstrate that TXL™ was safe and performing post hoc analyses, conducting additional market research, including unmet medical need, reimbursement, pricing,well tolerated by healthy volunteers in all five dosing groups, receiving once daily oral dosing of 5, 10, 25, 50 or 100 mg. In addition to demonstrating an excellent safety profile, plasma levels of TXL™ and competitive analyses, etc. We are also evaluatingtenofovir showed a, numberdose-dependent pharmacokinetic profile. As expected, the novel structure of clinical, regulatory and commercial pathwaysTXL™ resulted in decreased levels of systemically circulating tenofovir. Overall, therefore, the potential for the potential future development of FV-100. Based upon the analyses of the completedrenal and bone side effects associated with Viread® ("TDF"), marketed by Gilead, was reduced.
In 2016 we initiated a Phase 2 multiple ascending dose proof of concept clinical trial. The study coupledenrolled 62 treatment-naïve patients with chronic HBV infection and compared TXL™ to TDF. The sequential dose escalation consisted of 10 patients per cohort receiving four weeks of a once-daily dose of either 5, 10, 25, 50 or 100 mg of TXL™, and two patients per cohort receiving 300 mg of TDF, the additional market research, we are developing a comprehensive clinical strategystandard dose of TDF, as active treatment reference product.
There were no serious adverse events ("SAEs") or discontinuations due to AEs, and other safety parameters (e.g., electrocardiograms, vital signs, safety laboratory results) showed no patterns, clusters, or relationship to the TXL™ dose. Interim data in the POC study have demonstrated that doses of TXL™ from 50-mg to 100-mg resulted in comparable mean HBV viral load reductions to the 300-mg dose of Viread® after 28 days of treatment. The data demonstrated that TXL™, at all doses tested, resulted in substantially lower systemic circulating levels of tenofovir in the blood compared to Viread®. These results demonstrate the potential for future developmentTXL™ to reduce the risk of FV-100 which is being implemented during fiscal 2014. Inhibitex filed forbone- and kidney-related toxicities associated with Viread®.
We submitted an Investigational New Drug application or IND (IND 102,011) on March 19, 2008, which was approved by("IND") to the FDA on April 20, 2008. This IND was transferred from InhibitexU.S. Food and Drug Administration ("FDA") to its new sponsor, Synergy, on August 27, 2012support initiation of our HBV clinical development program in the United States and received a notice of approval in September 2017. We subsequently transferred from Synergy to usinitiated a safety study in April 2014. As a resultpatients with severe renal impairment during the fourth quarter of 2017 and released the positive results of this transfer, we will be able to run all clinical trials required to support FV-100 forstudy in January of 2018. Data from this study further supported the use in the treatmentstrong safety profile of shingles. Our intention is to conduct another phase 2 study which may take approximately 18-24 months to enroll. Following data analysis from that newly completed phase 2 study we intend on seeking a meeting with FDA to discuss the direction and scope of the subsequent phase 3 program.
From inception (May 15, 2013) through December 31, 2013, we generated no revenue.
Our Strengths – Advantages of FV-100 compared to approved drugs
We believe that we possess a number of competitive advantages that distinguish us from our competitors, including:
The study of 16 subjects included 8 healthy subjects with normal kidney function and 8 subjects with severely impaired kidney function. Results from the onsetstudy confirmed that TXL™ was safe and well tolerated in both patient groups.
Importantly, the data showed that the blood concentrations of an outbreak due to our product working faster than competitive products. Note: current marketed therapies require initiationTFV in severely renally-impaired subjects receiving 50 mg of treatment within 72 hours of onset of the shingles rash;
compromised renal function.
Our Strategy
Design We received approval for our Clinical Trial Application ("CTA") in the United Kingdom and conduct clinical trials that establish the superiority of FV-100 over the existing standard of care from other existing drugs like valacyclovir.
Market Opportunity for the Treatment of shingles
VZV, a DNA virus and a memberhave completed Part I of the herpes virus group,formulation optimization program in both humans and animals, demonstrating positive signals. Results from both preclinical and clinical studies will help us identify a potential lead formulation that is anticipated to deliver greater antiviral activity at lower doses, which will further build upon the virus that causes both chickenpoxsafety and herpes zoster, or shingles. Chickenpox,tolerability profile already established for TXL™. Final formulation optimization is currently underway, in anticipation of introducing the initial infection caused by VZV in an individual, generally occurs during childhood and it is caused by exposuremost appropriate formulation to another individual with an active infection. After the chickenpox infection subsides, VZV remains latentHBV patients in the individual's nerves includingsecond half of 2018.
On January 8, 2018, our Executive Team met with the dorsal rootFDA's Division of Antiviral Products at the Center for Drug Evaluation and cranial nerve ganglia,Research, to review and can re-emerge later in life. Therefore, shingles is typically not transmitted from one individualdiscuss the data generated for TXL™ to the next, and only those individuals who have had chickenpox are generally at risk for shingles.
Although shingles can occur in any individual with a prior VZV infection, its incidence varies with its key risk factors, which are advanced age, immune system status and being female. Shingles is largely a disease of the aged or aging, with over 50% of all cases occurring in individuals over the age of 60, and approximately 80% occurring in individuals over the age of 40. A study in 2007 based upon data from 2000 implied that there were approximately 1 million new shingles cases that year. Due to the aging of the population in many industrialized countries,date, as well as the increasing usedata package that would be required for the filing of immunosuppressive agentsan NDA and successful registration of TXL™ in transplant patients,the U.S. leveraging the 505(b)2 Regulatory Pathway. On February 7, 2018, we received final written minutes from the FDA summarizing the outcome of the meeting and feedback received.
Key highlights from the meeting outcome include:
The outcome of immunosuppressed patients from cancer therapy, the incidencemeeting with FDA is a positive step towards the further execution of shingles has increasedthe streamlined development and registration of TXL™ in the U.S., which is expected to continueallow a faster and more cost-effective path to increase. A recent studyapproval and commercialization in the U.S.
On February 21, 2018, we received notification from the CentersFDA of the orphan designation to our lead investigation drug, TXL™, for Disease Control investigating medical claims data from MarketScan® databases from 1993-2006 indicated that the crude incidencetreatment of shingles cases increased 259% over that periodchronic hepatitis B in a pediatric patient population (0 to11 years old).
Chronic hepatitis B virus is a major public health burden affecting more than 350 million people worldwide. Children are infected at birth or in early childhood. Current treatment options available for children generally require lifelong treatment and have had limited success, creating a great need for improved therapies, ultimately leading to a functional cure.
Orphan designation qualifies the sponsor of time. Furthermore, a study conducted by the Mayo Clinic suggests that the recurrence ratedrug for shingles is approximately 6.2%, which reflects a much higher rate than prior studies, which assessed a shorter follow-up period. It is estimated that approximately 20-30%various development incentives, including tax credits for qualified clinical testing. Orphan drug designation qualifies TXL™ for seven years of all personsmarket exclusivity in the U.S. will suffer from shingles at some point during their lifetime.
The symptoms associated with shingles generally include localized lesions (rashupon approval, financial assistance in clinical research and blisters)development, and pain. In many casesan accelerated evaluation of the patient may notice localized pain asregistration package by the FDA. Additionally, a prodromal symptommarketing application for a prescription drug product that has received orphan designation is not subject to a prescription drug user fee for the rare disease or the time periodcondition for which the disease processdrug is designated.
CRV431—Background
CRV431 is a novel drug candidate designed to target a class of host proteins called cyclophilins, of which there are many types. Cyclophilins play a role in health and in the pathogenesis of certain diseases, and are known as peptidyl prolyl isomerases. The isomerase activity plays an important role in a number of biological processes including, for example, folding of proteins to confer certain 3-dimensional configurations. Three-dimensional configuration of proteins is a key element in determination of protein function. Additionally, specific host cyclophilins (e.g., cyclophilin A, B, C, D) play a role in the life cycle of certain viruses, including for example, HBV, HIV, and hepatitis C virus ("HCV") infections. CRV431 has begun but is not manifest with any clinical symptoms, priorbeen developed to inhibit the appearancerole of any lesions; however, the first recognizable symptom of shingles is generally lesions that will continue to form for a week or two. Such skin lesions generally are found on one half of the bodythese host cyclophilins and follow the path of
nerves that emanatetherefore interfere in the propagation of these viruses. CRV431 does not directly target the virus and, as such, may be less susceptible to drug resistance, borne from the spinal cord around the torso (thoracic); however, the infection is also commonly found on the face, neck, lower backviral mutations.
Thus far, in vitro testing of CRV431 has been conducted in-house and in certain rare cases, systemically. Within several weeks,collaboration with external research groups including for example, the lesionsScripps Research Institute ("Scripps"). Data in thevarious cell lines of either transfected or infected areas will typically begin to heal,HBV demonstrates nanomolar efficacy (EC50 values) and these dermatological symptoms generally will resolve withinmicromolar toxicity (CC50 values). The selective index (SI), therefore, is wide and suggests that CRV431 presents a month or less after the appearance of the first lesion. In rare instances, lesions may never appear, but localized pain will be present.
The pain associated with an episode of shingles is attributed to both the damage caused to the affected nerves by the replication of VZV and the inflammatory response associated with the infection. Pain symptoms are commonly described as a burning sensation, with bouts of stabbing and shooting pain, often set off by contact with the infected area. The majority of shingles patients experience such pain for several weeks in connection with their active infection, referred to as acute pain. For many patients, shingles-associated pain does not resolve when the lesions heal and the inflammation subsides, but, rather, continues for months, or possibly years. Persistent shingles-associated pain that lasts more than three to four weeks is referred to as sub-acute pain or neuralgia. Shingles-associated pain that persists more than three months is generally referred to as PHN, which is the most common and clinically relevant complication of shingles. Approximately 15-20% of all shingles patients experience PHN, although the incidence of PHN is more prevalent in patients over 50 years of age. Previous studies have established that additional risk factors for PHN include greater acute pain intensity during the initial 4 weeks, severity of the dermatological symptoms or lesions, and the presence and greater severity of localized pain prior to the appearance of the lesions or rash.
Valacyclovir, acyclovir and famciclovir are oral antivirals currently indicated and approved by the FDA, and regulatory agencies in many other countries, for the treatment shingles. These drugs, available as generics, are referred to as "pan-herpetic" drugs, as they are used to treat infections caused by various herpes viruses, including herpes simplex 1 and 2, and VZV. Unlike those drugs, FV-100 only has antiviral activity against VZV, and not the other herpes viruses. Based upon an analysis by data compiled by IMS Health, Inc. ("IMS") on our behalf, and a recent utilization study of the use of Valtrex ® from 1994-2009 conducted by the FDA as well as other market research we have independently conducted, we estimate that 15-30% of the nearly 17 million retail prescriptions written for valacyclovir, acyclovir and famciclovir combined in 2009 wereviable clinical drug candidate for the treatment of herpes zoster.viral infections, including HBV. Additional testing in a transgenic mouse model of HBV indicated that CRV431 reduced HBV DNA in the liver. In a non-alcoholic steatohepatitis (NASH) mouse model, CRV431 demonstrated anti-fibrotic potential, thus addressing an important concern of the downstream effects of chronic HBV infection and liver disease. Both animal models confirmed that CRV431 is orally active and appeared to be well tolerated.
On May 10, 2018, we submitted an IND to the FDA to support initiation of our CRV431 HBV clinical development program in the United States. Our clinical program for CRV431 is expected to commence in the second half of 2018.
Risks Associated with Our BusinessMarket Opportunities
An investmentWe believe the Hepatitis B Market is poised for exceptional growth. HBV is a member of the hepadnavirus family that causes both acute and chronic liver infections. Transmission of the virus occurs by exposure to infected blood or bodily fluids, with the most typical modes being sexual contact, blood transfusion, re-use of contaminated syringes, and transmission from mother to child during childbirth.
Acute infection with the hepatitis B virus typically results in our common stock involves risks associateda loss of appetite, nausea, vomiting, body aches, mild fever, and jaundice. More than 90% of adults infected with our business.the hepatitis B virus will recover and be completely disease free within six months. A vaccine to prevent hepatitis B infection has been available in the U.S. for over 30 years. It is administered as a series of three shots and is now believed to offer indefinite protection against infection (Van Damme et al., 2007). The following listvaccine is both safe and effective, with over one billion doses administered worldwide since its introduction, with less than 1% of risk factorsvaccinated children developing chronic infection.
It is not exhaustive. Please read carefullyestimated that approximately 350-400 million people worldwide have a chronic, lifelong infection. According to the risks relating to these and other matters described under "Risk Factors" beginning on page 10 and "Cautionary Statement Concerning Forward-Looking Statements" on page 44.World Health Organization, the likelihood of developing a chronic hepatitis B infection is highly dependent upon the age when the infection occurs (WHO fact sheet N°204):
Chronic HBV infection is associated with significant morbidity and mortality. If left untreated, 15-40% of chronically infected individuals will develop serious complications, such as hepatitis B associated liver cirrhosis or cancer (AASLD, 2009). Globally, there were 750 thousand HBV-related deaths in 2010 (Lavancy 2004), primarily due to end stage liver disease and liver cancer. Complications due to chronic HBV infection currently represent 5% to 10% of cases of liver transplantation.
Two different types of drugs are utilized in the early stagestreatment of developmentchronic HBV infection: conventional or pegylated interferon alpha (INF or PEG-INF) and its commercial viability remains subject tonucleoside/nucleotide analogs ("NAs"). Treatment is dependent upon: serum HBV DNA levels, serum ALT levels, and severity of liver disease. NAs available for the successful outcometreatment of current and future preclinical studies, clinical trials, regulatory approvals and the risks generally inherent in the development of pharmaceutical product candidates. If we are unable to successfully advance or develop our product candidate, our business will be materially harmed.chronic HBV infection include:
NAs are quite effective at inhibiting HBV replication; however, these treatments are not curative and require lifelong dosing. With the resultsexception of preclinicaltenofovir and entecavir, long-term treatment with these NAs is associated with a high risk of developing drug resistance. Entecavir is less effective in patients who had previously been treated with lamivudine (PI), a widely used treatment for HBV. Long-term treatment with the currently licensed prodrug of tenofovir, Viread®, is associated with kidney and bone toxicity (Scaglione et al., 2012)(PI).
Tenofovir is a NA inhibitor of reverse transcriptase, an enzyme that has diverse functions during HBV replication (Jones et al., 2013). Tenofovir was originally synthesized in the mid 1980's and was initially shown to have anti-HIV activity. However, due to its very limited bioavailability, the compound did not have the potential for widespread use. TDFis a prodrug of tenofovir that was developed to allow for oral administration. TDF was approved by the FDA for the treatment of HIV in 2001 and for the treatment of chronic HBV infection in 2008. The drug is marketed under the name Viread® by Gilead Sciences, or Gilead. Gilead has also developed tenofovir alafenamide fumarate ("TAF"), currently marketed as Vemlidy®, as a follow-on compound to TDF. In both HIV and HBV clinical studies, TAF exhibits similar antiviral activity to TDF but at much lower concentrations of tenofovir in the blood. The lower blood concentration of tenofovir following metabolism of TAF supports the notion that kidney and bone toxicity will be reduced compared to treatment with TDF (Ruane et al., 2013, Agarwal et al., 2015 and Sax et al., 2015).
A critical limitation of current therapies is the inability to achieve control of the infection in the vast majority of patients without lifelong treatment. HBV exists in the liver as viral cccDNA. The infected person is unable to eliminate this persistent form of the virus despite available therapies. This underscores the need for combination therapy with new classes of agents. Combinations of agents with new and complimentary mechanisms of action that attack the virus at different parts of its lifecycle will be needed to achieve a functional cure. It is our intention to develop TXL™, the prodrug of a well-established anti-HBV nucleotide analog, tenofovir, to be a pivotal component of a curative combination therapy for HBV. An example of such a combination would be TXL™ and CRV431.
The drive to find meaningful combination therapy for the treatment of chronic HBV infection stems from the generally accepted principle that a functional cure should address: 1) reduction of HBV DNA; 2) reduction in expression of HBeAg and HBsAg; 3) development of anti-HBsAg antibodies; and 4) reduction/elimination of cccDNA. TXL™ has been primarily developed to reduce HBV DNA (viral load). Layering CRV431 on top of TXL™ is a strategy that begins to address this need for combination therapy to target multiple stages of the HBV life cycle, as preliminary findings indicate CRV431 suppresses HBV DNA and suppresses both HBeAg and HBsAg.
License Agreement
Under the terms of the License Agreement, we licensed TXL™ from Chimerix in exchange for an upfront payment consisting of 120,000 shares of our Series B Convertible Preferred Stock with a stated value of $1.2 million. In addition, Chimerix is eligible to receive up to approximately $20 million in clinical, regulatory and initial commercial milestones in the United States and Europe, as well as royalties and additional milestones based on commercial sales in those territories. Either party may terminate the License Agreement upon the occurrence of a material breach by the other party (subject to standard cure periods), or clinical trials for our product candidate, including those that are subjectupon certain events involving the bankruptcy or insolvency of the other party. We may also terminate the License Agreement without cause on a country by country basis upon sixty (60) days' prior written notice to existing or future license or collaboration agreements, are unfavorable or delayed,Chimerix.
Secured Convertible Promissory Note
On May 8, 2018, we
entered into a securities purchase agreement (the "Securities Purchase Agreement") with Iliad Research and Trading, L.P. ("IRT"), pursuant to which we issued to IRT a
couldsecured convertible promissory note (the "Note") in the aggregate principal amount of $3,325,000 for an aggregate purchase price of $2,000,000 cash and $1,000,000 aggregate principal amount of investor notes (the "Investor Notes") payable to us. Closing occurred on May 9, 2018. The Note carries an original issue discount of $300,000, and the initial principal balance also includes $25,000 to cover IRT's transaction expenses. The Note bears interest at the rate of 10% per annum and matures on November 8, 2019. Beginning on November 8, 2018, IRT has the right to redeem all or any portion of the Note up to the Maximum Monthly Redemption Amount which is $500,000. Payments of each redemption amount may be delayedmade in cash or precluded from the further development or commercializationshares of our product candidate,common stock at our election (so long as the various conditions to paying stock set forth in the Note are satisfied) provided, however, that if our common stock is trading below $1.60 per share, the redemption(s) must be in cash. Common stock issued upon redemption will be issued at a price equal to 80% of the lowest trade price of the common stock for the 20 consecutive trading days prior to the date of redemption, subject to adjustments; provided, however, that in no event will the redemption price be less than $1.60.
We also entered into a security agreement with IRT, pursuant to which could materially harm our business.
Implications of Being an Emerging Growth Company
We qualify asare an "emerging growth company"company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. AsAct, and, for as long as we continue to be an emerging"emerging growth company," we may choose to take advantage of specifiedexemptions from various reporting requirements applicable to other public companies but not to "emerging growth companies," including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
payments not previously approved. We have irrevocably elected not to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, and, therefore, we willcould be subject
to the same new or revised accounting standards as other public companies that are not emergingan "emerging growth companies.
We may take advantage of these provisionscompany" for up to five years, or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that isuntil the earliest of (i) the last day of the first fiscal year in which we have totalour annual gross revenues ofexceed $1 billion, or more; (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, which would occur if the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal year following the fifth anniversary of the date of the distribution;quarter, or (iii) the date on which we have issued more than $1 billion in nonconvertiblenon-convertible debt during the previous three years; or (iv)preceding three-year period. We are choosing to "opt out" of the date on which we are deemed to be a large accelerated filerextended transition periods available under the rulesJOBS Act for complying with new or revised accounting standards, and intend to take advantage of the Securities and Exchange Commission.other exemptions.
To the extent that we continue to qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.
We were incorporated under the laws of the State ofin Delaware on May 15, 2013. Our fiscal year end is June 30.2013 for the purpose of holding certain FV-100 assets of Synergy Pharmaceuticals Inc., or Synergy. We were a majority-owned subsidiary of Synergy until February 18, 2014, the date Synergy completed the spinout of our shares of common stock. Our principal executive offices are located at 420 Lexington Avenue, Suite 300,399 Thornall Street, First Floor, Edison, New York, New York 10170.Jersey 08837. Our telephone number is (212) 297-6149. Our(732) 902-4000 and our website address is www.contravir.com. The information contained on or that can be accessed through, our website is not a part of, this prospectus. We have included our website address inand should not be construed as being incorporated by reference into, this prospectus solely as an inactive textual reference.
supplement or the accompanying prospectus.
The OfferingSUMMARY OF THE RIGHTS OFFERING
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Series C Convertible Preferred Stock: | Each share of Series C Convertible Preferred Stock will be convertible, at our option at any time on or after the first anniversary of the closing of the rights offering or at the option of the holder at any time, into the number of shares of our common stock determined by dividing the $1,000 stated value per share of the Series C Convertible Preferred Stock by a conversion price of $1.55 per share, subject to adjustment. The Series C Convertible Preferred Stock has certain conversion rights, dividend rights and liquidation preferences. | |
Warrants: | Each warrant entitles the holder to purchase one share of common stock at an exercise price of $1.55 per share, subject to adjustment, through its expiration five (5) years from the date of issuance. The warrants will be exercisable for cash, or, solely during any period when a registration statement for the exercise of the warrants is not in effect, on a cashless basis. We may redeem the warrants for $0.01 per warrant if our common stock closes above $6.20 per share for ten consecutive trading days, provided that we may not do so prior to the first anniversary of closing of the rights offering. | |
Record Date: | 5:00 p.m., Eastern Time, on June 14, 2018. | |
Basic Subscription Rights: | Each subscription right entitles you to purchase one unit at the subscription price. | |
Over-Subscription Privilege: | If you exercise your basic subscription rights in full, you may also choose to purchase a portion of the units that are not purchased by our other holders through the exercise of their basic subscription rights, subject to proration and stock ownership limitations described elsewhere in this prospectus. | |
Expiration Date: | 5:00 p.m., Eastern Time, on June 28, 2018. | |
Procedure for Exercising Subscription Rights: | To exercise your subscription rights, you must take the following steps: |
If you are a record holder of our common stock or a holder of certain outstanding warrants as of the record date, you must deliver payment and a properly completed rights certificate to the subscription agent to be received before 5:00 p.m., Eastern Time, on June 28, 2018. You may deliver the documents and payments by first class mail or courier service. If you use first class mail for this purpose, we recommend using registered mail, properly insured, with return receipt requested. | ||
If you are a beneficial owner of shares that are registered in the name of a broker, dealer, bank or other nominee, you should instruct your broker, dealer, bank or other nominee to exercise your subscription rights on your behalf. Please follow the instructions of your nominee, who may require that you meet a deadline earlier than 5:00 p.m., Eastern Time, on June 28, 2018. | ||
Delivery of Shares and Warrants: | As soon as practicable after the expiration of the rights offering, and within five business days thereof, we expect to close on subscriptions and for the subscription agent to arrange for the issuance of the shares of Series C Convertible Preferred Stock and warrants purchased pursuant to the rights offering. All shares and warrants that are purchased in the rights offering will be issued in book-entry, or uncertificated, form meaning that you will receive a direct registration, or DRS, account statement from our transfer agent reflecting ownership of these securities if you are a holder of record of shares or warrants. If you hold your shares in the name of a bank, broker, dealer, or other nominee, DTC will credit your account with your nominee with the securities you purchased in the rights offering. | |
Non-Transferability of Subscription Rights: | Subscription rights may not be sold, transferred, assigned or given away under any circumstances, and will not be listed for trading on any stock exchange or market. | |
Transferability of Warrants: | The | |
Participation of Certain Warrant Holders: | Certain holders of our warrants to purchase common stock have |
No Board Recommendation: | Our Board of Directors (the "Board") is not making a recommendation regarding your exercise of the subscription rights. You are urged to make your decision to invest based on your own assessment of our business and financial condition, our prospects for the future, the terms of the rights offering, the information in this prospectus and other information relevant to your circumstances. Please see "Risk Factors" for a | |
No Revocation: | All exercises of subscription rights are irrevocable. | |
Use of |
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| For U.S. federal income tax purposes, we do not believe you should recognize income or loss upon receipt or exercise of a subscription right. You should | |
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Subscription Agent Questions: | If you have any questions about the rights offering, please contact the subscription agent. | |
Subscription Agent | Philadelphia Stock Transfer, Inc. | |
Market for Common Stock: | Our common stock is listed on the NASDAQ Capital Market under the symbol "CTRV." | |
Market for Preferred Stock: | There is no established public trading market for the Series C Convertible Preferred Stock, and we do not expect a market to develop. In addition, we do not currently intend to apply for listing of the Series C Convertible Preferred Stock on any securities exchange or recognized trading system. | |
Market for Warrants | There is no established trading market for the warrants, the warrants may not be widely distributed and we do not expect a market to develop. In addition, we do not currently intend to apply for listing of the warrants on any securities exchange or recognized trading system. | |
Dealer-Manager: | Maxim Group LLC |
The numberTable of shares of our common stock outstanding after this offering excludes:Contents
2,142,270 shares of our common stock issuable upon exercise of outstanding options to purchase 2,142,270 shares of common stock under our 2013 Equity Incentive Plan, or Plan, at a weighted average exercise price of $1.58 per share;Summary Financial Data
Unless otherwise indicated, all information in this prospectus assumes:
| | Three months ended March 31, 2018 | Three months ended March 31, 2017 | Six months ended December 31, 2017 | Twelve months ended June 30, 2017 | Twelve months ended June 30, 2016 | |||||||||||
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Weighted average common shares outstanding | 10,124,112 | 7,912,710 | 9,678,329 | 7,286,304 | 3,382,541 | |||||||||||
Net loss | $ | (2,690,488 | ) | $ | (7,618,626 | ) | $ | (7,511,092 | ) | $ | (14,891,050 | ) | $ | (16,998,638 | ) | |
Net loss per common share | $ | (0.27 | ) | $ | (0.96 | ) | $ | (0.78 | ) | $ | (2.04 | ) | $ | (5.03 | ) | |
Summary Financial InformationQUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
You should readThe following are examples of what we anticipate will be common questions about the following summary financial data together with our financial statements and the related notes included elsewhere in this prospectus and the "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus.rights offering. The answers are based on selected statements of operations data for the period from May 31, 2013 ("inception") to December 31, 2013, the six months ended December 31, 2013, and the selected balance sheet data as of December 31, 2013 are derived from our unaudited financial statements and related notesinformation included elsewhere in this prospectus. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about the rights offering. This prospectus and the documents incorporated by reference herein contain more detailed descriptions of the terms and conditions of the rights offering and provide additional information about us and about our business, including potential risks related to the rights offering, the units offered hereby, and our business.
Exercising the subscription rights and investing in our securities involve a high degree of risk. We have derivedurge you to carefully read the statementssection entitled "Risk Factors" beginning on page 22 of operations datathis prospectus and all other information included in, or incorporated by reference into, this prospectus in its entirety before you decide whether to exercise your subscription rights.
What is the rights offering?
We are distributing to holders of shares of our common stock and to holders of certain outstanding warrants as of 5:00 p.m., Eastern Time, on June 14, 2018, which is the record date for the period from May 15, 2013 (inception)rights offering, at no charge, non-transferable subscription rights to June 30, 2013,purchase units, each consisting of one share of Series C Convertible Preferred Stock and the balance sheet data323 warrants. Each whole warrant will be exercisable for one share of our common stock. You will receive one subscription right for every share of common stock you owned or were deemed to own as of June 30, 2013, from our audited financial statements included elsewhere in this prospectus. Our financial status creates substantial doubt about our ability5:00 p.m., Eastern Time, on the record date. Each subscription right entitles the holder to continue as a going concern. Our historical results for any prior periodbasic subscription right and an over-subscription privilege, which are not necessarily indicativedescribed below. Upon closing of resultsthe rights offering, the Series C Convertible Preferred Stock and warrants will immediately separate. The common stock to be expected in any future period.
| | Period from May 15, 2013 (inception) to June 30, 2013 | Six Months Ended December 31, 2013 | Period from May 15, 2013 (inception) to December 31, 2013 | |||||||
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Statement of Operations Data: | ||||||||||
Revenues | $ | — | $ | — | $ | — | ||||
Costs and Expenses | ||||||||||
Research and development | 17,740 | 22,846 | 40,587 | |||||||
General and administrative | 122,427 | 320,780 | 443,207 | |||||||
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Loss from Operations | (140,167 | ) | (343,626 | ) | (483,794 | ) | ||||
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Interest expense | 328 | (6,591 | ) | (6,918 | ) | |||||
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Net loss | $ | (140,495 | ) | $ | (350,217 | ) | $ | (490,712 | ) | |
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Net loss per share: basic and diluted | $ | (0.02 | ) | $ | (0.04 | ) | ||||
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Weighted-average number of shares used in per common share calculations: | ||||||||||
Basic and diluted | 9,000,000 | 9,000,000 | ||||||||
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| | Actual | Pro Forma(1) | Pro Forma As Adjusted(1)(2) | |||||||
Balance Sheet Data: | ||||||||||
Cash(3) | $ | 3,275 | $ | 3,213,275 | $ | |||||
Total assets(3) | 8,827 | 3,218,827 | ||||||||
Total liabilities | 498,687 | 498,687 | ||||||||
Total stockholder's equity (deficiency)(3) | (489,860 | ) | 2,720,140 | |||||||
Working capital (deficiency)(3) | (489,860 | ) | 2,720,140 | |||||||
Why are we conducting the rights offering?
We are conducting the rights offering to fund our research and development activities and for working capital and general corporate purposes. For a detailed discussion, see "Use of Proceeds."
Our Board has approved the rights offering and, based on information available to the Board and its subsequent analyses, believes that the rights offering is in the best interests of the Company and its stockholders. However, our Board is not making any recommendation regarding your exercise of the subscription rights.
What is the basic subscription right?
Each basic subscription right gives our stockholders or certain warrant holders the opportunity to purchase units consisting of one share of Series C Convertible Preferred Stock and 323 warrants, at a subscription price of $1,000 per unit, subject to the limits described below. We have granted to you, as a stockholder or a holder of certain outstanding warrants of record as of 5:00 p.m., Eastern Time, on the record date, one subscription right for every share of our common stock you owned or were deemed to own, as the case may be, at that time. For example, if you owned 10,000 shares of our common stock as of 5:00 p.m., Eastern Time, on the record date, you would have received 10,000 subscription rights and would have the right to purchase 10,000 units for $1,000 per unit subject to certain limitations. You may exercise all or a portion of your basic subscription rights or you may choose not to exercise any subscription rights at all. However, if you exercise fewer than all of your basic subscription rights, you will not be entitled to purchase any additional shares pursuant to the over-subscription privilege.
If you hold CTRV stock certificates or warrants, the number of basic subscription rights you may exercise is indicated on the enclosed rights certificate. If you hold your shares in the name of a custodian bank, broker, dealer or other nominee, you will not receive a rights certificate. Instead, the Depository Trust Company ("DTC") will issue one subscription right to the nominee record holder for every share of our common stock that you own at the record date. If you are not contacted by your custodian bank, broker, dealer or other nominee, you should contact your nominee as soon as possible.
What is the over-subscription privilege?
We do not expect all of our stockholders or all eligible warrant holders to exercise all of such holder's basic subscription rights. The over-subscription privilege provides each holder that exercises all of such holder's basic subscription rights the opportunity to purchase the units that are not purchased by other holders. If you fully exercise your basic subscription right, the over-subscription privilege of each right entitles you to subscribe for additional units unclaimed by other holders of rights in the rights offering at the same subscription price per unit. If an insufficient number of units are available to fully satisfy all over-subscription privilege requests, the available units will be distributed proportionately among rights holders who exercise their over-subscription privileges based on the number of units each rights holder subscribed for under the basic subscription right.
In order to properly exercise your over-subscription privilege, you must deliver the subscription payment for exercise of your over-subscription privilege before the expiration of the rights offering. Because we will not know the total number of unsubscribed units before the expiration of the rights offering, if you wish to maximize the number of units you purchase pursuant to your over-subscription privilege, you will need to deliver payment in an amount equal to the aggregate subscription price for the maximum number of units available, assuming that no stockholder other than you has purchased any units pursuant to such stockholder's basic subscription right and over-subscription privilege. The subscription agent will return any excess payments by mail without interest or deduction promptly after the expiration of the subscription period. See "The Rights Offering—The Subscription Rights—Over-Subscription Privilege."
May the subscription rights that I exercise be reduced for any reason?
Yes. While we are distributing to holders of our common stock and certain warrant holders one subscription right for every share of common stock owned or deemed owned on the record date, we are only seeking to raise $20 million dollars in gross proceeds in this rights offering. As a result, based on (1) shares of common stock outstanding and (2) shares of common stock deemed to be owned by certain warrant holders and deemed to be outstanding as of June 14, 2018, we would grant subscription rights to acquire units but will only accept subscriptions for 20,000 units. Accordingly, sufficient units may not be available to honor your subscription in full. If exercises of basic subscription rights exceed the number of units available in the rights offering, we will allocate the available units pro-rata among the record holders exercising the basic subscription rights in proportion to the number of shares of our common stock each of those record holders owned or were deemed to own on the record date, relative to the number of shares owned on the record date by all record holders exercising the basic subscription right. If this pro-rata allocation results in any record holders receiving a greater number of units than the record holder subscribed for pursuant to the exercise of the basic subscription rights, then such record holder will be allocated only that number of units for which the record holder subscribed, and the remaining units will be allocated among all other record holders exercising their basic subscription rights on the same pro rata basis described above. The proration process will be repeated until all units have been allocated. Please also see the discussion under "The Rights Offering—The Subscription Rights—Over-Subscription Privilege" and "The Rights Offering—Limitation on the Purchase of Units" for a description of potential proration as to the over-subscription privilege and certain stock ownership limitations.
If for any reason the amount of units allocated to you is less than you have subscribed for, then the excess funds held by the subscription agent on your behalf will be returned to you, without interest, as soon as practicable after the rights offering has expired and all prorating calculations and reductions contemplated by the terms of the rights offering have been effected, and we will have no further obligations to you.
What are the terms of the Series C Convertible Preferred Stock?
Each share of Series C Convertible Preferred Stock will be convertible, at our option at any time on or after the first anniversary of the closing of the rights offering or at the option of the holder at any time, into the number of shares of our common stock determined by dividing the $1,000 stated value per share of the Series C Convertible Preferred Stock by a conversion price of $1.55 per share, subject to adjustment. The Series C Convertible Preferred Stock has certain conversion rights, dividend rights and liquidation preferences as described in more detail herein. We do not currently intend to list the Series C Convertible Preferred Stock on Nasdaq.
What are the terms of the warrants?
Each warrant entitles the holder to purchase one share of common stock at an exercise price of $1.55 per share from the date of issuance through its expiration five (5) years from the date of issuance. The warrants will be exercisable for cash, or, solely during any period when a registration statement for the exercise of the warrants is not in effect, on a cashless basis. We may redeem the warrants for $0.01 per warrant if our common stock closes above $6.20 per share for ten consecutive trading days, provided that we may not do so prior to the first anniversary of closing of the rights offering .
Are the warrants listed?
The warrants are not listed on any exchange and we do not intend to apply to list the warrants on any exchange.
Will fractional shares be issued upon exercise of subscription rights or warrants?
No. We will distribute subscription rights to acquire whole units, rounding down the underlying number of common shares giving rise to such subscription rights to the nearest share. Any excess subscription payments received by the subscription agent will be returned within 10 business days after expiration of the rights offering, without interest or deduction. No fractional shares will be issued upon the conversion of the Series C Convertible Preferred Stock or upon exercise of warrants.
How was the subscription price determined?
The Board determined the subscription price based on a variety of factors, including historical and current trading prices for our common stock, general business conditions, our need for capital, alternatives available to us for raising capital, potential market conditions, and our desire to provide an opportunity to our stockholders to participate in the rights offering on a pro rata basis. In conjunction with its review of these factors, the Board also reviewed our history and prospects, including our past and present earnings, our prospects for future earnings, and the outlook for our industry, and our current financial condition.
The subscription price is not necessarily related to our book value, tangible book value, multiple of earnings or any other established criteria of value and may or may not be considered the fair value of our common stock to be offered in the rights offering. You should not consider the subscription price as an indication of value of the Company or our common stock. There is currently no market for our shares of Series C Convertible Preferred Stock and, unless we or you choose to convert such shares
into shares of common stock, you will not be able to resell such shares. We cannot predict the price at which our shares of common stock will trade and, if listed, the warrants will trade after the rights offering. You should obtain a current quote for our common stock before exercising your subscription rights and make your own assessment of our business and financial condition, our prospects for the future, and the terms of the rights offering.
If I am a holder of only stock options or warrants, may I participate in the rights offering?
Holders of common stock issued as of the record date and holders of our warrants issued in October 2015, April 2016 and April 2017 may participate in the rights offering. Following the consummation of the rights offering, the Company anticipates making an equitable adjustment to unexercised stock options to reflect the issuance of shares in the rights offering.
Am I required to exercise all of the subscription rights I receive in the rights offering?
No. You may exercise any number of your subscription rights, or you may choose not to exercise any subscription rights. If you do not exercise any subscription rights, the number of shares of our common stock you own will not change; however, you will own a smaller proportional interest in the Company than if you had timely exercised all or a portion of your subscription rights. If you choose not to exercise your subscription rights or you exercise fewer than all of your subscription rights and other stockholders fully exercise their subscription rights or exercise a greater proportion of their subscription rights than you exercise, the percentage of our common stock owned by these other stockholders will increase relative to your ownership percentage, and your voting and other rights in the Company will likewise be diluted. In addition, if you do not exercise your basic subscription right in full, you will not be entitled to participate in the over-subscription privilege.
How soon must I act to exercise my subscription rights?
If you received a rights certificate and elect to exercise any or all of your subscription rights, the subscription agent must receive your completed and signed rights certificate and payment (and your payment must clear) prior to the expiration of the rights offering, which is June 28, 2018, at 5:00 p.m., Eastern Time, unless you have used the guaranteed delivery procedures described under "The Rights Offering—Notice of Guaranteed Delivery." If you hold your shares in the name of a custodian bank, broker, dealer or other nominee, your nominee may establish a deadline prior to 5:00 p.m., Eastern Time, on June 28, 2018 by which you must provide it with your instructions to exercise your subscription rights and payment for your shares. Our Board may, in its discretion, extend the rights offering one or more times. Our Board may cancel or amend the rights offering at any time before its expiration. In the event that the rights offering is cancelled, all subscription payments received will be returned promptly, without interest or penalty.
Although we will make reasonable attempts to provide this prospectus to holders of subscription rights, the rights offering and all subscription rights will expire at 5:00 p.m., Eastern Time, on June 28, 2018 (unless extended), whether or not we have been able to locate each person entitled to subscription rights.
All exercises of subscription rights are irrevocable, even if the rights offering is extended by our board of directors.
May I transfer my subscription rights?
No. You may not sell, transfer or assign your subscription rights to anyone. Subscription rights will not be listed for trading on the NASDAQ Capital Market or any other stock exchange or market. Rights certificates may only be completed by the stockholder who receives them.
Are we requiring a minimum subscription to complete the rights offering?
There is no aggregate minimum we must receive to complete the rights offering.
Has our Board made a recommendation to our stockholders regarding the rights offering?
No. Our Board is not making a recommendation regarding your exercise of the subscription rights. Stockholders who exercise subscription rights risk investment loss on new money invested. There is currently no market for our shares of Series C Convertible Preferred Stock or warrants and, unless we or you choose to convert your shares of Series C Convertible Preferred Stock into or exercise your warrants for shares of common stock, you will not be able to resell such shares. We cannot predict the price at which our shares of common stock will trade after the rights offering. On June 1, 2018, the last reported sale price of our common stock on Nasdaq was $1.55 per share. You are urged to make your decision based on your own assessment of our business and the rights offering. Please see "Risk Factors" in this prospectus and all other information included in, or incorporated by reference into, this prospectus for a discussion of some of the risks involved in investing in our securities.
How do I exercise my subscription rights if I own shares in certificate form or if I am an eligible warrant holder?
If you hold a CTRV stock certificate or if you are an eligible warrant holder and you wish to participate in the rights offering, you must take the following steps:
In certain cases, you may be required to provide additional documentation or signature guarantees.
Please follow the delivery instructions on the rights certificate. Do not deliver documents to the Company. You are solely responsible for completing delivery to the subscription agent of your subscription documents, rights certificate and payment. We urge you to allow sufficient time for delivery of your subscription materials to the subscription agent so that the subscription agent receives the materials before 5:00 p.m., Eastern Time, on June 28, 2018.
If you cannot deliver your rights certificate to the subscription agent prior to the expiration of the rights offering, you may follow the guaranteed delivery procedures described under "The Rights Offering—Notice of Guaranteed Delivery."
If you send a payment that is insufficient to purchase the number of units you requested, or if the number of units you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to the availability of units in the rights offering and the elimination of fractional shares. Any excess subscription payments received by the subscription agent will be returned promptly, without interest, following the expiration of the rights offering.
What should I do if I want to participate in the rights offering, but my shares are held in the name of a custodian bank, broker, dealer or other nominee?
If you hold your shares of common stock through a custodian bank, broker, dealer or other nominee, then your nominee is the record holder of the shares you own. If you are not contacted by your nominee, you should contact your nominee as soon as possible. Your nominee must exercise the subscription rights on your behalf for the shares of common stock you wish to purchase. You will not receive a rights certificate. Please follow the instructions of your nominee. Your nominee may establish
a deadline that may be before 5:00 p.m., Eastern Time, on June 28, 2018, the expiration date for the rights offering.
What form of payment is required to purchase units?
As described in the instructions accompanying the rights certificate, payments submitted to the subscription agent must be made in full United States currency by personal or certified check payable to Philadelphia Stock Transfer, Inc., the subscription agent, drawn upon a United States bank; U.S. Postal money order; or wire transfer.
If payment is issued by check, payment will be deemed to have been received by the subscription agent only upon the subscription agent's receipt of the check, receipt and clearance of such check.
Please note that funds paid by uncertified personal check may take at least seven business days to clear. Accordingly, if you wish to pay by means of an uncertified personal check, we urge you to make payment sufficiently in advance of the expiration date to ensure that the subscription agent receives cleared funds before that time.
When will I receive my new shares of Series C Convertible Preferred Stock and Warrants?
All shares that you purchase in the rights offering to which you are entitled will be issued in book-entry, or uncertificated, form. When issued, the shares will be registered in the name of the subscription rights holder of record. As soon as practicable after the expiration of the rights offering period, the subscription agent will arrange for the issuance of the shares of common stock purchased in the rights offering. Subject to state securities laws and regulations, we have the discretion to delay distribution of any shares you may have elected to purchase by exercise of your rights in order to comply with state securities laws.
After I send in my payment and rights certificate, may I cancel my exercise of subscription rights?
No. All exercises of subscription rights are irrevocable unless the rights offering is terminated, even if you later learn information about us or the rights offering that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless you are certain that you wish to purchase shares of our common stock in the rights offering.
Have any stockholders agreed to exercise their rights?
Yes. , which own an aggregate of shares of our common stock, or approximately % of the shares outstanding, have agreed with us to exercise their respective basic subscription rights as well as exercise their over-subscription privilege pursuant to the rights offering in an amount not less than $ and $ , respectively. No fees or other consideration will be paid by the Company to or (or any respective affiliates) in exchange for such agreement to purchase common stock in connection with the rights offering. Any shares of common stock purchased in connection with the transactions described in this paragraph will be purchased directly from us on a private basis and are not being registered pursuant to the registration statement of which this prospectus is a part.
Will our directors and officers participate in the rights offering?
All holders of our common stock as of the record date for the rights offering and holders of certain warrants will receive, at no charge, the non-transferable subscription rights to purchase shares of our common stock as described in this prospectus. To the extent that our directors and officers held shares of our common stock (including shares of restricted common stock) or eligible warrants as of the record date, they will receive the subscription rights and, while they are under no obligation to do
so, will be entitled to participate in the rights offering. Our directors and officers have not indicated to us whether they will purchase shares of our common stock in the offering pursuant to their basic subscription rights.
Will the equity awards of our employees, officers and directors automatically convert into common stock in connection with the rights offering?
Holders of our equity awards to employees, officers and directors, including outstanding stock options, will not receive rights in the rights offering in connection with such equity awards, but will receive subscription rights in connection with any shares of our common stock held as of the record date.
How will the rights offering affect our outstanding common stock?
As of June 14, 2018, we had shares of our common stock outstanding. Assuming no additional shares of common stock are issued by the Company prior to consummation of the rights offering and assuming all units are sold in the rights offering, we will have shares of common stock issued and outstanding, shares of Series C Convertible Preferred Stock outstanding, and warrants to purchase 4,742,647an additional shares of our common stock outstanding.
The issuance of Series C Convertible Preferred Stock and warrants exercisable for shares of our common stock in the rights offering will dilute, and thereby reduce, your proportionate ownership in our shares of common stock, on February 4, 2014 forunless you fully exercise your basic subscription rights.
How much will the Company receive in net proceeds from the rights offering?
We expect the aggregate proceeds, net of $3,210,000.
Are there risks in exercising my subscription rights?
Yes. The exercise of your subscription rights involves risks. Exercising your subscription rights involves the purchase of our securities and should be considered as carefully as you would consider any other equity investment. Among other things, you should carefully consider the risks described under the heading "Risk Factors" in this prospectus and all other information included in, or incorporated by reference into, this prospectus.
Can the Board terminate or extend the rights offering?
Yes. Our pro forma as adjusted balance sheet data as of December 31, 2013 gives further effectBoard may decide to issuanceterminate the rights offering at any time and salefor any reason before the expiration of the rights offering. We also have the right to extend the rights offering for additional periods in our sole discretion. We do not presently intend to extend the rights offering. We will notify stockholders and the public if the rights offering is terminated or extended by issuing a press release announcing the extension no later than 9:00 a.m., Eastern Time, on the next business day after the most recently announced expiration date of the rights offering.
If the rights offering is not completed, will my subscription payment be refunded to me?
Yes. The subscription agent will hold all funds it receives in a designated bank account until the rights offering is completed. If the rights offering is not completed, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. If your shares are held in the name of a custodian bank, broker, dealer or other nominee, it may take longer for you to
receive the refund of your subscription payment than if you were a record holder of your shares because the subscription agent will return payments through the record holder of your shares.
Will I receive interest on any funds I deposit with the subscription agent?
No. You will not be entitled to any interest on any funds that are deposited with the subscription agent pending completion or cancellation of the rights offering. If the rights offering is cancelled for any reason, the subscription agent will return this money to subscribers, without interest or penalty, as soon as practicable.
How do I exercise my rights if I live outside of the United States?
The subscription agent will hold rights certificates for stockholders having addresses outside of the United States. In order to exercise subscription rights, foreign stockholders must notify the subscription agent and timely follow the procedures described in "The Rights Offering—Foreign Stockholders."
What are the U.S. federal income tax consequences of exercising my subscription rights?
The receipt and exercise of subscription rights by holders of shares of our common stock should generally not be taxable for U.S. federal income tax purposes. You should seek specific tax advice from your tax advisor in light of your particular circumstances and as to the applicability and effect of any other tax laws. See "Material U.S. Federal Income Tax Consequences."
What fees or charges apply if I purchase units in the rights offering?
We are not charging any fee or sales commission to issue subscription rights to you or to issue units to you if you exercise your subscription rights (other than the subscription price). If you exercise your subscription rights through a custodian bank, broker, dealer or other nominee, you are responsible for paying any fees your nominee may charge you.
Whom should I contact if I have other questions?
If you have other questions regarding the rights offering, please contact the subscription agent, Philadelphia Stock Transfer, Inc., at 484-416-3124, or by email at bwinterle@philadelphiastocktransfer.com.
To whom should I send my forms and payment?
If your shares are held in the name of a broker, dealer, custodian bank or other nominee, then you should send your subscription documents and subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights certificate, subscription payment or, if applicable, notice of guaranteed delivery, to the address provided below. If sent by mail, we recommend that you send documents and payments by registered mail, properly insured, with return receipt requested, and that a sufficient number of shares offered by us,days be allowed to ensure delivery to the subscription agent. Do not send or deliver these materials to the Company.
| By Registered Certified or Express Mail | By Overnight Courier | |
PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 | PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 |
You, or, if applicable, your nominee, are solely responsible for ensuring the subscription agent receives your subscription documents, rights certificate, notice of guaranteed delivery and subscription
payment. You should allow sufficient time for delivery of your subscription materials to the subscription agent and clearance of payment before the expiration of the rights offering period.
Who is the dealer-manager?
Maxim Group LLC will act as set forth ondealer-manager for the cover page of this prospectus, assuming a public offering price of $ per share (the midpoint of our expected offering range onrights offering. Under the cover of this prospectus), after deductingterms and subject to the estimated underwriting discount and our estimated offering expenses.
Series C Convertible Preferred Stock or warrants.
An investment Investing in our common stocksecurities involves a high degree of risk. Before making an investment decision with respect to our securities, we urge you should give careful consideration to carefully consider the risks described in the "Risk Factors" section of our Transition Report on Form 10-K for the for the transition period from July 1, 2017 to December 31, 2017, which is incorporated by reference into this prospectus. These risk factors relate to our business, intellectual property, regulatory matters, and ownership of our common stock. In addition, the following risk factors in addition topresent material risks and uncertainties associated with the other information included inrights offering. The risks and uncertainties incorporated by reference into this prospectus includingor described below are not the only ones we face. Additional risks and uncertainties not presently known or which we consider immaterial as of the date hereof may also have an adverse effect on our financial statements and related notes, before deciding whether to invest in shares of our common stock. The occurrence ofbusiness. If any of the adverse developments describedmatters discussed in the following risk factors could materially and adversely harmwere to occur, our business, financial condition, results of operations, cash flows or prospects. In that case,prospects could be materially adversely affected, the tradingmarket price of our common stocksecurities could decline and you maycould lose all or part of your investment.investment in our securities.
Risks Related to Our Businessthe Rights Offering
We have incurred losses since inception, anticipate that we will incur continued losses for the foreseeable future andFuture sales of our independent registered public accounting firm's report, contained herein, includes an explanatory paragraph that expresses substantial doubt aboutcommon stock may depress our ability to continue as a going concern, indicating the possibility that we may not be able to operate in the future.share price.
As of June 30, 2013May 29, 2018, following a one-for-8 reverse stock split that was approved by our stockholders on March 9, 2018 and December 31, 2013,effected on May 25, 2018, we had an accumulated deficit10,686,795 shares of $140,495our common stock outstanding. Sales of a number of shares of common stock in the public market, or the issuance of additional shares upon exercise of outstanding warrants, could cause the market price of our common stock to decline. We may also sell additional common stock or securities convertible into or exercisable or exchangeable for common stock in subsequent public or private offerings or other transactions, which may adversely affect the market price of our common stock.
We presently do not intend to pay cash dividends on our common stock.
We have never paid cash dividends in the past, and $490,712, respectively. We expect to incur significant and increasing operating losses forwe currently anticipate that no cash dividends will be paid on the next several years as we expand our research and development, continue our clinical trialscommon stock in the foreseeable future.
Our stockholders may experience substantial dilution in the value of FV-100, acquire or license technologies, advance other product candidates into clinical development, complete clinical trials, seek regulatory approval and,their investment if we receive FDA approval, commercialize our products. Primarily as a resultissue additional shares of our lossescapital stock.
Our charter allows us to issue up to 120,000,000 shares of our common stock, par value $0.0001 per share, and limited cash balances, our independent registered public accounting firm has includedto issue and designate the rights of, without stockholder approval, up to 20,000,000 shares of preferred stock, par value $0.0001 per share. To raise additional capital, we may in its report an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent upon, among other factors, the sale of thefuture sell additional shares of our common stock or obtaining alternate financing. We cannot provide any assuranceother securities convertible into or exchangeable for our common stock at prices that we will be ableare lower than the prices paid by existing stockholders, and investors purchasing shares or other securities in the future could have rights superior to raise additional capital.
If we are unable to secure additional capital, we may be required to curtail our research and development initiatives and take additional measures to reduce costsexisting stockholders, which could result in order to conserve our cash in amounts sufficient to sustain operations and meet our obligations. These measures could cause significant delays in our clinical and regulatory efforts, which is criticalsubstantial dilution to the realizationinterests of our business plan. The accompanying financial statements do not include any adjustments that may be necessary should we be unable to continue as a going concern. It is not possible for us to predict at this time the potential success of our business. The revenue and income potential of our proposed business and operations are currently unknown. If we cannot continue as a viable entity, you may lose some or all of your investment in our company.existing stockholders.
We will require substantial additional fundingmay issue debt and equity securities or securities convertible into equity securities, any of which may not be availablesenior to us on acceptable terms, or at all. If we failour common stock as to raisedistributions and in liquidation, which could negatively affect the necessary additional capital, we may be unable to complete the development and commercializationvalue of our product candidate, or continue our development programs.common stock.
We expectIn the future, we may attempt to significantly increase our spendingcapital resources by entering into debt or debt-like financing that is unsecured or secured by up to advance the preclinical and clinical developmentall of our product candidate and launch and commercialize any product candidateassets, or by issuing additional debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, guarantees, preferred stock, hybrid securities, or securities convertible into or exchangeable for which we receive regulatory approval, including building our own commercial organizations to address certain markets. We will require additional capital forequity securities. In the further development and commercializationevent of our product candidate, as well as to fundliquidation, our other operating expenseslenders and capital expenditures.
We cannot be certain that additional funding will be available on acceptable terms, or at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us we may have to significantly delay, scale back or discontinue the development or commercializationholders of our product candidate. We may also seek collaborators for one or moredebt and preferred securities would receive distributions of our current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Anyavailable assets before distributions to the holders of these events could significantly harm our business, financial conditioncommon stock. Because our decision to incur debt and prospects.issue
Oursecurities in future capital requirements will depend on many factors, including:
In order to carry out our business plan and implement our strategy, we anticipate that we will need to obtain additional financing from time to time and may choose to raise additional funds through strategic collaborations, licensing arrangements, public or private equity or debt financing, bank lines of credit, asset sales, government grants, or other arrangements. We cannot be sure that any additional funding, if needed, will be available on terms favorable to us or at all. Furthermore, any additional equity or equity-related financing may be dilutive to our stockholders, and debt or equity financing, if available, may subject us to restrictive covenants and significant interest costs. If we obtain funding through a strategic collaboration or licensing arrangement, we may be required to relinquish our rights to certain of our product candidate or marketing territories. Our inability to raise capital when needed would harm our business, financial condition and results of operations, and could cause our stock price to decline or require that we wind down our operations altogether.
Our prospects are largely dependent on the success of FV-100, which was the subject of a Phase II clinical trial that failed to meet its primary endpoints. While we seek to determine the implications, if any, of the Phase II results on our FV-100 product candidate and consider other potential strategic pathways, there can be no assurance we will be able to successfully advance or develop our FV-100 product candidate and if we are unable to further develop or obtain regulatory approval, our business will be materially harmed.
In December 2010, Inhibitex, Inc., a previous owner of the FV-100 assets, announced that in a pivotal Phase II clinical trial of FV-100, an oral antiviral compound being developed to treat herpes zoster, more commonly referred to as shingles, failed to meet its primary endpoint. Since we received the FV-100 assets from Synergy, we have not engaged in any clinical study of FV-100 or materially advanced the development of FV-100. We are currently conducting various analyses of our preclinical and clinical data related to FV-100, as well as analyzing the various lots of clinical trial material used in the Phase II trials in an effort to determine whether the results of the Phase II trial were a consequence of one or more factors, including the potency and consistency of the clinical trial material, the change in the dosing schedule, and selection of the patient population studied and the appropriateness of the primary efficacy endpoint used in the clinical trial to determine the effectiveness of the treatments. If we are unable to successfully advance or develop our FV-100 product candidate, it will have a material adverse effect on our business.
Our product candidate is in the early stages of development and its commercial viability remains subject to the successful outcome of current and future preclinical studies, clinical trials, regulatory approvals and the risks generally inherent in the development of a pharmaceutical product candidate. If we are unable to successfully advance or develop our product candidate, our business will be materially harmed.
In the near-term, failure to successfully advance the development of FV-100 may have a material adverse effect on us. To date, we have not successfully developed or commercially marketed, distributed or sold any product candidate. The success of our business depends primarily upon our ability to successfully advance the development of FV-100 through preclinical studies and clinical trials, have these product candidate approved for sale by the FDA or regulatory authorities in other countries, and ultimately have this product candidate successfully commercialized by us or a strategic collaborator. We cannot assure you that the results of our ongoing preclinical studies or clinical trials will support or justify the continued development of our product candidate, or that we will receive approval from the FDA, or similar regulatory authorities in other countries, to advance the development of our product candidate.
Our product candidate must satisfy rigorous regulatory standards of safety and efficacy before we can advance or complete their clinical development or they can be approved for sale. To satisfy these standards, we must engage in expensive and lengthy preclinical studies and clinical trials, develop acceptable manufacturing processes, and obtain regulatory approval of our product candidate. Despite these efforts, our product candidate may not:
Even if we demonstrate favorable results in preclinical studies and early-stage clinical trials, we cannot assure you that the results of late-stage clinical trials will be favorable enough to support the continued development of our product candidate. A number of companies in the pharmaceutical and biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials of our product candidate may not be predictive of the results we may obtain in later-stage trials. Furthermore, even if the data collected from preclinical studies and clinical trials involving our product candidate demonstrates a satisfactory safety and efficacy profile, such results may not be sufficient to support the submission of a New Drug Application, or NDA or a biologics license application, or BLA to obtain regulatory approval from the FDA in the U.S., or other similar regulatory agencies in other jurisdictions, which is required to market and sell the product.
Our product candidate will require significant additional research and development efforts, the commitment of substantial financial resources, and regulatory approvals prior to advancing into further clinical development or being commercialized by us or collaborators. We cannot assure you that our product candidate will successfully progress through the drug development process or will result in a commercially viable product. We do not expect our product candidate to be commercialized by us or collaborators for at least several years.
Our product candidate may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products or investigational new drugs, which may delay or preclude its further development or regulatory approval, or limit its use if approved.
Throughout the drug development process, we must continually demonstrate the safety and tolerability of our product candidate to obtain regulatory approval to further advance their clinical development or to market them. Even if our product candidate demonstrates biologic activity and clinical efficacy, any unacceptable adverse side effects or toxicities, when administered alone or in the presence of other pharmaceutical products, which can arise at any stage of development, may outweigh its potential benefit. In preclinical studies and clinical trials we have conducted to date, our product candidate has demonstrated an acceptable safety profile, although these studies and trials have involved a small number of subjects or patients over a limited period of time. We may observe adverse or significant adverse events or drug-drug interactions in future preclinical studies or clinical trials of this product candidate, which could result in the delay or termination of its development, prevent regulatory approval, or limit its market acceptance if it is ultimately approved.
If the actual or perceived therapeutic benefits of FV-100 are not sufficiently different from existing generic drugs currently used to treat shingles or reduce or prevent shingles-associated pain and PHN, we may terminate the development of FV-100 at any time, or our ability to generate significant revenue from the sale of FV-100, if approved, may be limited and our potential profitability could be harmed.
Valacyclovir, famciclovir and acyclovir are existing generic drugs currently marketed to treat shingles patients. Generic drugs are compounds that have no remaining patent protection, and generally have an average selling price substantially lower than drugs that are protected by patents and intellectual property rights. Unless a patented drug can differentiate itself from generic drugs treating the same condition or disease in a clinically meaningful manner, the existence of generic competition in any indication may impose significant pricing pressure on patented drugs. Accordingly, if at any time we believe that FV-100 may not provide meaningful therapeutic benefits, perceived or real, over these existing generic drugs, we may delay or terminate its future development. We cannot provide any assurance that later-stage clinical trials of FV-100 will demonstrate any meaningful therapeutic benefits over existing generic drugs sufficient to justify its continued development. Further, if we successfully develop FV-100 and it is approved for sale, we cannot assure you that any real or perceived therapeutic benefits of FV-100 over generic drugs will result in it being, accepted for sale by insurance company formularies, prescribed by physicians or commanding a price higher than the existing generic drugs.
If the results of preclinical studies or clinical trials for our product candidate, including those that are subject to existing or future license or collaboration agreements, are unfavorable or delayed, we could be delayed or precluded from the further development or commercialization of our product candidate, which could materially harm our business.
In order to further advance the development of, and ultimately receive regulatory approval to sell, our product candidate, we must conduct extensive preclinical studies and clinical trials to demonstrate their safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries, as the case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can occur at any time, or in any phase of preclinical or clinical testing, and can result from concerns about safety or toxicity, a lack of demonstrated efficacy or superior efficacy over other similar products that have been approved for sale or are in more advanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the trials. The results of prior preclinical studies or clinical trials are not necessarily predictive of the results we may observe in later stage clinical trials. In many cases, product candidate in clinical development may fail to show desired safety and efficacy
characteristics despite having favorably demonstrated such characteristics in preclinical studies or earlier stage clinical trials.
In addition, we may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or impede our ability to advance the development of, receive regulatory approval for, or commercialize our product candidate, including, but not limited to:
Even if the data collected from preclinical studies or clinical trials involving our product candidate demonstrate a satisfactory safety and efficacy profile, such results may not be sufficient to support the submission of a NDA or BLA to obtain regulatory approval from the FDA in the U.S., or other similar foreign regulatory authorities in foreign jurisdictions, which is required to market and sell the product.
If third party vendors upon whom we intend to rely on to conduct our preclinical studies or clinical trials do not perform or fail to comply with strict regulations, these studies or trials of our product candidate may be delayed, terminated, or fail, or we could incur significant additional expenses, which could materially harm our business.
We have limited resources dedicated to designing, conducting and managing preclinical studies and clinical trials. We intend to rely on third parties, including clinical research organizations, consultants and principal investigators, to assist us in designing, managing, monitoring and conducting our preclinical studies and clinical trials. As of the date hereof, we have not entered into any contracts with third party vendors for any studies to be conducted. We intend to rely on these vendors and individuals to perform many facets of the drug development process, including certain preclinical studies, the recruitment of sites and patients for participation in our clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliance with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of our product candidate may be delayed or prove unsuccessful. Further, the FDA may inspect some of the clinical sites participating in our clinical trials in the U.S., or our third-party vendors' sites, to determine if our clinical trials are being conducted according to Good Clinical Practices or GCPs. If we or the FDA determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according to, applicable regulations we may be forced to delay, repeat or terminate such clinical trials.
We have limited capacity for recruiting and managing clinical trials, which could impair our timing to initiate or complete clinical trials of our product candidate and materially harm our business.
We have limited capacity to recruit and manage the clinical trials necessary to obtain FDA approval or approval by other regulatory authorities. By contrast, larger pharmaceutical and bio-pharmaceutical companies often have substantial staffs with extensive experience in conducting clinical trials with multiple product candidates across multiple indications. In addition, they may have greater financial resources to compete for the same clinical investigators and patients that we are attempting to recruit for our clinical trials. To the best of our knowledge, the following companies are potential competitors as we develop FV-100: Epiphany Biosceinces, Inc., Astellas Pharma US, Inc., GlaxoSmithKline plc and Janus Pharmaceuticals, Inc. Specifically, we are aware that valomaciclovir is being developed by Epiphany Pharmaceuticals and has completed Phase IIb clinical trials for VZV infections. To our knowledge, other potential competitors are in earlier stages of development for VZV infections. If potential competitors are successful in completing drug development for their product candidates and obtain approval from the FDA, they could limit the demand for FV-100.
As a result, we may be at a competitive disadvantage that could delay the initiation, recruitment, timing, completion of our clinical trials and obtaining regulatory approvals, if at all, for our product candidate.
We, and our collaborators, must comply with extensive government regulations in order to advance our product candidate through the development process and ultimately obtain and maintain marketing approval for our products in the U.S. and abroad.
The product candidates that we, or our collaborators, are developing require regulatory approval to advance through clinical development and to ultimately be marketed and sold, and are subject to extensive and rigorous domestic and foreign government regulation. In the U.S., the FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of pharmaceutical and biopharmaceutical products. Our product candidate is also subject to similar regulation by foreign governments to the extent we seek to develop or market them in those countries. We, or our collaborators, must provide the FDA and foreign regulatory authorities, if applicable, with preclinical and clinical data, as well as data supporting an acceptable manufacturing process, that appropriately demonstrate our product candidate' safety and efficacy before they can be approved for the targeted indications. Our product candidate has not been approved for sale in the U.S. or any foreign market, andcontrol, we cannot predict whether we or our collaborators will obtain regulatory approval for any product candidate we are developingestimate the amount, timing or plan to develop. The regulatory review and approval process can take many years, is dependent upon the type, complexity, novelty of, and medical need for the product candidate, requires the expenditure of substantial resources, and involves post-marketing surveillance and vigilance and ongoing requirements for post-marketing studies or Phase 4 clinical trials. In addition, we or our collaborators may encounter delays in, or fail to gain, regulatory approval for our product candidate based upon additional governmental regulation resulting from future legislative, administrative action or changes in FDA policy or interpretation during the period of product development. Delays or failures in obtaining regulatory approval to advance our product candidate through clinical development, and ultimately commercialize them, may:
Furthermore, any regulatory approvals, if granted, may later be withdrawn. If we or our collaborators fail to comply with applicable regulatory requirements at any time, or if post-approval safety concerns arise, we or our collaborators may be subject to restrictions or a number of actions, including:
Additionally, at any time we or our collaborators may voluntarily suspend or terminate the preclinical or clinical development of a product candidate, or withdraw any approved product from thedebt financings. Further, market if we believe that it may pose an unacceptable safety risk to patients, or if the product candidate or approved product no longer meets our business objectives. The ability to develop or market a pharmaceutical product outside of the U.S. is contingent upon receiving appropriate authorization from the respective foreign regulatory authorities. Foreign regulatory approval processes typically include many, if not all, of the risks and requirements associated with the FDA regulatory process for drug development and may include additional risks.
We have limited experience in the development of small molecule antiviral product candidate and therefore may encounter difficulties developing our product candidate or managing our operations in the future.
Our lead product candidate, FV-100, is a chemical compound, also referred to as a small molecule. We have limited experience in the discovery, development and manufacturing of these small molecule antiviral compounds. In order to successfully develop this product candidate, we must continuously supplement our research, clinical development, regulatory, medicinal chemistry, virology and manufacturing capabilities through the addition of key employees, consultants or third-party contractors to provide certain capabilities and skill sets that we do not possess.
Furthermore, we have adopted an operating model that largely relies on the outsourcing of a number of responsibilities and key activities to third-party consultants, and contract research and manufacturing organizations in order to advance the development of our product candidate. Therefore, our success depends in part on our ability to retain highly qualified key management, personnel, and directors to develop, implement and execute our business strategy, operate the company and oversee the activities of our consultants and contractors, as well as academic and corporate advisors or consultants to assist us in this regard. We are currently highly dependent upon the efforts of our management team. In order to develop our product candidate, we need to retain or attract certain personnel, consultants or advisors with experience in the drug development activities of small molecules that include a number of disciplines, including research and development, clinical trials, medical matters, government regulation of pharmaceuticals, manufacturing, formulation and chemistry, business development, accounting, finance, human resources and information systems. We are highly dependent upon our senior management and scientific staff, particularly James Sapirstein, our Chief Executive Officer. The loss of services of Mr. Sapirstein or one or more of our other members of senior management could delay or prevent the successful completion of our planned clinical trials or the commercialization of our product candidate.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel and on our ability to develop and maintain important relationships with leading academic institutions, clinicians and scientists. The competition for qualified personnel in the biotechnology and pharmaceuticals field is intense. We will need to hire additional
personnel as we expand our clinical development and commercial activities. While we have not had difficulties recruiting qualified individuals, to date, we may not be able to attract and retain quality personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and other companies. Although we have not experienced material difficulties in retaining key personnel in the past, we may not be able to continue to do so in the future on acceptable terms, if at all. If we lose any key managers or employees, or are unable to attract and retain qualified key personnel, directors, advisors or consultants, the development of our product candidate could be delayed or terminated and our business may be harmed.
We will need to obtain FDA approval of any proposed product brand names, and any failure or delay associated with such approval may adversely impact our business.
A pharmaceutical product cannot be marketed in the U.S. or other countries until we have completed rigorous and extensive regulatory review processes, including approval of a brand name. Any brand names we intend to use for our product candidate will require approval from the FDA regardless of whether we have secured a formal trademark registration from the U.S. Patent and Trademark Office, or the PTO. The FDA typically conducts a review of proposed product brand names, including an evaluation of potential for confusion with other product names. The FDA may also object to a product brand name if the FDA believes the name inappropriately implies medical claims. If the FDA objects to any of our proposed product brand names, we may be required to adopt an alternative brand name for our product candidate. If we adopt an alternative brand name, we would lose the benefit of our existing trademark applications for such product candidate and may be required to expend significant additional resources in an effort to identify a suitable product brand name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA. We may be unable to build a successful brand identity for a new trademark in a timely manner or at all, which would limit our ability to commercialize our product candidate.
Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.
Our product candidate may not prove to be safe and efficacious in clinical trials and may not meet all the applicable regulatory requirements needed to receive regulatory approval. In order to receive regulatory approval for the commercialization of our product candidate, we must conduct, at our own expense, extensive preclinical testing and clinical trials to demonstrate safety and efficacy of this product candidate for the intended indication of use. Clinical testing is expensive, can take many years to complete, if at all, and its outcome is uncertain. Failure can occur at any time during the clinical trial process.
The results of preclinical studies and early clinical trials of new drugs do not necessarily predict the results of later-stage clinical trials. The design of our clinical trials is based on many assumptions about the expected effects of our product candidate, and if those assumptions are incorrect it may not produce statistically significant results. Preliminary results may not be confirmed on full analysis of the detailed results of an early clinical trial. Product candidates in later stages of clinical trials may fail to show safety and efficacy sufficient to support intended use claims despite having progressed through initial clinical testing. The data collected from clinical trials of our product candidate may not be sufficient to support the filing of an NDA or to obtain regulatory approval in the United States or elsewhere. Because of the uncertainties associated with drug development and regulatory approval, we cannot determine if or when we will have an approved product for commercialization or achieve sales or profits.
Delays in clinical testing could result in increased costs to us and delay our ability to generate revenue.
We may experience delays in clinical testing of our product candidate. We do not know whether planned clinical trials will begin on time, will need to be redesigned or will be completed on schedule, if at all. Clinical trials can be delayed for a variety of reasons, including delays in obtaining regulatory approval
to commence a clinical trial, in securing clinical trial agreements with prospective sites with acceptable terms, in obtaining institutional review board approval to conduct a clinical trial at a prospective site, in recruiting patients to participate in a clinical trial or in obtaining sufficient supplies of clinical trial materials. Many factors affect patient enrollment, including the size of the patient population, the proximity of patients to clinical sites, the eligibility criteria for the clinical trial, competing clinical trials and new drugs approved for the conditions we are investigating. Clinical investigators will need to decide whether to offer their patients enrollment in clinical trials of our product candidate versus treating these patients with commercially available drugs that have established safety and efficacy profiles. Any delays in completing our clinical trials will increase our costs, slow down our product development, timeliness and approval process and delay our ability to generate revenue.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidate, our business will be substantially harmed.
The time required to obtain approval by the FDA and comparable foreign authorities is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate's clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that our existing product candidate or any product candidate we may seek to develop in the future will ever obtain regulatory approval.
Our product candidate could fail to receive regulatory approval for many reasons, including the following:
This lengthy approval process as well as the unpredictability of future clinical trial results may result in our failing to obtain regulatory approval to market our product candidate, which would significantly harm our business, results of operations and prospects.
In addition, even if we were to obtain approval, regulatory authorities may approve our product candidate for fewer or more limited indications than we request, may not approve the price we intend to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidate.
We, as a newly formed entity, have not previously submitted a biologics license application, or BLA, or a New Drug Application, or NDA, to the FDA, or similar drug approval filings to comparable foreign authorities, for our product candidate, and we cannot be certain that our product candidate will be successful in clinical trials or receive regulatory approval. Further, our product candidate may not receive regulatory approval even if they are successful in clinical trials. If we do not receive regulatory approvals for our product candidate, we may not be able to continue our operations. Even if we successfully obtain regulatory approvals to market one or more of our product candidates, our revenues will be dependent, in part, upon our collaborators' ability to obtain regulatory approval of the companion diagnostics to be used with our product candidate, as well as the size of the markets in the territories for which we gain regulatory approval and have commercial rights. If the markets for patients that we are targeting for our product candidate are not as significant as we estimate, we may not generate significant revenues from sales of such products, if approved.
We plan to seek regulatory approval and to commercialize our product candidate, directly or with a collaborator, worldwide including the United States, the European Union and other additional foreign countries which we have not yet identified. While the scope of regulatory approval is similar in other countries, to obtain separate regulatory approval in many other countries we must comply with numerous and varying regulatory requirements of such countries regarding safety and efficacy and governing, among other things, clinical trials and commercial sales, pricing and distribution of our product candidate, and we cannot predict success in these jurisdictions.
We may be required to suspend or discontinue clinical trials due to unexpected side effects or other safety risks that could preclude approval of our product candidate.
Our clinical trials may be suspended at any time for a number of reasons. For example, we may voluntarily suspend or terminate our clinical trials if at any time we believe that they present an unacceptable risk to the clinical trial patients. In addition, the FDA or other regulatory agencies may order the temporary or permanent discontinuation of our clinical trials at any time if they believe that the clinical trials are not being conducted in accordance with applicable regulatory requirements or that they present an unacceptable safety risk to the clinical trial patients.
Administering any product candidate to humans may produce undesirable side effects. These side effects could interrupt, delay or halt clinical trials of our product candidate and could result in the FDA or other regulatory authorities denying further development or approval of our product candidate for any or all targeted indications. Ultimately, some or all of our product candidates may prove to be unsafe for human use. Moreover, we could be subject to significant liability if any volunteer or patient suffers, or appears to suffer, adverse health effects as a result of participating in our clinical trials.
If we fail to comply with healthcare regulations, we could face substantial enforcement actions, including civil and criminal penalties and our business, operations and financial condition could be adversely affected.
As a developer of pharmaceuticals, even though we do not intend to make referrals of healthcare services or bill directly to Medicare, Medicaid or other third-party payers, certain federal and state
healthcare laws and regulations pertaining to fraud and abuse, false claims and patients' privacy rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse laws and patient privacy laws of both the federal government and the states in which we conduct our business. The laws include:
If our operations are found to be in violation of any of the laws described above or any governmental regulations that apply to us, we may be subject to penalties, including civil and criminal penalties, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of our operations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws, even if we successfully defends against it, could cause us to incur significant legal expenses and divert management's attention from the operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws may prove costly.
If we are unable to satisfy regulatory requirements, we may not be able to commercialize our product candidate.
We need FDA approval prior to marketing our product candidate in the United States. If we fail to obtain FDA approval to market our product candidate, we will be unable to sell our product candidate in the United States and we will not generate any revenue.
The FDA's review and approval process, including among other things, evaluation of preclinical studies and clinical trials of a product candidate as well as the manufacturing process and facility, is lengthy, expensive and uncertain. To receive approval, we must, among other things, demonstrate with substantial evidence from well-designed and well-controlled pre-clinical testing and clinical trials that the product candidate is both safe and effective for each indication for which approval is sought. Satisfaction of these requirements typically takes several years and the time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the pharmaceutical product. We cannot predict if or when we will submit an NDA for approval for our product candidate currently under development. Any approvals
we may obtain may not cover all of the clinical indications for which we are seeking approval or may contain significant limitations on the conditions of use.
The FDA has substantial discretion in the NDA review process and may either refuse to file our NDA for substantive review or may decide that our data is insufficient to support approval of our product candidate for the claimed intended uses. Following any regulatory approval of our product candidate, we will be subject to continuing regulatory obligations such as safety reporting, required and additional post marketing obligations, and regulatory oversight of promotion and marketing. Even if we receive regulatory approvals, the FDA may subsequently seek to withdraw approval of our NDA if we determine that new data or a reevaluation of existing data show the product is unsafe for use under the conditions of use upon the basis of which the NDA was approved, or based on new evidence of adverse effects or adverse clinical experience, or upon other new information. If the FDA does not file or approve our NDA or withdraws approval of our NDA, the FDA may require that we conduct additional clinical trials, preclinical or manufacturing studies and submit that data before it will reconsider our application. Depending on the extent of these or any other requested studies, approval of any applications that we submit may be delayed by several years, may require us to expend more resources than we have available, or may never be obtained at all.
We will also be subject to a wide variety of foreign regulations governing the development, manufacture and marketing of our products to the extent we seek regulatory approval to market our product candidates in a foreign jurisdiction. As of the date hereof we have not identified any foreign jurisdictions which we intend to seek approval from. Whether or not FDA approval has been obtained, approval of a product by the comparable regulatory authorities of foreign countries must still be obtained prior to marketing the product in those countries. The approval process varies and the time needed to secure approval in any region such as the European Union or in a country with an independent review procedure may be longer or shorter than that required for FDA approval. We cannot assure you that clinical trials conducted in one country will be accepted by other countries or that an approval in one country or region will result in approval elsewhere.
If our product candidate is unable to compete effectively with marketed drugs targeting similar indications as our product candidate, our commercial opportunity will be reduced or eliminated.
We face competition generally from established pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public research institutions. Many of our competitors have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Small or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Our commercial opportunity will be reduced or eliminated if our competitors develop and commercialize any shingles drugs that are safer, more effective, have fewer side effects or are less expensive than our product candidate. These potential competitors compete with us in recruiting and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies and technology licenses complementary to our programs or advantageous to our business.
If approved and commercialized, FV-100 intends to compete with at least 4 currently approved prescription therapies for the treatment of shingles, acyclovir, valacyclovir and famiciclovir. In addition, Zostavax®, a live attenuated varicella zoster virus VZV vaccine, is available and may reduce the overall incidence of shingles. We also believe other companies are developing products that will compete with FV-100 should they be approved by the FDA. For example, valomaciclovir is being developed by Epiphany Pharmaceuticals and has completed Phase IIb clinical trials for VZV infections. To our knowledge, other potential competitors are in earlier stages of development. If potential competitors are successful in
completing drug development for their product candidates and obtain approval from the FDA, they could limit the demand for FV-100.
We expect that our ability to compete effectively will depend upon our ability to:
Because we will be competing against significantly larger companies with established track records, we will have to demonstrate that, based on experience, clinical data, side-effect profiles and other factors, our products, if approved, are competitive with other products. If we are unable to compete effectively in the shingles drug market and differentiate our products from other marketed shingles drugs, we may never generate meaningful revenue.
We currently have no sales and marketing organization. If we are unable to establish a direct sales force in the United States to promote our products, the commercial opportunity for our products may be diminished.
We currently have no sales and marketing organization. If our product candidate is approved by the FDA, we intend to market that product through our own sales force. We will incur significant additional expenses and commit significant additional management resources to establish our sales force. We may not be able to establish these capabilities despite these additional expenditures. We will also have to compete with other pharmaceutical and biotechnology companies to recruit, hire and train sales and marketing personnel. If we elect to rely on third parties to sell our product candidate in the United States, we may receive less revenue than if we sold our products directly. In addition, although we would intend to use due diligence in monitoring their activities, we may have little or no control over the sales efforts of those third parties. In the event we are unable to develop our own sales force or collaborate with a third party to sell our product candidate, we may not be able to commercialize our product candidate which would negatively impact our ability to generate revenue.
We may need others to market and commercialize our product candidate in international markets.
Currently, we do not have any plans to enter international markets. In the future, if appropriate regulatory approvals are obtained, we may commercialize our product candidate in international markets. However, we have not decided how to commercialize our product candidate in those markets. We may decide to build our own sales force or sell our products through third parties. If we decide to sell our product candidate in international markets through a third party, we may not be able to enter into any marketing arrangements on favorable terms or at all. In addition, these arrangements could result in lower levels of income to us than if we marketed our product candidate entirely on our own. If we are unable to enter into a marketing arrangement for our product candidate in international markets, we may not be able to develop an effective international sales force to successfully commercialize those products in international markets. If we fail to enter into marketing arrangements for our products and are unable to develop an effective international sales force, our ability to generate revenue would be limited.
If the manufacturers upon whom we rely fail to produce FV-100, in the volumes that we require on a timely basis, or fail to comply with stringent regulations applicable to pharmaceutical drug manufacturers, we may face delays in the development and commercialization of our product candidate.
We do not currently possess internal manufacturing capacity. We plan to utilize the services of contract manufacturers to manufacture our clinical supplies. Any curtailment in the availability of FV-100, however, could result in production or other delays with consequent adverse effects on us. In addition, because regulatory authorities must generally approve raw material sources for pharmaceutical products, changes in raw material suppliers may result in production delays or higher raw material costs.
We continue to pursue active pharmaceutical ingredients, or API, and drug product supply agreements with other manufacturers. We may be required to agree to minimum volume requirements, exclusivity arrangements or other restrictions with the contract manufacturers. We may not be able to enter into long-term agreements on commercially reasonable terms, or at all. If we change or add manufacturers, the FDA and comparable foreign regulators may require approval of the changes. Approval of these changes could require new testing by the manufacturer and compliance inspections to ensure the manufacturer is conforming to all applicable laws and regulations and good manufacturing practices or GMP. In addition, the new manufacturers would have to be educated in or independently develop the processes necessary for the production of our product candidate.
The manufacture of pharmaceutical products requires significant expertise and capital investment, including the development of advanced manufacturing techniques and process controls. Manufacturers of pharmaceutical products may encounter difficulties in production, particularly in scaling up production. These problems include difficulties with production costs and yields, quality control, including stability of the product and quality assurance testing, shortages of qualified personnel, as well as compliance with federal, state and foreign regulations. In addition, any delay or interruption in the supply of clinical trial supplies could delay the completion of our clinical trials, increase the costs associated with conducting our clinical trials and, depending upon the period of delay, require us to commence new clinical trials at significant additional expense or to terminate a clinical trial.
We are responsible for ensuring that each of our contract manufacturers comply with the GMP requirements of the FDA and other regulatory authorities from which we seek to obtain product approval. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The approval process for NDAs includes a review of the manufacturer's compliance with GMP requirements. We are responsible for regularly assessing a contract manufacturer's compliance with GMP requirements through record reviews and periodic audits and for ensuring that the contract manufacturer takes responsibility and corrective action for any identified deviations. Manufacturers of FV-100 or other product candidates may be unable to comply with these GMP requirements and with other FDA and foreign regulatory requirements, if any.
While we will oversee compliance by our contract manufacturers, ultimately we will not have control over our manufacturers' compliance with these regulations and standards. A failure to comply with these requirements may result in fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, or withdrawal of product approval. If the safety of FV-100 or other product candidates is compromised due to a manufacturers' failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize FV-100 or other product candidates, and we may be held liable for any injuries sustained as a result. Any of these factors could cause a delay of clinical trials, regulatory submissions, approvals or commercialization of FV-100 or other product candidates, entail higher costs or result in us being unable to effectively commercialize FV-100 or other product candidates. Furthermore, if our manufacturers fail to deliver the required commercial quantities on a timely basis and at commercially reasonable prices, we may be unable to meet demand for any approved products and would lose potential revenues.
We may not be able to manufacture our product candidate in commercial quantities, which would prevent us from commercializing our product candidate.
To date, our product candidate has been manufactured in small quantities for preclinical studies and clinical trials. If our product candidate is approved by the FDA or comparable regulatory authorities in other countries for commercial sale, we will need to manufacture such product candidate in larger quantities. We may not be able to increase successfully the manufacturing capacity for our product candidate in a timely or economic manner, or at all. Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. If we are unable to increase successfully the manufacturing capacity for a product candidate, the clinical trials as well as the regulatory approval or commercial launch of that product candidate may be delayed or there may be a shortage in supply. Our product candidate requires precise, high quality manufacturing. Our failure to achieve and maintain these high quality manufacturing standards in collaboration with our third-party manufacturers, including the incidence of manufacturing errors, could result in patient injury or death, product recalls or withdrawals, delays or failures in product testing or delivery, cost overruns or other problems that could harm our business, financial condition and results of operations.
Materials necessary to manufacture our product candidate may not be available on commercially reasonable terms, or at all, which may delay the development and commercialization of our product candidate.
We rely on the third-party manufacturers of our product candidate to purchase from third-party suppliers the materials necessary to produce bulk APIs, and product candidate for our clinical trials, and we will rely on such manufacturers to purchase such materials to produce the APIs and finished products for any commercial distribution of our products if we obtain marketing approval. Suppliers may not sell these materials to our manufacturers at the time they need them in order to meet our required delivery schedule or on commercially reasonable terms, if at all. We do not have any control over the process or timing of the acquisition of these materials by our manufacturers. Moreover, we currently do not have any agreements for the production of these materials. If our manufacturers are unable to obtain these materials for our clinical trials, testing of the affected product candidate would be delayed, which may significantly impact our ability to develop the product candidate. If we or our manufacturers are unable to purchase these materials after regulatory approval has been obtained for one of our products, the commercial launch of such product would be delayed or there would be a shortage in supply of such product, which would harm our ability to generate revenues from such product and achieve or sustain profitability.
Our product candidate, if approved for sale, may not gain acceptance among physicians, patients and the medical community, thereby limiting our potential to generate revenues.
If our product candidate is approved for commercial sale by the FDA or other regulatory authorities, the degree of market acceptance of any approved product by physicians, healthcare professionals and third-party payers and our profitability and growth will depend on a number of factors, including:
If any product candidate that we develop does not provide a treatment regimen that is as beneficial as, or is perceived as being as beneficial as, the current standard of care or otherwise does not provide patient benefit, that product candidate, if approved for commercial sale by the FDA or other regulatory authorities, likely will not achieve market acceptance. Our ability to effectively promote and sell any approved products will also depend on pricing and cost-effectiveness, including our ability to produce a product at a competitive price and our ability to obtain sufficient third-party coverage or reimbursement. If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, patients and third-party payers, our ability to generate revenues from that product would be substantially reduced. In addition, our efforts to educate the medical community and third-party payers on the benefits of our product candidate may require significant resources, may be constrained by FDA rules and policies on product promotion, and may never be successful.
Guidelines and recommendations published by various organizations can impact the use of our product.
Government agencies promulgate regulations and guidelines directly applicable to us and to our product. In addition, professional societies, practice management groups, private health and science foundations and organizations involved in various diseases from time to time may also publish guidelines or recommendations to the health care and patient communities. Recommendations of government agencies or these other groups or organizations may relate to such matters as usage, dosage, route of administration and use of concomitant therapies. Recommendations or guidelines suggesting the reduced use of our products or the use of competitive or alternative products that are followed by patients and health care providers could result in decreased use of our proposed product.
If third-party contract manufacturers upon whom we rely to formulate and manufacture our product candidate do not perform, fail to manufacture according to our specifications or fail to comply with strict regulations, our preclinical studies or clinical trials could be adversely affected and the development of our product candidate could be delayed or terminated or we could incur significant additional expenses.
We do not own or operate any manufacturing facilities. We intend to rely on third-party contractors, at least for the foreseeable future, to formulate and manufacture these preclinical and clinical materials. Our reliance on third-party contract manufacturers exposes us to a number of risks, any of which could delay or prevent the completion of our preclinical studies or clinical trials, or the regulatory approval or commercialization of our product candidate, result in higher costs, or deprive us of potential product revenues. Some of these risks include:
Manufacturers of pharmaceutical products are subject to ongoing periodic inspections by the FDA, the U.S. Drug Enforcement Administration ("DEA") and corresponding state and foreign agencies to ensure strict compliance with FDA-mandated current good marketing practices or cGMPs, other government regulations and corresponding foreign standards. While we are obligated to audit their performance, we do not have control over our third-party contract manufacturers' compliance with these regulations and standards. Failure by our third-party manufacturers, or us, to comply with applicable regulations could result in sanctions being imposed on us or the drug manufacturer from the production of other third-party products. These sanctions may include fines, injunctions, civil penalties, failure of the government to grant pre-market approval of drugs, delays, suspension or withdrawal of approvals, seizures or recalls of product, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our business.
In the event that we need to change our third-party contract manufacturers, our preclinical studies, clinical trials or the commercialization of our product candidate could be delayed, adversely affected or terminated, or such a change may result in significantly higher costs.
Due to regulatory restrictions inherent in an IND, NDA or BLA, various steps in the manufacture of our product candidate may need to be sole-sourced. In accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing our current or future contract manufacturers may be difficult for us and could be costly, which could result in our inability to manufacture our product candidate for an extended period of time and therefore a delay in the development of our product candidate. Further, in order to maintain our development time lines in the event of a change in our third-party contract manufacturer, we may incur significantly higher costs to manufacture our product candidate.
Our industry is highly competitive and subject to rapid technological changes. As a result, we may be unable to compete successfully or develop innovative products, which could harm our business.
Our industry is highly competitive and characterized by rapid technological change. Key competitive factors in our industry include, among others, the ability to successfully advance the development of a product candidate through preclinical and clinical trials; the efficacy, toxicological, safety, resistance or cross-resistance, and dosing profile of a product or product candidate; the timing and scope of regulatory approvals, if ever achieved; reimbursement rates for and the average selling price of competing products and pharmaceutical products in general; the availability of raw materials and qualified contract manufacturing and manufacturing capacity; manufacturing costs; establishing and maintaining intellectual property and patent rights and their protection; and sales and marketing capabilities. If ultimately approved, FV-100 or any other product candidate we may develop, would compete against existing therapies or other product candidates in various stages of clinical development that we believe may potentially become available in the future for the treatment of chronic shingles-associated pain and the prevention of staphylococcal infections. Some of the large pharmaceutical companies that currently market products that would compete with our product candidate, if approved, include, but are not limited to multiple large generic companies such as GlaxoSmithKline and Merck.
Developing a pharmaceutical product candidate is a highly competitive, expensive and risky activity with a long business cycle. Many organizations, including the large pharmaceutical and biopharmaceutical companies that have existing products on the market or in clinical development that could compete with FV-100 have substantially more resources than we have, and much greater capabilities and experience than we have in research and discovery, designing and conducting preclinical studies and clinical trials, operating in a highly regulated environment, manufacturing drug substances and drug products, and marketing and sales. Our competitors may be more successful than we are in obtaining FDA or other regulatory approvals for their product candidates and achieving broad market acceptance once they are approved. Our competitors' drugs or product candidates may be more effective, have fewer negative side effects, be more convenient to administer, have a more favorable resistance profile, or be more effectively marketed and sold than any drug we, or our potential collaborators, may develop or commercialize. New drugs or classes of drugs from competitors may render our product candidate obsolete or non-competitive before we are able to successfully develop them or, if approved, before we can recover the expenses of developing and commercializing them. We anticipate that we or our collaborators will face intense and increasing competition as new drugs and drug classes enter the market and advanced technologies or new drug targets become available. If our product candidate does not demonstrate any competitive advantages over existing drugs, new drugs or product candidate, we or our future collaborators may terminate the development or commercialization of our product candidate at any time.
We anticipate that FV-100 if successfully developed and approved, will compete directly or indirectly with existing generic drugs. Generic drugs are drugs whose patent protection has expired, and generally have an average selling price substantially lower than drugs protected by intellectual property rights. Unless a patented drug can differentiate itself from a generic drug in a meaningful manner, the existence of generic competition in any indication may impose significant pricing pressure on competing patented drugs.
We also face, and will continue to face, intense competition from other companies for collaborative arrangements with pharmaceutical and biopharmaceutical companies, and for attracting investigators and clinical sites capable of conducting our preclinical studies and clinical trials. These competitors, either alone or with their collaborators, may succeed in developing technologies or products that are safer, more effective, less expensive or easier to administer than ours. Accordingly, our competitors may succeed in obtaining FDA or other regulatory approvals for their product candidates more rapidly than we can. Companies that can complete clinical trials, obtain required regulatory approvals and commercialize their products before their competitors may achieve a significant competitive advantage, including certain patent and FDA marketing exclusivity rights that could delay the ability of competitors to market certain products. We cannot assure you that product candidates resulting from our research and development efforts, or from joint efforts with our collaborators, will be able to compete successfully with our competitors' existing products or products under development.
We do not currently have any internal drug discovery capabilities, and therefore we are dependent on in-licensing or acquiring development programs from third parties in order to obtain additional product candidates.
If in the future we decide to further expand our pipeline, we will be dependent on in-licensing or acquiring product candidates as we do not have significant internal discovery capabilities at this time. Accordingly, in order to generate and expand our development pipeline, we have relied, and will continue to rely, on obtaining discoveries, new technologies, intellectual property and product candidates from third-parties through sponsored research, in-licensing arrangements or acquisitions. We may face substantial competition from other biotechnology and pharmaceutical companies, many of which may have greater resources then we have, in obtaining these in-licensing, sponsored research or acquisition opportunities. Additional in-licensing or acquisition opportunities may not be available to us on terms we find acceptable, if at all. In-licensed compounds that appear promising in research or in preclinical studies may fail to progress into further preclinical studies or clinical trials.
If a product liability claim is successfully brought against us for uninsured liabilities, or such claim exceeds our insurance coverage, we could be forced to pay substantial damage awards that could materially harm our business.
The use of any of our existing or future product candidates in clinical trials and the sale of any approved pharmaceutical products may expose us to significant product liability claims. We currently have product liability insurance coverage for our clinical trials in the amount of $5.0 million. Such insurance coverage may not protect us against any or all of the product liability claims that may be brought against us in the future. We may not be able to acquire or maintain adequate product liability insurance coverage at a commercially reasonable cost or in sufficient amounts or scope to protect us against potential losses. In the event a product liability claim is brought against us, we may be required to pay legal and other expenses to defend the claim, as well as uncovered damage awards resulting from a claim brought successfully against us. In the event our product candidate is approved for sale by the FDA and commercialized, we may need to substantially increase the amount of our product liability coverage. Defending any product liability claim or claims could require us to expend significant financial and managerial resources, which could have an adverse effect on our business.
If our use of hazardous materials results in contamination or injury, we could suffer significant financial loss.
Our research activities, through third parties, involveaccept less favorable terms for the controlled use of certain hazardous materials and medical waste. Notwithstanding the regulations controlling the use and disposal of these materials, as well as the safety procedures we undertake, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge or exposure, we may be held liable for any resulting damages, which may exceed our financial resources and have an adverse effect on our business.
Risks Relating to the Commercializationissuance of our Product Candidate
We may delay or terminate the development of a product candidate at any time if we believe the perceived market or commercial opportunity does not justify further investment, which could materially harm our business.
Even though the results of preclinical studies and clinical trials that we have conducted or may conduct in the future may support further development of one or more of our product candidates, we may delay, suspend or terminate the future development of a product candidate at any time for strategic, business, financial or other reasons, including the determination or belief that the emerging profile of the product candidate is such that it may not receive FDA approval, gain meaningful market acceptance, generate a significant return to shareholders, or otherwise provide any competitive advantages in its intended indication or market.
If we fail to enter into collaborations, license agreements or other transactions with third parties to accelerate the development of our product candidate, we will bear the risk of developmental failure.
We plan to seek out-licensing opportunities as a way to accelerate the development of our product candidate. There is no guarantee that we will enter into a future transaction on favorable terms, or at all, or that discussions will initiate or progress on our desired timelines. Completing transactions of this nature is difficult and time-consuming. Potentially interested parties may decline to re-engage or may terminate discussions based upon their assessment of our competitive, financial, regulatory or intellectual property position or for any other reason. Furthermore, we may choose to defer consummating a transaction relating to our product candidate until additional clinical data is obtained. If we decide to not actively pursue a transaction until we have additional clinical data, we and our stockholders will bear the risk that our product candidate fails prior to any future transaction.
If we fail to enter into or maintain collaborations or other sales, marketing and distribution arrangements with third parties to commercialize our product candidate, or otherwise fail to establish marketing and sales capabilities, we may not be able to successfully commercialize our products.
We currently have no infrastructure to support the commercialization of our product candidate, and have little, if any, experience in the commercialization of pharmaceutical products. Therefore, if our product candidate is successfully developed and ultimately approved for sale, our future profitability will depend largely on our ability to access or develop suitable marketing and sales capabilities. We anticipate that we will need to establish relationships with other companies, through license and collaborations agreements, to commercialize our product candidate in the U.S. and in other countries around the world. To the extent that we enter into these license and collaboration agreements, or marketing and sales arrangements with other companies to sell, promote or market our products in the U.S. or abroad, our product revenues, which may be in the form of indirect revenue, a royalty, or a split of profits, will depend largely on their efforts, which may not be successful. In the event we develop a sales force and marketing capabilities, this may result in us incurring significant costs before the time that we may generate any significant product revenues. We may not be able to attract and retain qualified third parties or marketing or sales personnel, or be able to establish marketing capabilities or an effective sales force.
If government and third-party payers fail to provide adequate reimbursement or coverage for our products or those we develop through collaborations, our revenues and potential for profitability will be harmed.
In the U.S. and most foreign markets, our product revenues, and therefore the inherent value of our product candidate, will depend largely upon the reimbursement rates established by third-party payers for such product candidate or products. Such third-party payers include government health administration authorities, managed-care organizations, private health insurers and other similar organizations. These third-party payers are increasingly challenging the price and examining the cost effectiveness of medical products, services and pharmaceuticals. In addition, significant uncertainty exists as to the reimbursement status, if any, of newly approved drugs or pharmaceutical products. Further, the comparative effectiveness of new compounds over existing therapies and the assessment of other non-clinical outcomes are increasingly being considered in the decision by these payers to establish reimbursement rates. We may also need to conduct post-marketing clinical trials in order to demonstrate the cost-effectiveness of our products. Such studies may require us to commit a significant amount of management time and financial resources. We cannot assure you that any products we successfully develop will be reimbursed in part, or at all, by any third-party payers in any countries.
Domestic and foreign governments continue to propose legislation designed to expand the coverage, yet reduce the cost, of healthcare, including pharmaceutical drugs. In some foreign markets, governmental agencies control prescription drugs' pricing and profitability. In the U.S. significant changes in federal health care policy have been recently approved and will mostly likely result in reduced reimbursement rates in the future. We expect that there will continue to be federal and state proposals to implement more governmental control over reimbursement rates of pharmaceutical products. In addition, we expect that increasing emphasis on managed care and government intervention in the U.S. healthcare system will continue to put downward pressure on the pricing of pharmaceutical products domestically. Cost control initiatives could decrease the price that we receive for any of our product candidates that may be approved for sale in the future, which would limit our revenues and profitability. Accordingly, legislation and regulations affecting the pricing of pharmaceutical products may change before our product candidate is approved for sale, which could further limit or eliminate reimbursement rates for our product candidate.
If any product candidate that we develop independently or through collaborations is approved but does not gain meaningful acceptance in its intended market, we are not likely to generate significant revenues or become profitable.
Even if our product candidate is successfully developed and we or a collaborator obtain the requisite regulatory approvals to commercialize it in the future, it may not gain market acceptance or utilization among physicians, patients or third party payers. The degree of market acceptance that our product candidate may achieve will depend on a number of factors, including:
There can be no assurance that physicians will choose to prescribe or administer our product, if approved, to the intended patient population. If our product does not achieve meaningful market acceptance, or if the market for our product proves to be smaller than anticipated, we may not generate significant revenues or ever become profitable.
Even if we or a collaborator achieve market acceptance for our product, we may experience downward pricing pressure on the price of our product due to social or political pressure to lower the cost of drugs, which would reduce our revenue and future profitability.
Pressure from social activist groups and future government regulations, whose goal it is to reduce the cost of drugs, particularly in less developed nations, also may put downward pressure on the price of drugs, which could result in downward pressure on the prices of our productsecurities in the future.
We may be unable to successfully develop a product candidate that is the subject of collaboration if our collaborator does not perform, terminates our agreement, or delays the development of our product candidate.
We expect to continue to enter into and rely on license and collaboration agreements or other business arrangements with third parties to further develop and/or commercialize our existing and future product candidates. Such collaborators or partners may not perform as agreed upon or anticipated, fail to comply with strict regulations, or elect to delay or terminate their efforts in developing or commercializing our product candidates even though we have met our obligations under the arrangement. For example, if an existing or future collaborator does not devote sufficient time and resources to our collaboration arrangement, we may not realize the full potential benefits of the arrangement, and our results of operations may be adversely affected.
A majority of the potential revenue from existing and future collaborations will likely consist of contingent payments, such as payments for achieving development or regulatory milestones and royalties payable on the sales of approved products. The milestone and royalty revenues that we may receive under
these collaborations will depend primarily upon our collaborator's ability to successfully develop and commercialize our product candidate. In addition, our collaborators may decide to enter into arrangements with third parties to commercialize products developed under our existing or future collaborations using our technologies, which could reduce the milestone and royalty revenue that we may receive, if any. In many cases, we will not be directly involved in the development or commercialization of our product candidate and, accordingly, will depend entirely on our collaborators. Our collaboration partners may fail to develop or effectively commercialize our product candidate because they:
In addition, a collaborator may decide to pursue the development of a competitive product candidate developed outside of our collaboration with them. Conflicts may also arise if there is a dispute about the progress of, or other activities related to, the clinical development or commercialization of a product candidate, the achievement and payment of a milestone amount, the ownership of intellectual property that is developed during the course of the collaborative arrangement, or other licensing agreement terms. If a collaboration partner fails to develop or effectively commercialize our product candidate for any of these reasons, we may not be able to replace them with another partner willing to develop and commercialize our product candidate under similar terms, if at all. Similarly, we may disagree with a collaborator as to which party owns newly or jointly-developed intellectual property. Should an agreement be revised or terminated as a result of a dispute and before we have realized the anticipated benefits of the collaboration, we may not be able to obtain certain development support or revenues that we anticipated receiving. We may also be unable to obtain, on terms acceptable to us, a license from such collaboration partner to any of its intellectual property that may be necessary or useful for us to continue to develop and commercialize the product candidate.
If we are unable to adequately protect or expand our intellectual property related to our current or future product candidates, our business prospects could be harmed.
Our success, competitive position and future revenues will depend in part on our ability and the ability of Cardiff, the licensor of the FV-100 assets, to obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the proprietary rights of third parties. Under the Cardiff Agreement, we hold certain exclusive patent rights for our FV-100 assets, including licensed rights under U.S. patents and U.S. patent applications as well as licensed rights under foreign patents and patent applications owned by Cardiff.
We will be able to protect our proprietary intellectual property rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. The patent position of pharmaceutical and biopharmaceutical companies involves complex legal and factual questions, and, therefore, we cannot predict with certainty whether we will be able to ultimately enforce our patents or proprietary rights. Therefore, any issued patents that we own or otherwise have intellectual property rights to may be challenged, invalidated or circumvented, and may not provide us with the protection against competitors that we anticipate.
The degree of future protection for our proprietary intellectual property rights is uncertain because issued patents and other legal means afford only limited protection and may not adequately protect our rights or permit us to gain or keep our competitive advantage. Our future patent position will be influenced by the following factors:
Because of the extensive time required for the development, testing and regulatory review and approval of a product candidate, it is possible that before our product candidate can be approved for sale and commercialized, our relevant patent rights may expire, or such patent rights may remain in force for only a short period following approval and commercialization. Patent expiration could adversely affect our ability to protect future product development and, consequently, our operating results and financial position. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the U.S. and those countries may lack adequate rules and procedures for defending our intellectual property rights. For example, we may not be able to prevent a third party from infringing our patents in a country that does not recognize or enforce patent rights, or that imposes compulsory licenses on or restricts the prices of life-saving drugs. Changes in either patent laws or in interpretations of patent laws in the U.S. and other countries may diminish the value of our intellectual property.
We may not develop or obtain rights to products or processes that are patentable. Even if we or our licensors do obtain patents, such patents may not adequately protect the products or technologies we own or have licensed, or otherwise be limited in scope. In addition, we may not have total control over the patent prosecution of subject matter that we license from others. Accordingly, we may be unable to exercise the same degree of control over this intellectual property as we would over our own. Others may challenge, seek to invalidate, infringe or circumvent any pending or issued patents we own or license, and rights we receive under those issued patents may not provide competitive advantages to us. We cannot assure you as to the degree of protection that will be afforded by any of our issued or pending patents, or those licensed by us.
If a third party claims we are infringing on its intellectual property rights, we could incur significant expenses, or be prevented from further developing or commercializing our product candidate.
Our success will also depend on our ability to operate without infringing the patents and other proprietary intellectual property rights of third parties. This is generally referred to as having the "freedom to operate". The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property claims, United States Patent and Trademark Office, or USPTO, interference proceedings and related legal and administrative proceedings, both in the U.S. and internationally, involve complex legal and factual questions. As a result, such proceedings are lengthy, costly and time-consuming and their outcome is highly uncertain. We may become involved in protracted and expensive litigation in order to
determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether we have the freedom to operate with respect to the intellectual property rights of others.
Patent applications in the U.S. are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to products similar to our product candidate may have already been filed by others without our knowledge. In the event that a third party has also filed a patent application covering our product candidate or other claims, we may have to participate in an adversarial proceeding, known as an interference proceeding in the USPT office, or similar proceedings in other countries to determine the priority of invention. In the event an infringement claim is brought against us, we may be required to pay substantial legal fees and other expenses to defend such a claim and, if we are unsuccessful in defending the claim, we may be prevented from pursuing the development and commercialization of a product candidate and may be subject to injunctions and/or damage awards.
In the future, the USPT or a foreign patent office may grant patent rights to our product candidate or other claims to third parties. Subject to the issuance of these future patents, the claims of which will be unknown until issued, we may need to obtain a license or sublicense to these rights in order to have the appropriate freedom to further develop or commercialize them. Any required licenses may not be available to us on acceptable terms, if at all. If we need to obtain such licenses or sublicenses, but are unable to do so, we could encounter delays in the development of our product candidate, or be prevented from developing, manufacturing and commercializing our product candidate at all. If it is determined that we have infringed an issued patent and do not have the freedom to operate, we could be subject to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where we have in-licensed intellectual property, our failure to comply with the terms and conditions of such agreements could harm our business.
It is becoming common for third parties to challenge patent claims on any successful product candidate or approved drug. If we or our collaborators become involved in any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the efforts of our technical and management personnel will be significantly diverted. A negative outcome of such litigation or proceedings may expose us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties on commercially acceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and selling our product candidate in the event of an adverse determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses.
We cannot be sure that any patents will be issued or that patents licensed to us will be issued from any of our patent applications or, should any patents issue, that we will be provided with adequate protection against potentially competitive products. Furthermore, we cannot be sure that patents issued or licensed to us will be of any commercial value, or that private parties or competitors will not successfully challenge these patents or circumvent our patent position in the U.S. or abroad. In the absence of adequate patent protection, our business may be adversely affected by competitors who develop comparable technology or products.
If we materially breach or default under the Cardiff Agreement, Cardiff will have the right to terminate the agreement and we could lose critical license rights, which would materially harm our business.
We do not currently own any patents, trademarks, or copyrights; however, our business is substantially dependent upon certain intellectual property rights that we license from Cardiff. Therefore, our commercial success will depend to a large extent on our ability to maintain and comply with our obligations under the Cardiff Agreement. The Cardiff Agreement provides Cardiff with the right to terminate the Cardiff Agreement for an uncured breach by us, or if we are insolvent or the subject of a bankruptcy
proceeding, or potentially other reasons. We expect that other technology in-licenses that we may enter into in the future will contain similar provisions and impose similar obligations on us. If we fail to comply with any such obligations to Cardiff or future licensors, such licensor will likely terminate their out-licenses to us, in which case we would not be able to market products covered by these licenses, including our FV-100 assets. The loss of our license with Cardiff with respect to the FV-100 assets, and potentially other licenses that we enter into in the future, would have a material adverse effect on our business. In addition, our failure to comply with obligations under our material in-licenses may cause us to become subject to litigation or other potential disputes under any such license agreements.
In addition, the Cardiff Agreement and BMS Agreement each requires us to make certain payments, including license fees, milestone payments royalties, and other such terms typically required under licensing agreements and these types of technology in-licenses generally could make it difficult for us to find corporate partners and less profitable for us to develop product candidates utilizing these existing product candidates and technologies.
Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect our intellectual property.
We rely on trade secrets to protect our technology, especially where we do not believe patent protection is obtainable, or prior to us filing patent applications on inventions we may make from time to time. However, trade secrets are difficult to protect. In order to protect our proprietary technology and processes, we also rely in part on confidentiality and intellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information nor result in the effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover our trade secrets and proprietary information, and in such case we could not assert any trade secret rights against such party. Enforcing a claim that a third-party illegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the U.S. may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Our failure to successfully discover, acquire, develop and market additional product candidates or approved products would impair our ability to grow.
As part of our growth strategy, we intend to develop and market additional products and product candidates. We are pursuing various therapeutic opportunities through our pipeline. We may spend several years completing our development of any particular current or future internal product candidate, and failure can occur at any stage. The product candidates to which we allocate our resources may not end up being successful. In addition, because our internal research capabilities are limited, we may be dependent upon pharmaceutical and biotechnology companies, academic scientists and other researchers to sell or license products or technology to us. The success of this strategy depends partly upon our ability to identify, select, discover and acquire promising pharmaceutical product candidates and products. Failure of this strategy would impair our ability to grow.
The process of proposing, negotiating and implementing a license or acquisition of a product candidate or approved product is lengthy and complex. Other companies, including some with substantially greater financial, marketing and sales resources, may compete with us for the license or acquisition of product candidates and approved products. We have limited resources to identify and execute the acquisition or in-licensing of third-party products, businesses and technologies and integrate them into our current infrastructure. Moreover, we may devote resources to potential acquisitions or in-licensing
opportunities that are never completed, or we may fail to realize the anticipated benefits of such efforts. We may not be able to acquire the rights to additional product candidates on terms that we find acceptable, or at all.
In addition, future acquisitions may entail numerous operational and financial risks, including:
Further, any product candidate that we acquire may require additional development efforts prior to commercial sale, including extensive clinical testing and approval by the FDA and applicable foreign regulatory authorities. All product candidates are prone to risks of failure typical of pharmaceutical product development, including the possibility that a product candidate will not be shown to be sufficiently safe and effective for approval by regulatory authorities.
Even if our product candidate receives regulatory approval, it may still face future development and regulatory difficulties.
Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product's indicated uses or impose ongoing requirements for potentially costly post-approval studies. FV-100 and other product candidates would also be subject to ongoing FDA requirements governing the labeling, packaging, storage, advertising, promotion, recordkeeping and submission of safety and other post-market information. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with GMP regulations. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product or the manufacturer, including requiring withdrawal of the product from the market or suspension of manufacturing. If we, our product candidate or the manufacturing facilities for our product candidate fail to comply with applicable regulatory requirements, a regulatory agency may:
Even if our product candidate receives regulatory approval in the United States, we may never receive approval to commercialize it outside of the United States.
In the future, we may seek to commercialize FV-100 and/or other product candidates in foreign countries outside of the United States. In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other jurisdictions regarding safety and efficacy. Approval procedures vary among jurisdictions and can involve product testing and administrative review periods different from, and greater than, those in the United States. The time required to obtain approval in other jurisdictions might differ from that required to obtain FDA approval. The regulatory approval process in other jurisdictions may include all of the risks detailed above regarding FDA approval in the United States as well as other risks. Regulatory approval in one jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one jurisdiction may have a negative effect on the regulatory processes in others. Failure to obtain regulatory approvals in other jurisdictions or any delay or setback in obtaining such approvals could have the same adverse effects detailed above regarding FDA approval in the United States. As described above, such effects include the risks that FV-100 or other product candidates may not be approved for all indications for use included in proposed labeling or for any indications at all, which could limit the uses of FV-100 or other product candidates and have an adverse effect on our products' commercial potential or require costly post-marketing studies.
We intend to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to seek or obtain regulatory approval for or commercialize our product candidate.
We intend to enter into agreements with third-party contract research organizations, or CROs, under which we will delegate to the CROs the responsibility to coordinate and monitor the conduct of our clinical trials and to manage data for our clinical programs. We, our CROs and our clinical sites are required to comply with current Good Clinical Practices, or cGCPs, regulations and guidelines issued by the FDA and by similar governmental authorities in other countries where we are conducting clinical trials. We have an ongoing obligation to monitor the activities conducted by our CROs and at our clinical sites to confirm compliance with these requirements. In the future, if we, our CROs or our clinical sites fail to comply with applicable GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA may require us to perform additional clinical trials before approving our marketing applications. In addition, our clinical trials must be conducted with product produced under cGMP regulations, and will require a large number of test subjects. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.
If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for or successfully commercialize our product candidate. As a result, our financial results and the commercial prospects for our product candidate would be harmed, our costs could increase, and our ability to generate revenue could be delayed.
We will need to increase the size of our organization, and we may experience difficulties in managing growth since we no longer rely upon Synergy for providing various services to us.
We are a small company with no employees as of December 31, 2013. All management services being provided to us other than the services of Mr. James Sapirstein, our chief executive officer, were provided by our former majority shareholder, Synergy, under our Shared Services Agreement, or SSA. Effective April 1, 2014, we terminated the SSA with Synergy. As a result, all executive officer positions other than Mr. Sapirstein were provided by various employees of Synergy under the SSA and we are now required to find suitable candidates who can fill their roles. To continue our clinical trials and commercialize our product candidate, we will need to expand our employee base for managerial, operational, financial and other resources. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Over the next 12 months depending on the progress of our planned clinical trials, we plan to add additional employees to assist us with our clinical programs. Our future financial performance and our ability to commercialize our product candidate and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:
We may not be able to accomplish these tasks, and our failure to accomplish any of them could harm our financial results and impact our ability to achieve development milestones.
Reimbursement may not be available for our product candidate, which would impede sales.
Market acceptance and sales of our product candidate may depend on coverage and reimbursement policies and health care reform measures. Decisions about formulary coverage as well as levels at which government authorities and third-party payers, such as private health insurers and health maintenance organizations, reimburse patients for the price they pay for our products as well as levels at which these payers pay directly for our products, where applicable, could affect whether we are able to commercialize these products. We cannot be sure that reimbursement will be available for any of these products. Also, we cannot be sure that coverage or reimbursement amounts will not reduce the demand for, or the price of, our products. We have not commenced efforts to have our product candidate reimbursed by government or third party payers. If coverage and reimbursement are not available or are available only at limited levels, we may not be able to commercialize our products.
In recent years, officials have made numerous proposals to change the health care system in the United States. These proposals include measures that would limit or prohibit payments for certain medical treatments or subject the pricing of drugs to government control. In addition, in many foreign countries, particularly the countries of the European Union, the pricing of prescription drugs is subject to government control. If our products are or become subject to government regulation that limits or prohibits payment for our products, or that subjects the price of our products to governmental control, we may not be able to generate revenue, attain profitability or commercialize our products.
As a result of legislative proposals and the trend towards managed health care in the United States, third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. They may also impose strict prior authorization requirements
and/or refuse to provide any coverage of uses of approved products for medical indications other than those for which the FDA has granted market approvals. As a result, significant uncertainty exists as to whether and how much third-party payers will reimburse patients for their use of newly-approved drugs, which in turn will put pressure on the pricing of drugs.
Healthcare reform measures could hinder or prevent our product candidate's commercial success.
The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Any government-adopted reform measures could adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental agencies or other third-party payers. The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payers of health care services to contain or reduce health care costs may adversely affect our ability to set prices for our products which we believe are fair, and our ability to generate revenues and achieve and maintain profitability.
New laws, regulations and judicial decisions, or new interpretations of existing laws, regulations and decisions, that relate to healthcare availability, methods of delivery or payment for products and services, or sales, marketing or pricing, may limit our potential revenue, and we may need to revise our research and development programs. The pricing and reimbursement environment may change in the future and become more challenging due to several reasons, including policies advanced by the current executive administration in the United States, new healthcare legislation or fiscal challenges faced by government health administration authorities. Specifically, in both the United States and some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the health care system in ways that could affect our ability to sell our products profitably.
For example, in March 2010, President Obama signed the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the PPACA. This law will substantially change the way healthcare is financed by both government health plans and private insurers, and significantly impact the pharmaceutical industry. The PPACA contains a number of provisions that are expected to impact our business and operations in ways that may negatively affect our potential revenues in the future. For example, the PPACA imposes a non-deductible excise tax on pharmaceutical manufacturers or importers that sell branded prescription drugs to U.S. government programs which we believe will increase the cost of our products. In addition, as part of the PPACA's provisions closing a funding gap that currently exists in the Medicare Part D prescription drug program (commonly known as the "donut hole"), we will be required to provide a discount on branded prescription drugs equal to 50% of the government-negotiated price, for drugs provided to certain beneficiaries who fall within the donut hole. Similarly, PPACA increases the level of Medicaid rebates payable by manufacturers of brand-name drugs from 15.1% to 23.1% and requires collection of rebates for drugs paid by Medicaid managed care organizations. The PPACA also includes significant changes to the 340B drug discount program including expansion of the list of eligible covered entities that may purchase drugs under the program. At the same time, the expansion in eligibility for health insurance benefits created under PPACA is expected to increase the number of patients with insurance coverage who may receive our products. While it is too early to predict all the specific effects the PPACA or any future healthcare reform legislation will have on our business, they could have a material adverse effect on our business and financial condition.
Congress periodically adopts legislation like the PPACA and the Medicare Prescription Drug, Improvement and Modernization Act of 2003, that modifies Medicare reimbursement and coverage policies pertaining to prescription drugs. Implementation of these laws is subject to ongoing revision through regulatory and sub regulatory policies. Congress also may consider additional changes to Medicare policies, potentially including Medicare prescription drug policies, as part of ongoing budget negotiations. While the scope of any such legislation is uncertain at this time, there can be no assurances that future legislation or regulations will not decrease the coverage and price that we may receive for our proposed products. Other third-party payers are increasingly challenging the prices charged for medical products and
services. It will be time consuming and expensive for us to go through the process of seeking coverage and reimbursement from Medicare and private payors. Our proposed products may not be considered cost-effective, and coverage and reimbursement may not be available or sufficient to allow us to sell our proposed products on a profitable basis. Further federal and state proposals and health care reforms are likely which could limit the prices that can be charged for the product candidate that we develop and may further limit our commercial opportunities. Our results of operations could be materially adversely affected by proposed healthcare reforms, by the Medicare prescription drug coverage legislation, by the possible effect of such current or future legislation on amounts that private insurers will pay and by other health care reforms that may be enacted or adopted in the future.
In September 2007, the Food and Drug Administration Amendments Act of 2007 was enacted, giving the FDA enhanced post-marketing authority, including the authority to require post-marketing studies and clinical trials, labeling changes based on new safety information, and compliance with risk evaluations and mitigation strategies approved by the FDA. The FDA's exercise of this authority could result in delays or increased costs during product development, clinical trials and regulatory review, increased costs to assure compliance with post-approval regulatory requirements, and potential restrictions on the sale and/or distribution of approved products.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers and business partners, as well as personally identifiable information of clinical trial participants and employees. Similarly, our business partners and third party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information, including our data being breached at our business partners or third-party providers, could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely affect our business.
Our clinical activities involve the handling of hazardous materials, and we must comply with environmental laws and regulations, which can be expensive and restrict how we do business.
Our clinical activities involve the controlled storage, use and disposal of hazardous materials. We are subject to federal, state, city and local environmental, health and safety laws and regulations governing, among other matters, the use, manufacture, storage, handling and disposal of these hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or if we fail to comply with such laws and regulations, local, city, state or federal authorities may curtail the use of these materials and interrupt our business operations or impose sanctions, such as fines, and we could be held liable for any resulting damages or liabilities. We do not currently maintain hazardous materials insurance coverage.
Our primary assets serve as collateral under the terms of that certain loan and security agreement we entered into with Synergy. If we should default on these obligations, Synergy could foreclose on our assets and we would be unable to continue our business and operations.
On June 5, 2013, we entered into a loan and security agreement with Synergy pursuant to which Synergy agreed to lend us up to five hundred thousand dollars ($500,000) for working capital purposes (the "Loan Agreement"). On November 18, 2013, we entered into an amendment to the Loan Agreement with
Synergy pursuant to which Synergy agreed to increase the aggregate amount available to us under the Loan Agreement from five hundred thousand dollars ($500,000) to one million dollars ($1,000,000). Also on June 5, 2013, August 29, 2013, October 18, 2013 and January 9, 2014, pursuant to the Loan Agreement, Synergy made an advance to us of $100,000, $100,000, $150,000 and $100,000, respectively, under a promissory note (the "Note"). The Note bears interest at six percent (6%) per annum and such interest shall be paid on the 15th of each of January, March, June and September, beginning September 15, 2013. In addition, Synergy has the right to demand payment of the unpaid principal amount and all accrued but unpaid interest thereon at any time after August 4, 2013, upon providing us fifteen (15) days prior written notice. On March 27, 2014, we paid Synergy an aggregate of $461,236, which represented all principal and accrued and unpaid interest that was due and payable on the Note. As of the date of this prospectus, we have not taken any further advances under the Loan Agreement. In connection with the Loan Agreement we granted Synergy a security interest in all of our assets, including our intellectual property, until the Note is repaid in full. These assets represent substantially all of our operations. To the extent we have taken an advance from Synergy under the Loan Agreement and if we should default under the repayment provisions of one or more of these obligations, Synergy could seek to foreclose on these assets as a means of being repaid under the obligations. If the Synergy were successful in foreclosing on our assets, we would lose the rights to our intellectual property, be unable to conduct our business, and our ability to generate revenue and fund our ongoing operations would be materially adversely affected.
Until recently, we will depended on Synergy to provide us with certain services for our business. We may be unable to provide these services ourselves or obtain substitute arrangements with other third parties.
We were a majority owned subsidiary of Synergy until February 18, 2014. All administrative services required by us for the operation of our business were provided by Synergy, including services related to insurance and risk management, accounting and human resources. On July 8, 2013, we entered into the shared services agreement with Synergy, effective May 16, 2013. Under the SSA, Synergy provided us with certain transition services until we were able to build our own capabilities in the transition areas. Effective April 1, 2014, we terminated the shared services agreement with Synergy. As a result, we are now required to provide these services ourselves or to obtain substitute arrangements with other third parties. We may be unable to provide these services because of financial or other constraints or be unable to implement substitute arrangements on a timely basis on terms that are favorable to us, or at all.
Risks Related to Our Common Stock
Because we will have broad discretion and flexibility in howover the net proceeds from this offering are used, we may use the net proceeds in ways in which you disagree.
We currently intend to use the net proceeds from this offering to fund our planned Phase 2 clinical trials of FV-100, and for working capital and other general corporate purposes, and possibly acquisitions of other companies, products or technologies, though no such acquisitions are currently contemplated. See "Use of Proceeds" on page 46. We have not allocated specific amounts of the net proceeds from this offering, for any ofyou may not agree with how we use the foregoing purposes. Accordingly, ourproceeds and the proceeds may not be invested successfully.
Our management will have significantbroad discretion and flexibility in applyingas to the use of the net proceeds from this offering and could use them for purposes other than those contemplated at the time of commencement of this offering. YouAccordingly, you will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. It is possible that, pending their use, we may invest the net proceeds will be invested in a way that does not yield a favorable, or any, return for us. The failure of our management to use such funds effectively could have a material adverse effect on our business, financial condition, operating results and cash flow.flows.
Your interest in our company may be diluted as a result of this rights offering.
Stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of this offering, own a smaller proportional interest in our company than would otherwise be the case had they fully exercised their subscription rights. Further, the shares issuable upon the exercise of the warrants to be issued pursuant to the rights offering will dilute the ownership interest of stockholders not participating in this offering or holders of warrants who have not exercised them.
Further, if you purchase units in this offering at the subscription price, you may suffer immediate and substantial dilution in the net tangible book value of our common stock. See "Dilution" in this prospectus for a more detailed discussion of the dilution which may incur in connection with this offering.
We may be or become the target of securities litigation, which is costly and time-consuming to defend.
In the past, following periods of market volatility in the price of a company's securities or the reporting of unfavorable news, security holders have often instituted class action litigation. If the market value of our securities experience adverse fluctuations and we become involved in this type of litigation, regardless of the outcome, we could incur substantial legal costs and our management's attention could be diverted from the operation of our business, causing our business to suffer.
There may be future sales or other dilution of our equity, which may adversely affect the market price of our common stock.
We are generally not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The market price of our common stock could decline as a result of sales of common stock or securities that are convertible into or exchangeable for, or that represent the right to receive, common stock after this rights offering or the perception that such sales could occur. For example, we have a currently effective registration statement that permits us to sell shares of our common stock from time to time at prevailing market prices, which could result in dilution to investors in the rights offering.
Completion of the rights offering is not subject to us raising a minimum offering amount.
Completion of the rights offering is not subject to us raising a minimum offering amount and, therefore, proceeds may be insufficient to meet our objectives, thereby increasing the risk to investors
in this offering, including investing in a company that continues to require capital. See "Use of Proceeds."
This rights offering may cause the trading price of our common stock to decrease.
The subscription price, together with the number of shares of common stock issuable upon conversion of the Series C Convertible Preferred Stock and warrants issuable in this right offering, may result in an immediate decrease in the market price of our common stock. This decrease may continue after the completion of this rights offering. If that occurs, you may have committed to buy shares of our Series C Convertible Preferred Stock which are convertible into shares of our common stock at a price greater than the prevailing market price. We cannot predict the effect, if any, that the availability of shares for future sale represented by the warrants issued in connection with the rights offering will have on the market price of our common stock from time to time. Further, if a substantial number of subscription rights are exercised and the holders of the shares received upon exercise of those subscription rights or the related warrants choose to sell some or all of the shares underlying the subscription rights or the related warrants, the resulting sales could depress the market price of our common stock.
Holders of our warrants will have no rights as a common stockholder until such holders exercise their warrants and acquire our common stock.
Until holders of warrants acquire shares of our common stock upon exercise of the warrants, holders of warrants will have no rights with respect to the shares of our common stock underlying such warrants. Upon exercise of the warrants, the holders thereof 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 terminate this offering for any reason, we will have no obligation other than to return subscription monies within 10 business days.
We may decide, in our sole discretion and for any reason, to cancel or terminate the rights offering at any time prior to the expiration date. If this offering is cancelled or terminated, we will have no obligation with respect to subscription rights that have been exercised except to return within 10 business days, without interest or deduction, all subscription payments deposited with the subscription agent. If we terminate this offering and you have not exercised any subscription rights, such subscription rights will expire and be worthless.
The subscription price determined for this offering is not an indication of the fair value of our common stock.
In determining the subscription price, our board of directors considered a number of factors, including, but not limited to, our need to raise capital in the near term to continue our operations, the current and historical trading prices of our common stock, a price that would increase the likelihood of participation in the rights offering, the cost of capital from other sources, the value of the Series C Convertible Preferred Stock and warrants being issued as components of the unit, comparable precedent transactions, an analysis of stock price trading multiples for companies similar to us that, among other things, did not need to raise capital in the near-term, and our most recently forecasted revenue relative to our peer group. The subscription price does not necessarily bear any relationship to any established criteria for value. No valuation consultant or investment banker has opined upon the fairness or adequacy of the subscription price. You should not consider the subscription price as an indication of the value of our company or our common stock.
The market priceIf you do not act on a timely basis and follow subscription instructions, your exercise of subscription rights may be rejected.
Holders of subscription rights who desire to purchase shares of our Series C Convertible Preferred Stock and warrants in this offering must act on a timely basis to ensure that all required forms and payments are actually received by the subscription agent prior to 5:00 p.m., Eastern Time, on the expiration date, unless extended. If you are a beneficial owner of shares of common stock and you wish to exercise your subscription rights, you must act promptly to ensure that your broker, dealer, bank, trustee or other nominee acts for you and that all required forms and payments are actually received by your broker, dealer, bank, trustee or other nominee in sufficient time to deliver such forms and payments to the subscription agent to exercise the subscription rights granted in this offering that you beneficially own prior to 5:00 p.m., Eastern Time on the expiration date, as may be extended. We will not be responsible if your broker, dealer, bank, trustee or other nominee fails to ensure that all required forms and payments are actually received by the subscription agent prior to 5:00 p.m., Eastern Time, on the expiration date.
If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to your exercise in this rights offering, the subscription agent may, depending on the circumstances, reject your subscription or accept it only to the extent of the payment received. Neither we nor the subscription agent undertakes to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly follows the subscription procedures.
You may not receive all of the units for which you subscribe.
While we are distributing to holders of our common stock and holders of certain outstanding warrants one subscription rights for every share of common stock owned or deemed to be owned on the Record Date, we are only seeking to raise $20 million dollars in gross proceeds in this rights offering. As a result, based on shares of common stock outstanding as of June 14, 2018, we would grant subscription rights to acquire units but will only accept subscriptions for 20,000 units. Accordingly, sufficient units may not be volatileavailable to honor your subscription in full. If excess units are available after the exercise of basic subscription rights, holders who fully exercise their basic subscription rights will be entitled to subscribe for an additional number of units. Over-subscription privileges will be allocated pro rata among rights holders who over-subscribed, based on the number of over-subscription units to which they have subscribed. We cannot guarantee that you will receive any or the entire amount of units for which you subscribed. If for any reason the amount of units allocated to you is less than you have subscribed for, then the excess funds held by the subscription agent on your behalf will be returned to you, without interest, as soon as practicable after the rights offering has expired and adversely affectedall prorating calculations and reductions contemplated by several factors.the terms of the rights offering have been effected, and we will have no further obligations to you.
The market priceUnless we otherwise agree in writing, a person or entity, together with related persons or entities, may not exercise subscription rights (including over-subscription privileges) to purchase units that, when aggregated with their existing ownership, would result in such person or entity, together with any related persons or entities, owning in excess of 19.99% of our issued and outstanding shares of common stock could fluctuate significantly in responsefollowing the closing of the transactions contemplated by this rights offering. If the amount of units allocated to various factors and events, including:
In addition, the securities marketswe will have from timeno further obligations to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
Certain provisions in our certificate of incorporation and by-laws, and of Delaware law, may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.
Our certificate of incorporation, by-laws and Delaware law will contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:
Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more information, see "Description of Our Capital Stock—Anti-takeover Effects of Various Provisions of Delaware Law and our Certificate of Incorporation and By-laws."
We believe these provisions will protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our board of directors and by providing our board of directors with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of our company and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.you.
Future sales and issuancesIf you make payment of our common stock or rightsthe subscription price by personal check, your check may not clear in sufficient time to enable you to purchase common stock pursuant to our equity incentive plan could resultshares in additional dilution of the percentage ownership of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research and development, funding clinical trials, purchasing of capital equipment, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gainthis rights superior to our existing stockholders.
You will incur immediate dilution as a result of this offering.
Any personal check used to pay for shares and warrants to be issued in this rights offering must clear prior to the expiration date of this rights offering, and the clearing process may require five or more business days. If you purchase common stockchoose to exercise your subscription rights, in whole or in part, and to pay for shares and warrants by personal check and your check has not cleared prior to the expiration date of this rights offering, you will pay more fornot have satisfied the conditions to exercise your shares than the net tangible book value of your shares. As a result, yousubscription rights and will incur immediate dilution of $ per share, representing the difference between the assumed public offering price of $ per share (the midpoint of the range on the cover of this prospectus) and our pro forma net tangible book value per share as of December 31, 2013 of $0.15. Accordingly, should we be liquidated at our book value, you would not receive the full amount of your investment.shares and warrants you wish to purchase.
Future sales and issuancesThe receipt of our common stock orsubscription rights may be treated as a taxable distribution to purchase common stock pursuant to our equity incentive plan could result in additional dilutionyou.
We believe the distribution of the percentage ownershipsubscription rights in this rights offering should be a non-taxable distribution to holders of our stockholders and could cause our share price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations, including expanding research and development, funding clinical trials, purchasing of capital equipment, hiring new personnel, commercializing our products, and continuing activities as an operating public company. To the extent we raise additional capital by issuing equity securities, our stockholders may experience substantial dilution. We may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights superior to our existing stockholders.
"Penny stock" rules may make buying or selling our securities difficult which may make our stock less liquid and make it harder for investors to buy and sell our securities.
If our shares of common stock under Section 305(a) of the Internal Revenue Code of 1986, as amended, or the Code. Please see the discussion on the "Material U.S. Federal Income Tax Consequences" below. This position is not binding on the IRS, or the courts, however. If this rights offering is deemed to be part of a "disproportionate distribution" under Section 305 of the Code, your receipt of subscription rights in this offering may be treated as the receipt of a taxable distribution to you equal to the fair market value of the subscription rights. Any such distribution would be treated as dividend income to the extent of our current and accumulated earnings and profits, if any, with any excess being treated as a return of capital to the extent thereof and then as capital gain. Each holder of shares of common stock and each holder of a warrant providing for participation is urged to consult his, her or its own tax advisor with respect to the particular tax consequences of this rights offering.
Exercising the subscription rights limits your ability to engage in certain hedging transactions that could provide you with financial benefits.
By exercising the subscription rights, you are representing to us that you have not entered into any short sale or similar transaction with respect to our common stock since the record date for the rights offering. In addition, the subscription rights provide that, upon exercise of the subscription right, you agree not to enter into any short sale or similar transaction with respect to our common stock for so long as you continue to trade onhold warrants issued in connection with the Over-the-Counter Bulletin Boardexercise of the subscription right. These requirements prevent you from pursuing certain investment strategies that could provide you greater financial benefits than you might have realized if the subscription rights did not contain these requirements.
The subscription rights are not transferable, and there is no market for the subscription rights.
You may not sell, transfer, assign or give away your subscription rights. Because the subscription rights are non-transferable, there is no market or other means for you to directly realize any quotation system maintained by OTC Markets, Inc,value associated with the subscription rights. You must exercise the subscription rights to realize any potential value from your subscription rights.
Absence of a public trading in our securities will be subjectmarket for the warrants may limit your ability to resell the SEC's "penny stock" rules and itwarrants.
There is anticipated thatno established trading in our securities will continuemarket for the warrants to be subjectissued pursuant to this offering nor do we expect to list the penny stock ruleswarrants on an exchange, and the warrants may not be widely distributed. Even if a market for the foreseeable future. The SEC has adopted regulations that generally define a penny stock to be any equity security that has a marketwarrants does develop, the price of less than $5.00 per share, subject to certain exceptions. These rules require that any broker-dealer who recommends our securities to persons other than prior customersthe warrants may fluctuate and accredited investors must, prior to the sale, makeliquidity may be limited. Absence of a special written suitability determinationpublic trading market for the purchaser and receivewarrants will make it difficult for purchasers of the purchaser's written agreementwarrants to executeresell the transaction. Unlesswarrants or sell the warrants at a favorable price for an exception is available, the regulations require the delivery, prior to any transaction involving a penny stock,extended period of a disclosure schedule explaining the penny stock market and the risks associated with trading in the penny stock market. In addition, broker-dealers must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities they offer. The additional burdens imposed upon broker-dealers by these requirements may discourage broker-time, if at all.
dealers from recommending transactionsThere is no public market for the Series C Convertible Preferred Stock in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the market price for our securities.
We are an "emerging growth company" and as a result of our reduced disclosure requirements applicable to emerging growth companies, our common stock may be less attractive to investors.this offering.
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to otherThere is no established public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could remain an "emerging growth company" until the earliest to occur of earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of the distribution; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission. We cannot predict whether investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stockthe Series C Convertible Preferred Stock, and our stock price may be more volatile.
Underwe do not expect a market to develop. In addition, we do not currently intend to apply for listing of the JOBS Act, emerging growth companies can delay adopting newSeries C Convertible Preferred Stock on any securities exchange or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards, and, therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.recognized trading system.
We may be at risk of securities class action litigation.
We may be at risk of securities class action litigation. This risk is especially relevant for us due to our dependence on positive clinical trial outcomes and regulatory approvals of FV-100. In the past, biotechnology and pharmaceutical companies have experienced significant stock price volatility, particularly when associated with binary events such as clinical trials and product approvals. If we face such litigation, it could result in substantial costs and a diversion of management's attention and resources, which could harm our business and results in a decline in theThe market price of our common stock.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stockmay never exceed the exercise price and trading volume could decline.of the warrants issued in connection with this offering.
The tradingwarrants being issued in connection with this offering become exercisable upon issuance and will expire five years from the date of issuance. The market forprice of our common stock may never exceed the exercise price of the warrants prior to their date of expiration. Any warrants not exercised by their date of expiration will expire worthless and we will be influenced byunder no further obligation to the researchwarrant holder.
The warrants contain features that may reduce your economic benefit from owning them.
The warrants contain features that allow us to redeem the warrants and reports that industry or securities analysts publish about us or our business.prohibit you from engaging in certain investment strategies. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us,redeem the tradingwarrants for $0.01 per warrant once the closing price of our common stock would likely decrease. Even ifhas equaled or exceeded $6.20 per share, subject to adjustment, for ten consecutive trading days, provided that we may not do obtain analyst coverage, if one or moreso prior to the first anniversary of closing of the analysts who cover us downgraderights offering, and only upon not less than 30 days' prior written notice of redemption. If we give notice of redemption, you will be forced to sell or exercise your warrants or accept the redemption price. The notice of redemption could come at a time when it is not advisable or possible for you to exercise the warrants. As a result, you may be unable to benefit from owning the warrants being redeemed. In addition, for so long as you continue to hold warrants, you will not be permitted to enter into any short sale or similar transaction with respect to our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, wecommon stock. This could lose visibility inprevent you from pursuing investment strategies that could provide you greater financial benefits from owning the financial markets, which in turn could cause our stock price or trading volume to decline.warrant.
We presently doThe dealer-manager is not intend to pay cash dividends on our common stock.underwriting, nor acting as placement agent of, the subscription rights or the securities underlying the subscription rights.
We anticipateMaxim Group LLC will act as dealer-manager for this rights offering. As provided in the dealer-manager agreement, the dealer-manager will provide marketing assistance in connection with this offering. The dealer-manager is not underwriting or placing any of the date hereof that no cash dividends will be paid onsubscription rights or the common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of the business, it is anticipated that all earnings, if any, will be retained to finance the future expansionshares of our business.
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
Any statementsSeries C Convertible Preferred Stock or warrants being issued in this prospectus about our expectations, beliefs, plans, objectives, assumptions or future events or performance areoffering and is not historical facts and are forward-looking statements. These statements are often, but not always, made through the use of words or phrasesmaking any recommendation with respect to such as "believe," "will," "expect," "anticipate," "estimate," "intend," "plan" and "would." For example, statements concerning financial condition, possible or assumed future results of operations, growth opportunities, industry ranking, plans and objectives of management, markets for our common stock and future management and organizational structure are all forward-looking statements. Forward-looking statements are not guarantees of performance. They involve known and unknown risks, uncertainties and assumptions that may cause actual results, levels of activity, performance or achievements to differ materially from any results, levels of activity, performance or achievements expressed or implied by any forward-looking statement.
Any forward-looking statements are qualified in their entirety by referencesubscription rights (including with respect to the risk factors discussed throughout this information statement. Someexercise or expiration of such subscription rights), shares or warrants. The dealer-manager will not be subject to any liability to us in rendering the risks, uncertainties and assumptions that could cause actual results to differ materially from estimatesservices contemplated by the dealer-manager agreement except for any act of bad faith or projections contained ingross negligence by the forward-looking statements include but are not limited to:
Since the warrants are executory contracts, they may have no value in a bankruptcy or reorganization proceeding.
In the event a bankruptcy or reorganization proceeding is commenced by or against us, a bankruptcy court may hold that any unexercised warrants are executory contracts that are subject to rejection by us with the approval of the bankruptcy court. As a result, holders of the warrants may, even if we have sufficient funds, not be ableentitled to compete effectively;
The foregoing list sets forth some, but not all, of the factors that could affect our ability to achieve results described in any forward-looking statements, which speak only as of the date of this prospectus. We assume no obligation and expressly disclaim any duty to update any forward-looking statement to reflect eventssuch bankruptcy or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in anyreorganization proceeding.
Risks Related to Our Business
Investors should carefully consider the risks and uncertainties and all other information contained or incorporated by reference in this prospectus, including the risks and uncertainties discussed under "Risk Factors" in our most recent Transition Report on Form 10-KT, as may be amended from time to time, and in subsequent filings that are incorporated herein by reference. All of these risk factors are incorporated by reference herein in their entirety. These risks and uncertainties are not the only ones facing us. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment. This prospectus and the incorporated documents also contain forward-looking statements containedthat involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks mentioned in this prospectus. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.
Industry and Market Data
This prospectus contains estimates and other statistical data made by independent parties and by us relating to market size and growth and other data about our industry. We obtained the industry and market data in this prospectus from our own research as well as from industry and general publications, surveys and studies conducted by third parties. This data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. We caution you not to give undue weight to such projections, assumptions and estimates. Further, industry and general publications, studies and surveys generally state that they have been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe that these publications, studies and surveys are reliable, we have not independently verified the data contained in them. In addition, while we believe that the results and estimates from our internal research are reliable, such results and estimates have not been verified by any independent source.
We estimate that the net proceeds from our issuance and sale of shares of our common stock in this offering will be approximately $ million, assuming a public offering price of $ per share, which is the midpoint of the price range listed on the cover page of this prospectus, after deducting estimated underwriting discount and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that the net proceeds from this offering will be approximately $ million.
A $1.00 increase or decrease in the assumed initial public offering price of $ per share would increase or decrease the net proceeds from this offering by approximately $ million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions.
We intend to use the net proceeds from this offering as follows:
This expected use of net proceeds from this offering represents our intentions based upon our current plans and business conditions. The amounts and timing of our actual expenditures may vary significantly depending on numerous factors, including the status of and results from clinical trials of FV-100. As a result, our management will retain broad discretion over the allocation of the net proceeds from this offering. We may find it necessary or advisable to use the net proceeds from this offering for other purposes, and we will have broad discretion in the application of net proceeds from this offering. Furthermore, we anticipate that we will need to secure additional funding for the further development of FV-100 or commercial launch FV-100 in the United States.
Pending our use of the net proceeds from this offering,the sale of our securities offered hereby. Except as described in any prospectus supplement, we currently anticipate using the net proceeds from the sale of our securities offered hereby primarily for to fund our research and development activities and for working capital and general corporate purposes. Further, from time to time we may evaluate acquisition opportunities and engage in related discussions with other companies. Pending the use of the net proceeds, we intend to invest the net proceeds in short-term, interest-bearing, investment-grade securities.
MARKET PRICE OF OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the NASDAQ Capital Market under the symbol "CTRV." Our common stock has, from time to time, traded on a limited, sporadic or volatile basis. The following tables show the high and low sales prices for our common stock for the periods indicated, as reported on the NASDAQ Capital Market. These prices do not reflect retail markups, markdowns or commissions.
| | Price Ranges | ||||||
|---|---|---|---|---|---|---|---|
| | High | Low | |||||
Quarter ended June 30, 2018 (through June 1, 2018) | $ | 2.60 | 1.55 | ||||
Quarter ended March 31, 2018 | $ | 2.96 | 1.68 | ||||
Quarter ended December 31, 2017 | $ | 6.64 | 2.56 | ||||
Quarter ended September 30, 2017 | $ | 5.36 | 3.60 | ||||
Quarter ended June 30, 2017 | $ | 14.24 | 4.64 | ||||
Quarter ended March 31, 2017 | $ | 14.16 | 10.08 | ||||
Quarter ended December 31, 2016 | $ | 18.80 | 8.72 | ||||
Quarter ended September 30, 2016 | $ | 10.00 | 7.84 | ||||
Quarter ended June 30, 2016 | $ | 9.44 | 6.56 | ||||
Quarter ended March 31, 2016 | $ | 13.92 | 7.04 | ||||
The closing price of our common stock on June 1, 2018 was $1.55 per share. As of June 14, 2018, we had approximately record holders of our common stock. Because so many of our shares are held by brokers and other institutions on behalf of stockholders, we are unable to estimate the total number of individual stockholders represented by these record holders.
We have never, and do not anticipate that we will, declare or pay a cash dividend. We expect to retain future earnings, if any, for our business and do not anticipate paying dividends on common stock or our Series C Convertible Preferred Stock at any time in the foreseeable future. Because we do not anticipate paying dividends in the future, the only opportunity for our stockholders to realize the creation of value in our common stock or our Series C Convertible Preferred Stock will likely be through a sale of those shares.
Purchasers of our common stock, which is issuable upon conversion of the Series C Convertible Preferred Stock and upon exercise of the warrants contained in the units, will experience an immediate dilution of the net tangible book value per share of our common stock. Our net tangible book value as of March 31, 2018 was approximately $(2.0) million, or $(0.19) per share of our common stock (based upon 10,618,901 shares of our common stock then outstanding). Net tangible book value per share is equal to our total tangible assets less our total liabilities, divided by the number of shares of our outstanding common stock.
Dilution per share of common stock equals the difference between the subscription price per unit paid by purchasers in the rights offering (ascribing no value to the warrants contained in the units) and the net tangible book value per share of our common stock immediately after the rights offering.
Based on the sale by us in this rights offering of a maximum of 20,000 units (consisting of 20,000 shares of Series C Convertible Preferred Stock, convertible into the number of shares of our common stock determined by dividing the $1,000 stated value per share of the Series C Convertible Preferred Stock by a conversion price of $1.55 per share, and warrants to purchase an aggregate of 6,460,000 shares of common stock upon exercise), at the subscription price of $1,000 per unit, and after deducting estimated offering expenses and dealer-manager fees and expenses payable by us and assuming no exercise of the warrants, our pro forma net tangible book value as of March 31, 2018 would have been approximately $16.5 million, or $0.70 per share. This represents an immediate increase in pro forma net tangible book value to existing stockholders of $0.89 per share and an immediate dilution to purchasers in the rights offering of $0.85 per share. The following table illustrates this per-share dilution:
Subscription Price | $ | 1,000 | ||
Net tangible book value per share as of March 31, 2018 | $ | (0.19 | ) | |
Increase in net tangible book value per share attributable to Rights Offering | $ | 0.89 | ||
Pro forma net tangible book value per share as of March 31, 2018, after giving effect to rights offering | $ | 0.70 | ||
Dilution in net tangible book value per share to purchasers in the rights offering | $ | 0.85 |
All holders of our common stock and holders of certain outstanding warrants as of the record date are eligible to participate in the rights offering. Please read through the material terms of the rights offering described in this section. If you hold your shares in a brokerage account or through a broker, dealer, custodian bank or other nominee, please also refer to "—Method of Exercising Subscription Rights—Subscription by Beneficial Owners."
The Subscription Rights
We will distribute to holders of shares of our common stock and to holders of certain outstanding warrants as of 5:00 p.m., Eastern Time on June 14, 2018, the record date for the rights offering, at no charge, non-transferable subscription rights to purchase units, with each unit consisting of one share of Series C Convertible Preferred Stock and 323 warrants at $1,000 per unit. Each holder of record of our common stock as of the record date will receive one subscription right for every share of common stock. Each holder of an eligible warrant will receive one subscription right for each share of common stock that such warrant holder's warrant is exercisable for. Each subscription right will entitle its holder to a basic subscription right and an over-subscription privilege. In the aggregate, the subscription rights entitle our holders of common stock to purchase a total of 20,000 units for a total price of approximately $20 million. Shares of common stock issued upon conversion of the Series C Convertible Preferred Stock and warrants offered in the rights offering, like existing shares of our common stock, will be traded on the NASDAQ Capital Market under our stock symbol, "CTRV."
Basic Subscription Right. As described in the foregoing paragraph, the basic subscription right entitles its holder to purchase units, with each unit consisting of one share of Series C Convertible Preferred Stock and 323 warrants at a subscription price of $1,000 per unit. In order to exercise the basic subscription right, you must deliver the required documents and payment of the subscription price to the subscription agent prior to the expiration of the rights offering. If you choose to exercise your basic subscription rights, you may do so in part or in full. However, you may exercise your over-subscription privilege unless you exercise all of your basic subscription rights.
Over-Subscription Privilege. If you exercise your basic subscription rights in full, you may also choose to exercise your over-subscription privilege. Subject to proration and the limitations described in this prospectus, we will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of units available, however, we will allocate the available units pro rata among the holders as of the record date exercising the over-subscription privilege in proportion to the number of shares of our common stock or shares underlying eligible warrants each of those holders owned on the record date, relative to the number of shares of common stock and shares issuable upon exercise of eligible warrants owned on the record date by all holders as of the record date exercising the over-subscription privilege. If this pro rata allocation results in any holder receiving a greater number of units than the record holder subscribed for pursuant to the exercise of the over-subscription privilege, then such record holder will be allocated only that number of units for which the record holder oversubscribed, and the remaining units will be allocated among all other holders exercising the over-Subscription Privilege on the same pro rata basis described above. The proration process will be repeated until all units have been allocated.
Philadelphia Stock Transfer, Inc., the subscription agent for the rights offering, will determine the over-subscription allocation based on the formula described above.
To the extent the aggregate subscription payment of the actual number of unsubscribed units available to you pursuant to the over-subscription privilege is less than the amount you actually paid in connection with the exercise of the over-subscription privilege, you will be allocated only the number of unsubscribed units available to you, and any excess subscription payments will be returned to you, without interest or deduction, with 10 business days after expiration of the rights offering.
We can provide no assurances that you will actually be entitled to purchase the number of units issuable upon the exercise of your over-subscription privilege in full at the expiration of the rights offering. We will not be able to satisfy any requests for units pursuant to the over-subscription privilege if all of our holders exercise their basic subscription rights in full, and we will only honor an over-subscription privilege to the extent sufficient units are available following the exercise of basic subscription rights.
Reasons for the Rights Offering
We are conducting the rights offering in order to raise capital for our general capital purposes. Our Board has considered the rights offering to be the best option for raising capital as compared to other alternatives, in part because it will give current holders the opportunity to limit ownership dilution by buying additional shares of common stock.
Our Board has approved the rights offering and, based on information available to the Board and its subsequent analyses, believes that the rights offering is in the best interests of the Company and its stockholders. However, our Board is not making any recommendation regarding your exercise of the subscription rights.
Determination of Subscription Price
The Board determined the subscription price, based on a variety of factors, including historical and current trading prices for our common stock, general business conditions, our need for capital, preservation investments,alternatives available to us for raising capital, potential market conditions, and our desire to provide an opportunity to our stockholders to participate in the rights offering on a pro rata basis. In conjunction with its review of these factors, the Board also reviewed our history and prospects, including short-term, investment-grade, interest-bearing instrumentsour past and present earnings, our prospects for future earnings, and the outlook for our industry, and our current financial condition.
The subscription price is not necessarily related to our book value, tangible book value, multiple of earnings or any other established criteria of value and may or may not be considered the fair value of our common stock to be offered in the rights offering. You should not consider the subscription price as an indication of value of the Company or our common stock. There is currently no market for our shares of Series C Convertible Preferred Stock and, unless we or you choose to convert such shares into shares of common stock, you will not be able to resell such shares. We cannot predict the price at which our shares of common stock will trade after the rights offering. You should obtain a current quote for our common stock before exercising your subscription rights and make your own assessment of our business and financial condition, our prospects for the future, and the terms of the rights offering.
No Short-Sales
By exercising the subscription rights, you are representing to us that you have not entered into any short sale or similar transaction with respect to our common stock since the record date for the rights offering. In addition, the subscription rights provide that, upon exercise of the subscription right, you represent that you have not since the record date and, for so long as you continue to hold warrants issued in connection with the exercise of the subscription right, agree to not to enter into any short sale or similar transaction with respect to our common stock. These requirements prevent you from pursuing certain investment strategies that could provide you greater financial benefits than you might have realized if the subscription rights did not contain these requirements.
No Recombination
The Series C Convertible Preferred Stock and warrants comprising the units will separate upon the exercise of the subscription rights, and the units will not trade as a separate security. Holders may not recombine shares of Series C Convertible Preferred Stock and warrants to receive a unit.
Non-Transferability of Subscription Rights
The subscription rights are non-transferable (other than by operation of law), and as a result, you may not sell, transfer, assign or give away your subscription rights to anyone. The subscription rights will not be listed for trading on any stock exchange or market.
Expiration Date
The subscription period, during which you may exercise your subscription rights, expires at 5:00 p.m., Eastern Time, on June 28, 2018, which is the expiration of the rights offering. If you do not exercise your subscription rights before that time, your subscription rights will expire and will no longer be exercisable. We will not be required to issue shares to you if the subscription agent receives your rights certificate or your subscription payment after that time. We have the option to extend the rights offering in our sole discretion, although we do not presently intend to do so. We may extend the rights offering by giving oral or written notice to the Subscription Agent before the rights offering expires. If we elect to extend the rights offering, we will issue a press release announcing the extension no later than 9:00 a.m., Eastern Time, on the next business day after the most recently announced expiration date of the rights offering.
If you hold your shares of common stock in the name of a broker, dealer, bank or other nominee, the nominee will exercise the subscription rights on your behalf in accordance with your instructions. Please note that the nominee may establish a deadline that may be before 5:00 p.m., Eastern Time, on June 28, 2018, which is the expiration date that we have established for the rights offering.
Termination
We may terminate the rights offering for any reason at any time prior to the completion of the rights offering. If we terminate the rights offering, we will issue a press release notifying stockholders and the public of the termination.
Method of Exercising Subscription Rights
You will receive one non-transferable subscription right for every share of our common stock that you owned or were deemed to own as of 5:00 p.m., Eastern Time, on June 14, 2018, the record date for the rights offering. The exercise of subscription rights is irrevocable and may not be cancelled or modified. You may exercise your subscription rights as follows:
Subscription by Registered Holders or Eligible Warrant Holders. If you are a registered holder of shares of our common stock, or if you are a warrant holder entitled to subscription rights, the number of subscription rights you may exercise is indicated on your rights certificate. You may exercise your subscription rights by properly completing and executing the rights certificate and forwarding it, together with your full payment, to the subscription agent at the address set forth below under "—Subscription Agent ," to be received prior to 5:00 p.m., Eastern Time, on June 28, 2018, the expiration date for the rights offering.
Subscription by Beneficial Owners. If you are a beneficial owner of shares of our common stock that are registered in the name of a custodian bank, broker, dealer or other nominee, you will not receive a rights certificate. Instead, one subscription right will be issued to the nominee record holder for every share of our common stock that you own at the record date. If you are not contacted by your
nominee, you should promptly contact your nominee in order to subscribe for shares of our common stock in the rights offering.
If you hold your shares of common stock in the name of a custodian bank, broker, dealer or other nominee, your nominee will exercise the subscription rights on your behalf in accordance with your instructions. Your nominee may establish a deadline that may be before 5:00 p.m., Eastern Time, on June 28, 2018, the expiration date for the rights offering.
Payment Method
As described in the instructions accompanying the rights certificate, payments submitted to the subscription agent must be made in full United States currency by personal or certified check payable to Philadelphia Stock Transfer, Inc., the subscription agent, drawn upon a United States bank; U.S. government securities.Postal money order; or wire transfer.
If payment is issued by check, payment will be deemed to have been received by the subscription agent only upon the subscription agent's receipt of the check, receipt and clearance of such check.
Please note that funds paid by uncertified personal check may take at least seven business days to clear. Accordingly, if you wish to pay by means of an uncertified personal check, we urge you to make payment sufficiently in advance of the expiration date to ensure that the subscription agent receives cleared funds before that time.
Your subscription rights will not be successfully exercised unless the subscription agent actually receives from you, your custodian bank, broker, dealer or other nominee, as the case may be, all of the required documents and your full subscription price payment (and your payment has cleared) prior to 5:00 p.m., Eastern Time, on June 28, 2018, the scheduled expiration date of the rights offering, unless you have used the guaranteed delivery procedures described under "—Notice of Guaranteed Delivery ."
You should read and follow the instructions accompanying the rights certificate carefully. As described in the instructions accompanying the rights certificate, in certain cases additional documentation or signature guarantees may be required.
The method of delivery of payments of the subscription amount to the subscription agent will be at the risk of the holders of subscription rights. If sent by mail, we recommend that you send those documents and payments by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure timely delivery to the subscription agent. Do not send or deliver these materials to the Company.
There is no sales fee or commission payable by you in connection with the issuance of subscription rights or the issuance of shares of common stock if you exercise your subscription rights (other than the subscription price). We will pay all fees charged by the subscription agent. However, if you exercise your subscription rights through a custodian bank, broker, dealer or other nominee, you are responsible for paying any other commissions, fees, taxes or other expenses your nominee may charge you in connection with the exercise of the subscription rights.
Missing or Incomplete Subscription Information
If you fail to specify the number of units requested as an exercise of your basic subscription right or over-subscription privilege, or if you fail to include sufficient payment to purchase the number of units you requested, your payment will first be applied, to the fullest extent possible, to exercise your basic subscription rights. Any remaining payment amount will then be applied, to the fullest extent possible, to exercise your over-subscription privilege, to the extent over-subscription units are available for purchase.
After expiration of the rights offering, the subscription agent will promptly return, without interest or penalty, any excess subscription payments received.
In order for us to honor the exercise of your subscription rights, your rights certificate, any other required documents and payment must be received as set forth in this prospectus.
Issuance of Series C Convertible Preferred Stock and Warrants
The shares of Series C Convertible Preferred Stock and warrants that are purchased in the rights offering as part of the units will be issued in book-entry, or uncertificated, form meaning that you will receive a DRS account statement from our transfer agent reflecting ownership of these securities if you are a holder of record of shares or warrants. If you hold your shares of common stock in the name of a bank, broker, dealer, or other nominee, DTC will credit your account with your nominee with the securities you purchased in the rights offering.
Subscription Agent
The subscription agent for the rights offering is Philadelphia Stock Transfer, Inc. The address to which rights certificates and payments should be mailed or delivered by overnight courier is provided below. If sent by mail, we recommend that you send documents and payments by registered mail, properly insured, with return receipt requested, and that you allow a sufficient number of days to ensure delivery to the subscription agent and clearance or payment before the rights offering expires. Do not send or deliver these materials to us.
| By Registered Certified or Express Mail | By Overnight Courier | |
PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 | PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 |
If you deliver the rights certificates in a manner different than as described herein, we may not honor your exercise of your subscription rights.
Please direct any questions or requests for assistance with exercise of your subscription rights to the subscription agent as follows:
Warrant Agent
The warrant agent for the warrants is Philadelphia Stock Transfer, Inc.
No Fractional Shares
We will not issue fractional shares of Series C Convertible Preferred Stock in the rights offering. Subscription rights holders will only be entitled to purchase a number of units representing a whole number of shares and warrants, rounded down to the nearest whole number that a holder would otherwise be entitled to purchase. Similarly, no fractional shares of common stock will be issued as a result of the exercise of a warrant. Instead, for any such fractional share that would otherwise have been issuable upon exercise of the Warrant, the holder will be entitled to a cash payment equal to the pro-rated per share market price of the common stock on the last trading day preceding the exercise.
Notice to Brokers and Nominees
If you are a broker, dealer, bank or other nominee holder that holds shares of our common stock for the account of others on the record date, you should notify the beneficial owners of the shares for whom you are the nominee of the rights offering as soon as possible to learn their intentions with
respect to exercising their subscription rights. If a beneficial owner of our common stock so instructs, you should complete the rights certificate and submit it to the subscription agent with the proper subscription payment by the expiration date. You may exercise the number of subscription rights to which all beneficial owners in the aggregate otherwise would have been entitled had they been direct holders of our common stock on the record date, provided that you, as a nominee record holder, make a proper showing to the subscription agent by submitting the form entitled "Nominee Holder Certification," which is provided with your rights offering materials. If you did not receive this form, you should contact our subscription agent to request a copy.
Validity of Subscriptions
We will resolve all questions regarding the validity and form of the exercise of your subscription rights, including time of receipt and eligibility to participate in the rights offering. Our determination will be final and binding. Once made, subscriptions are irrevocable; we will not accept any alternative, conditional, or contingent subscriptions. We reserve the absolute right to reject any subscriptions not properly submitted or the acceptance of which would be unlawful. You must resolve any irregularities in connection with your subscriptions before the expiration date of the rights offering, unless we waive them in our sole discretion. Neither we nor the subscription agent is under any duty to notify you or your representative of defects in your subscriptions. A subscription will be considered accepted, subject to our right to withdraw or terminate the rights offering, only when the Subscription Agent receives a properly completed and duly executed rights certificate and any other required documents and the full subscription payment including final clearance of any personal check. Our interpretations of the terms and conditions of the rights offering will be final and binding.
Stockholder Rights
You will have no rights as a holder of the shares of our common stock issuable upon conversion of the Series C Convertible Preferred Stock issued in the rights offering until such Series C Convertible Preferred Stock is converted to common stock and such shares of common stock are issued in book-entry form or your account at your broker, dealer, bank or other nominee is credited with the shares of our common stock. Holders of warrants issued in connection with the rights offering will not have rights as holders of our common stock until such warrants are exercised and the shares of common stock underlying the warrants are issued to the holder.
Foreign Stockholders
We will not mail this prospectus or rights certificates to stockholders or warrant holders with addresses that are outside the United States or that have an army post office or foreign post office address. The subscription agent will hold these rights certificates for their account. To exercise subscription rights, our foreign stockholders or warrant holders must notify the subscription agent prior to 5:00 p.m., Eastern Time, on June 25, 2018, the third business day prior to the expiration date, of your exercise of subscription rights and provide evidence satisfactory to us, that the exercise of such subscription rights does not violate the laws of the jurisdiction in which such stockholder resides and payment by a U.S. bank in U.S. dollars before the expiration of the offer. If no notice is received by such time or the evidence presented is not satisfactory to us, the subscription rights represented thereby will expire.
No Revocation or Change
Once you submit the rights certificate or have instructed your nominee of your subscription request, you are not allowed to revoke or change the exercise or request a refund of monies paid. All exercises of subscription rights are irrevocable, even if you learn information about us that you consider to be unfavorable. You should not exercise your subscription rights unless you are certain that you wish to purchase shares at the subscription price.
U.S. Federal Income Tax Treatment of Rights Offering
For U.S. federal income tax purposes, we do not believe holders of shares of our common stock or warrants should recognize income or loss upon receipt or exercise of a subscription right. See "MaterialU.S. Federal Income Tax Consequences."
No Recommendation to Rights Holders
Our Board is not making a recommendation regarding your exercise of the subscription rights. You are urged to make your decision to invest based on your own assessment of our business and financial condition, our prospects for the future, the terms of the rights offering, the information in this prospectus and other information relevant to your circumstances.
Fees and Expenses
We will pay all fees charged by the subscription agent, and by the dealer-manager. You are responsible for paying any other commissions, fees, taxes or other expenses incurred in connection with the exercise of your subscription rights.
Listing
The subscription rights may not be sold, transferred, assigned or given away to anyone, and will not be listed for trading on any stock exchange or market. There is no established public trading market for the Series C Convertible Preferred Stock or the warrants and we do not currently intend to apply for listing of Series C Convertible Preferred Stock or the warrants on any securities exchange or recognized trading system. The shares of our common stock issuable upon conversion of the Series C Convertible Preferred Stock and underlying the warrants to be issued in the rights offering are traded on Nasdaq under the symbol "CTRV."
Distribution Arrangements
Maxim Group LLC is the dealer-manager for the rights offering. The dealer-manager will provide marketing assistance and advice to us in connection with the rights offering and will use its best efforts to solicit the exercise of subscription rights and participation in the over-subscription privilege. The dealer-manager is not underwriting or placing any of the subscription rights or the shares of our Series C Convertible Preferred Stock or warrants to be issued in the rights offering and does not make any recommendation with respect to such subscription rights (including with respect to the exercise or expiration of such subscription rights), shares or warrants. We have agreed to pay the dealer-manager certain fees and to reimburse the dealer-manager for certain accountable and non-accountable expenses incurred in connection with this offering. See "Planof Distribution."
Other Matters
We are not making the rights offering in any state or other jurisdiction in which it is unlawful to do so, nor are we distributing or accepting any offers to purchase any units from subscription rights holders who are residents of those states or other jurisdictions or who are otherwise prohibited by federal or state laws or regulations from accepting or exercising the subscription rights. We may delay the commencement of the rights offering in those states or other jurisdictions, or change the terms of the rights offering, in whole or in part, in order to comply with the securities laws or other legal requirements of those states or other jurisdictions. Subject to state securities laws and regulations, we also have the discretion to delay allocation and distribution of any shares you may elect to purchase by exercise of your subscription privileges in order to comply with state securities laws. We may decline to make modifications to the terms of the rights offering requested by those states or other jurisdictions, in which case, if you are a resident in those states or jurisdictions or if you are otherwise prohibited by federal or state laws or regulations from accepting or exercising the subscription rights, you will not be eligible to participate in the rights offering. However, we are not currently aware of any states or jurisdictions that would preclude participation in the rights offering.
Our common stock began trading on the OTCBB under the symbol CTRV.OB on February 18, 2014. The following table shows the reported high and low closing bid quotations per share for our common stock based on information provided by the OTCBB. Such over-the-counter market quotations reflect inter-dealer prices, without markup, markdown or commissions and, particularly since our common stock is traded infrequently, may not necessarily represent actual transactions or a liquid trading market.
Fiscal 2014 | High | Low | |||||
|---|---|---|---|---|---|---|---|
Fourth Quarter (through May 8, 2014) | $ | 2.35 | $ | 1.60 | |||
Third Quarter (beginning February 18, 2014) | $ | 2.96 | $ | 0.75 | |||
The closing price of our common stock on the OTCBB on May 8, 2014 was $1.60 per share. As of May 8, 2014, we had stockholders of record of our common stock.
We have never paid or declared any cash dividends on our common stock, and we do not anticipate paying any cash dividends on our common stock in the foreseeable future. We intend to retain all available funds and any future earnings to fund the development and expansion of our business. Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon a number of factors, including our results of operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.
CAPITALIZATIONMATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
The following table sets forthdiscussion is a summary of the material U.S. federal income tax consequences of the receipt and exercise (or expiration) of the subscription rights acquired through the rights offering, the ownership and disposition of shares of our cashSeries C Convertible Preferred Stock and cash equivalentswarrants received upon exercise of the subscription rights or the ownership and capitalization asdisposition of December 31, 2013:
This discussion is limited to holders that hold the subscription rights, shares of our Series C Convertible Preferred Stock, warrants and shares of our common stock, in this offering at an assumed initial public offering priceeach case, as a "capital asset" within the meaning of $ per share, which isSection 1221 of the Code (generally, property held for investment). This discussion does not address all U.S. federal income tax consequences relevant to a holder's particular circumstances, including the impact of the alternative minimum tax or the unearned income Medicare contribution tax. In addition, it does not address consequences relevant to holders subject to particular rules, including, without limitation:
midpoint of the price range listed on the cover page of this prospectus, after deducting underwriting discount and estimated offering expenses payable by us.
| | As of December 31, 2013 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| | Actual | Pro Forma | Pro Forma As Adjusted(1) | |||||||
Cash | $ | 3,275 | $ | 3,213,275 | $ | |||||
Stockholder's equity | ||||||||||
Preferred stock, $0.0001 par value; 20,000,000 shares authorized, no shares issued and outstanding, actual; no preferred shares issued or outstanding, pro forma, as adjusted | — | — | ||||||||
Common stock, $0.0001 par value; 120,000,000 shares authorized, 9,000,000 shares issued and outstanding, actual; 18,485,294 shares issued and outstanding, pro forma, as adjusted | 900 | 1,849 | ||||||||
Additional paid-in capital | (48 | ) | 3,209,003 | |||||||
Deficit accumulated during the development stage | (490,712 | ) | (490,712 | ) | ||||||
Total stockholder's deficiency | (489,860 | ) | 2,720,140 | |||||||
Total Capitalization | $ | 8,827 | $ | 3,218,827 | $ | |||||
The number of shares of common stock to be outstanding after this offering is based on 18,485,294 shares outstanding as of December 31, 2013 pro forma and it does not include:
If an entity treated as a partnership for U.S. federal income tax purposes holds our common stock, subscription rights, shares of our Series C Convertible Preferred Stock and warrants acquired upon exercise of outstanding options to purchase 2,140,270subscription rights or shares of our common stock underacquired upon conversion of our PlanSeries C Convertible Preferred Stock or exercise of the warrants, as the case may be, the tax treatment of a partner in the partnership will depend on the status of the partner, the activities of the partnership and certain determinations made at the partner level. Accordingly, partnerships and the partners in such partnerships should consult their tax advisors regarding the U.S. federal income tax consequences to them.
Tax Considerations Applicable to U.S. Holders
Definition of a weighted averageU.S. Holder
For purposes of this discussion, a "U.S. holder" is any beneficial owner of shares of our common stock subscription rights, shares of our Series C Convertible Preferred Stock and warrants acquired upon exercise price of $1.58 per share;subscription rights or shares of our common stock acquired upon conversion of our Series C Convertible Preferred Stock or exercise of warrants, as the case may be, that, for U.S. federal income tax purposes, is:
Receipt of Subscription Rights
Although the authorities governing transactions such as this rights offering are complex and do not speak directly to the consequences of certain aspects of this rights offering, including the inclusion of the right to purchase warrants in the subscription rights (rather than the right to purchase only shares of our common stock underlyingSeries C Convertible Preferred Stock) and the warrants to be issuedeffects of the over-subscription privilege, we do not believe a U.S. holder's receipt of subscription rights pursuant to the representative of the underwriters in connectionrights offering should be treated as a taxable distribution with this offering.
If you invest in our common stock, your ownership interest will be dilutedrespect to the extent of the difference between the public offering price per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock immediately after this offering. Dilution results from the fact that the public offering price per share is substantially in excess of the book value per share attributable to thetheir existing stockholders for the presently outstanding stock.
As of December 31, 2013, our net tangible book value (deficit) was $(489,860), or $(0.05) per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by 9,000,000, the number of shares of common stock outstanding at December 31, 2013.
Onfor U.S. federal income tax purposes. Section 305(a) of the Code states that a pro forma basis, after givingstockholder's taxable income does not include in-kind stock dividends; however, the general non-recognition rule in Section 305(a) of the Code is subject to exceptions described in Section 305(b) of the Code, which include "disproportionate distributions." A disproportionate distribution is a distribution or a series of distributions, including deemed distributions, that has the effect toof the February 4, 2014 private placementreceipt of 9,485,294 sharescash or other property by some stockholders or holders of commondebt instruments convertible into stock and warrants to purchase 4,742,647 sharesan increase in the proportionate interest of common stock on February 4, 2014 for net proceeds of $3,210,000 as if it had occurred atother stockholders in a corporation's assets or earnings and profits. We do not believe that the end of the quarter ended December 31, 2013, our proreceipt
forma net tangible book value as of December 31, 2013 would have been approximately $2,720,140, or approximately $0.15 per share of our common stock.
After giving effectsubscription rights pursuant to the salerights offering is a disproportionate distribution for these purposes.
Our position regarding the tax-free treatment of sharesthe subscription right distribution is not binding on the IRS, or the courts. If this position is finally determined by the IRS or a court to be incorrect, whether on the basis that the issuance of the subscription rights is a "disproportionate distribution" or otherwise, the fair market value of the subscription rights would be taxable to U.S. holders of our common stock in this offering, assumingas a public offering price of $ per share,dividend to the mid-pointextent of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us, our adjustedU.S. holder's pro forma net tangible book value (deficit) as of December 31, 2013 would have been $ million, or $ per share. This amount represents an immediate increase in our pro forma net tangible book value (deficit) of $ perrata share to our existing stockholders and an immediate dilution in our adjusted pro forma net tangible book value (deficit)of approximately $ per share to new investors purchasing shares of our common stock in this offering. We determine dilution by subtracting the adjusted pro forma net tangible book value (deficit) per share after the offering from the amountcurrent and accumulated earnings and profits, if any, with any excess being treated as a return of cash that a new investor paid for a share of common stock.
Dilution per share to new investors is determined by subtracting pro forma as adjusted net tangible book value per share after this offering from the initial public offering price per share paid by new investors. The following table illustrates this dilution:
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If the underwriters exercise their option to purchase additional shares in full, the as adjusted net tangible book value per share after giving effectcapital to the offering wouldextent thereof and then as capital gain. If our position is incorrect, the tax consequences applicable to the holders may also be $ per share. This represents an increase inmaterially different than as adjusted net tangible book value of $ per share to existing stockholders and dilution in as adjusted net tangible book value of $ per share to new investors.
A $1.00 increase (decrease) in the assumed initial public offering price of $ , the mid-point of the price range set forth on the cover page of this prospectus, would increase (decrease) our pro forma as adjusted net tangible book value after this offering by $ million and the pro forma as adjusted net tangible book value per share after this offering by $ per share and would increase (decrease) the dilution per share to new investors in this offering by $ per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. The information discussed above is illustrative only and may change based on the actual initial public offering price and other terms of the offering determined at pricing.described below.
The following table summarizes,discussion is based upon the treatment of the subscription right issuance as a non-taxable distribution with respect to a U.S. holders' existing shares of common stock for U.S. federal income tax purposes.
Tax Basis in the Subscription Rights
If the fair market value of the subscription rights a U.S. holder receives is less than 15% of the fair market value of the U.S. holder's existing shares of common stock (with respect to which the subscription rights are distributed) on the date the U.S. holder receives the subscription rights, the subscription rights will be allocated a zero tax basis for U.S. federal income tax purposes, unless the U.S. holder elects to allocate its tax basis in its existing shares of common stock between its existing shares of common stock and the subscription rights in proportion to the relative fair market values of the existing shares of common stock and the subscription rights determined on the date of receipt of the subscription rights. If a U.S. holder chooses to allocate tax basis between its existing common shares and the subscription rights, the U.S. holder must make this election on a pro forma as adjusted net tangible bookstatement included with its timely filed tax return (including extensions) for the taxable year in which the U.S. holder receives the subscription rights. Such an election is irrevocable. However, if the fair market value as of December 31, 2013, the total numbersubscription rights a U.S. holder receives is 15% or more of the fair market value of their existing shares purchased from us,of common stock on the total consideration paid, or to be paid,date the U.S. holder receives the subscription rights, then the U.S. holder must allocate its tax basis in its existing shares of common stock between those shares and the average price per share paid, orsubscription rights the U.S. holder receives in proportion to be paid, by existing stockholderstheir fair market values determined on the date the U.S. holder receives the subscription rights. Please refer to discussion below regarding the U.S. tax treatment of a U.S. holder that, at the time of the receipt of the subscription right, no longer holds the common stock with respect to which the subscription right was distributed.
The fair market value of the subscription rights on the date that the subscription rights are distributed is uncertain, and by new investors in this offering atwe have not obtained, and do not intend to obtain, an assumed initial public offeringappraisal of the fair market value of the subscription rights on that date. In determining the fair market value of the subscription rights, U.S. holders should consider all relevant facts and circumstances, including any difference between the subscription price of $ per share, which is the midpointsubscription rights and the trading price of our shares of common stock on the date that the subscription rights are distributed, the fair market value of the Series C Convertible Preferred Stock, the exercise price range listed onof the cover pagewarrants, the length of this prospectus, before deducting underwriting discountthe period during which the subscription rights may be exercised and the fact that the subscription rights are non-transferable.
Exercise of Subscription Rights
Generally, a U.S. holder will not recognize gain or loss upon the exercise of a subscription right in the rights offering. A U.S. holder's adjusted tax basis, if any, in the subscription right plus the subscription price should be allocated between the new share of Series C Convertible Preferred Stock and the warrant acquired upon exercise of the subscription right in proportion to their relative fair
estimated offering expenses payable by us. Asmarket values on the table shows,exercise date. This allocation will establish the U.S. holder's initial tax basis for U.S. federal income tax purposes in the new investors purchasing shares of Series C Convertible Preferred Stock and warrants received upon exercise. The holding period of a share of Series C Convertible Preferred Stock or a warrant acquired upon exercise of a subscription right in thisthe rights offering will pay an average price per share substantially higher than our existing stockholders paid.begin on the date of exercise.
| | Shares Purchased | Total Consideration | | |||||||||||||
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| | Number | Percentage | Amount | Percentage | ||||||||||||
Existing stockholders | % | $ | % | $ | ||||||||||||
New investors | ||||||||||||||||
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Total | 100 | % | $ | 100 | % | $ | ||||||||||
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The table above is based on actualIf, at the time of the receipt or exercise of the subscription right, the U.S. holder no longer holds the common stock with respect to which the subscription right was distributed, then certain aspects of the tax treatment of the receipt and exercise of the subscription right are unclear, including (1) the allocation of the tax basis between the shares of our common stock outstanding aspreviously sold and the subscription right, (2) the impact of such allocation on the amount and timing of . Togain or loss recognized with respect to the extent any of these outstanding options or warrants is exercised, there will be further dilution to new investors.
The table above does not include:
If the underwriters exercise their option to purchase additional shares in full, the following will occur:
Expiration of Subscription Rights
If a U.S. holder allows subscription rights received in the rights offering to expire, the U.S. holder should not recognize any gain or loss for U.S. federal income tax purposes, and the U.S. holder should re-allocate any portion of the total numbertax basis in its existing common shares previously allocated to the subscription rights that have expired to the existing common shares.
Sale or Other Disposition, Exercise or Expiration of Warrants
Upon the sale or other disposition of a warrant (other than by exercise), a U.S. holder will generally recognize capital gain or loss equal to the difference between the amount realized on the sale or other disposition and the U.S. holder's tax basis in the warrant. This capital gain or loss will be long-term capital gain or loss if the U.S. holder's holding period in such warrant is more than one year at the time of the sale or other disposition. The deductibility of capital losses is subject to certain limitations.
In general, a U.S. holder will not be required to recognize income, gain or loss upon exercise of a warrant for its exercise price. A U.S. holder's tax basis in a share of our common stock received upon exercise of the warrants will be equal to the sum of (1) the U.S. holder's tax basis in the warrants exchanged therefor and (2) the exercise price of such warrants. A U.S. holder's holding period in the shares of our common stock outstandingreceived upon exercise will commence on the day after this offering; and
In addition, we may choose to raise additional capital due to market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Toreceived upon exercise of warrants would include the extent that additional capital is raised through the sale of equity or convertible debt securities, the issuance of these securities may result in further dilution to our stockholders.
The following table sets forth our selected financial data for the periods and asholding period of the dates indicated. You should readexercised warrants. However, our position is not binding on the following selected financial data in conjunction with our audited financial statementsIRS and the related notes thereto included elsewhere in this prospectus and the "Management's Discussion and AnalysisIRS may treat a cashless exercise of Financial Condition and Results of Operations" section of this prospectus.
You should read the following selected financial data together with our financial statements and the related notes included elsewhere in this prospectus and the "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of this prospectus. The selected statements of operations data for the period from May 15, 2013 ("inception") to December 31, 2013, the six months ended December 31, 2013, and the selected balance sheet data as of December 31, 2013 are derived from our unaudited financial statements and related notes included elsewhere in this prospectus. We have derived the statements of operations data for the period from May 15, 2013 (inception) to June 30, 2013 from our audited financial statements included elsewhere in this prospectus. Our financial status creates substantial doubt about our ability to continuea warrant as a going concern. Our historical results for any priortaxable exchange. U.S. holders are urged to consult their tax advisors as to the consequences of an exercise of a warrant on a cashless basis, including with respect to their holding period are not necessarily indicative of results to be expectedand tax basis in any future period.
| | Period from May 15, 2013 (inception) to June 30, 2013 | Six Months Ended December 31, 2013 | Period from May 15, 2013 (inception) to December 31, 2013 | |||||||
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Statement of Operations Data: | ||||||||||
Revenues | $ | — | $ | — | $ | — | ||||
Costs and Expenses | ||||||||||
Research and development | 17,740 | 22,846 | 40,587 | |||||||
General and administrative | 122,427 | 320,780 | 443,207 | |||||||
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Loss from Operations | (140,167 | ) | (343,626 | ) | (483,794 | ) | ||||
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Interest expense | 328 | (6,591 | ) | (6,918 | ) | |||||
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Net loss | $ | (140,495 | ) | $ | (350,217 | ) | $ | (490,712 | ) | |
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Net loss per share: basic and diluted | $ | (0.02 | ) | $ | (0.04 | ) | ||||
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Weighted-average number of shares used in per common share calculations: | ||||||||||
Basic and diluted | 9,000,000 | 9,000,000 | ||||||||
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| | Actual | Pro Forma(1) | Pro Forma As Adjusted(1)(2) | |||||||
Balance Sheet Data: | ||||||||||
Cash(3) | $ | 3,275 | $ | 3,213,275 | $ | |||||
Total assets(3) | 8,827 | 3.218,827 | ||||||||
Total liabilities | 498,687 | 498,687 | ||||||||
Total stockholder's equity (deficiency)(3) | (489,860 | 2,720,140 | ||||||||
Working capital (deficiency)(3) | (489,860 | )) | 2,720,140 | |||||||
If a warrant expires without being exercised, a U.S. holder will recognize a capital loss in an amount equal to purchase 4,742,647 shares of common stock on February 4, 2014 for net proceeds of $3,210,000.
time of the numberexpiration, the U.S. holder's holding period in such warrant is more than one year. The deductibility of shares offered by us, as set forthcapital losses is subject to certain limitations.
Constructive Dividends on the cover page of this prospectus, assuming a public offering price of $ per share (the midpoint of our expected offering range on the cover of this prospectus), after deducting the estimated underwriting discount and our estimated offering expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with "Selected Financial Data" and our financial statements and the related notes appearing elsewhere in this prospectus. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those discussed below. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed As described in the section titled "Risk Factors" included elsewhereentitled "DividendPolicy," we do not anticipate declaring or paying dividends to holders of our common stock in this prospectus. All amountsthe foreseeable future. However, if at any time during the period in this report arewhich a U.S. holder holds warrants, we were to pay a taxable dividend to our stockholders and, in accordance with the anti-dilution provisions of the warrants, the exercise price of the warrants were decreased, that decrease would be deemed to be the payment of a taxable dividend to a U.S. dollars, unless otherwise noted.holder of the warrants to the extent of our earnings and profits, notwithstanding the fact that such holder will not receive a cash payment. If the exercise price is adjusted in certain other circumstances (or in certain circumstances, there is a failure to make adjustments), such adjustments may also result in the deemed payment of a taxable dividend to a U.S. holder. U.S. holders should consult their tax advisors regarding the proper treatment of any adjustments to the exercise price of the warrants.
JOBS ActDistributions on Series C Convertible Preferred Stock and Common Stock
We qualify as an "emerging growth company" as defined As described in the Jumpstart Our Business Startups Actsection entitled "DividendPolicy," we do not anticipate declaring or paying dividends to holders of 2012,our Series C Convertible Preferred Stock or common stock in the JOBS Act. As an emerging growth company,foreseeable future. However, if we do make distributions of cash or property on our Series C Convertible Preferred Stock or common stock, such distributions will constitute dividends to the extent paid out of our current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. Dividends received by a corporate U.S. holder may take advantage of specified reduced disclosurebe eligible for a dividends received deduction, subject to applicable limitations. Dividends received by certain non-corporate U.S. holders, including individuals, are generally taxed at the lower applicable capital gains rate provided certain holding period and other requirements that are otherwise applicable generally to public companies. These provisions include:
WeSale, Exchange or Other Disposition of Series C Convertible Preferred Stock and Common Stock
Upon a sale, exchange, or other disposition of our Series C Convertible Preferred Stock (other than by conversion) or our common stock, a U.S. holder generally will recognize capital gain or loss equal to the difference between the amount realized (not including any amount attributable to declared and unpaid dividends, which will be taxable as described above to U.S. holders of record who have irrevocably elected not to usepreviously included such dividends in income) and the extended transitionU.S. holder's adjusted tax basis in our Series C Convertible Preferred Stock or our common stock. The U.S. holder's adjusted tax basis in our Series C Convertible Preferred Stock generally will equal its cost for the Series C Convertible Preferred stock, reduced by the amount of any cash distributions treated as a return of capital as described above. A U.S. holder's adjusted tax basis in our common stock generally will equal its initial tax basis in our common stock (discussed below under "—Conversion of the Series C Convertible Preferred Stock into Our Common Stock") reduced by the amount of any cash distributions treated as a return of capital as described above. Such capital gain or loss generally will be long-term capital gain or loss if the U.S. holder's holding period for complying with newour Series C Convertible Preferred Stock or revised accounting standardsour common stock exceeded one year at the time of disposition (see the discussion below under Section 102(b)(1)"—Conversion of the JOBS Act, and, therefore, we will beOur Series C Convertible Preferred Stock into Our Common Stock" regarding a U.S. holder's holding period for our common stock). Long-term capital gains recognized by certain non-corporate U.S. Holders, including individuals, generally are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
We may take advantagereduced rates of these provisions for uptaxation. The deductibility of capital losses is subject to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the distribution; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the Securities and Exchange Commission.
To the extent that we continue to qualify as a "smaller reporting company," as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, after we cease to qualify as an emerging growth company, certain of the exemptions available to us as an emerging growth company may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes Oxley Act; (2) scaled executive compensation disclosures; and (3) the requirement to provide only two years of audited financial statements, instead of three years.
Business Overviewlimitations.
We are a biopharmaceutical company focused primarily on the clinical development of FV-100 to treat herpes zoster (HZ), or shingles, which is an infection caused by reactivation of varicella zoster virus (VZV).
FV-100Conversion of Our Series C Convertible Preferred Stock into Our Common Stock
FV-100Generally, a U.S. holder will not recognize any gain or loss in respect of the receipt of our common stock upon the conversion of our Series C Convertible Preferred Stock. The adjusted tax basis of our common stock that a U.S. holder receives on conversion will equal the adjusted tax basis of the Series C Convertible Preferred Stock converted, and the holding period of such common stock received on conversion will include the period during which the U.S. holder held the Series C Convertible Preferred Stock prior to conversion.
In the event a U.S. holder's Series C Convertible Preferred Stock is converted pursuant to an orally available, small molecule, nucleoside analogue pro-drugelection by such U.S. holder in the case of CF-1743 that we are developing forcertain acquisitions or fundamental changes or pursuant to certain other transactions (including our consolidation or merger into another person), the tax treatment of herpes zoster, whichsuch a conversion will depend upon the facts underlying the particular transaction triggering such a conversion. In this regard, it is an infection caused bypossible that any related adjustments of the reactivation of varicella zoster virus or VZV. VZV is responsible for producing the infectious disease knownconversion rate would be treated as chicken pox in individuals upon initial exposurea constructive distribution to the virus. AfterU.S. holder as described below under "—Tax Consequences Applicable to U.S. Holders—Constructive Dividends on Series C Convertible Preferred Stock. " U.S. holders should consult their own tax advisors to determine the initial infection, the virus can remain dormant in nerve endings for many years and if reactivated, causes a painful rash called shingles. FV-100 is being developed specifically for thespecific tax treatment of shingles. Nucleoside analogs are capablea conversion under such circumstances.
Constructive Dividends on Series C Convertible Preferred Stock
The conversion rate of disrupting replicationour Series C Convertible Preferred Stock is subject to adjustment under certain circumstances, as described above under " Description of Securities—Preferred Stock—Series C Convertible Preferred Stock. " Section 305(c) of the virus. FV-100 isCode and Treasury regulations thereunder will treat a pro-drugU.S. holder of CF-1743, which enables usour Series C Convertible Preferred Stock as having received a constructive distribution includable in such U.S. holder's income in the manner as described above under "—Tax Consequences Applicable to take advantage of FV-100's more readily absorbed properties compared to CF-1743 when given orally. FV-100 is then broken downU.S. Holders—Distributions on Series C Convertible Preferred Stock and Common Stock ," if and to the active moiety, CF-1743, upon entry intoextent that certain adjustments in the blood stream. Published preclinical studies demonstrate that FV-100 is significantly more potent against VZV than currently marketed compounds acyclovir, valacyclovir,conversion rate (or failures to make such an adjustment) increase the proportionate interest of such U.S. holder in our earnings and famciclovir,profits. In certain other circumstances, an adjustment to the FDA-approved drugs used forconversion rate of our Series C Convertible Preferred Stock or a failure to make such an adjustment could potentially give rise to constructive distributions to U.S. holders of our common stock. Thus, under certain circumstances, U.S. holders may recognize income in the treatmentevent of shingles. Preclinical studies, including wash-out studies in VZV-infected human embryonic lung cells following exposure to FV-100a constructive distribution even though they may not receive any cash or acyclovir, conducted by Inhibitexproperty.
Information Reporting and specific cellular antiviral activity experiments comparing FV-100 to acyclovir conducted by Balzarini et al (Biochimica et et Biophysica Acta, 1587 pages 287-295) further demonstrate that FV-100 has a more rapid onset of antiviral activity, and may fully inhibit the replication of VZV more rapidly than these drugs at significantly lower concentration levels. In addition, pharmacokinetic data from completed Phase 1 and 2 clinical trials suggest that FV-100 has the potential to demonstrate antiviral activity when dosed orally once-a-day at significantly lower blood levels than valacyclovir, acyclovir, and famciclovir.Backup Withholding
A Phase 2 clinical trial for FV-100 in shingles patients was conducted by InhibitexU.S. holder may be subject to information reporting and completed in December 2010. This trial representedbackup withholding when such holder receives dividend payments (including constructive dividends) or receives proceeds from the first evaluation of FV-100 in shingles patients, and was a well-controlled double blind study comparing two different doses of FV-100 to an active control dose of valacyclovir. A total of 350 patients, aged 50 years and older, were enrolled in one of three treatment arms: 200 mg FV-100 administered once daily; 400 mg FV-100 administered once daily; and 1,000 mg valacyclovir administered three times per day. In addition to further evaluating its safety and tolerability, the main objectivessale or other taxable disposition of the trial were to evaluatewarrants, shares of our Series C Convertible Preferred Stock acquired through the potential therapeutic benefitexercise of FV-100 in reducing the severity and durationsubscription rights or shares of shingles-related pain, the incidenceour common stock acquired through conversion of post-herpetic neuralgia (PHN) (burning pain that follows healingour Series C Convertible Preferred Stock or exercise of the shingles rash),warrants. Certain U.S. holders are exempt from backup withholding, including corporations and the time to lesion healing.
The primary endpoint for the FV-100 study was a 25% reduction in the severity and duration of shingles-related pain during the first 30 days as compared to valacyclovir. The trial missed its primary endpoint which was an endpoint developed by Inhibitex specifically for this trial called "burden of illness over the first 30 days" (BOI—30), as the results from the study did not meet statistical significance with respect to this endpoint. However, numerically favorable treatment differences with respect to the primary endpoint were observed, particularly in those patients that received 400 mg FV-100 relative to valacyclovir patients. Valacyclovir gave a BOI—30 of 118.0 days (6.25). In comparison, 400 mg FV-100 gave a BOI—30 of 110.3 days (6.08), which constitutes a 7% reduction over the value observed for valacyclovir over the first 30 days. As this was a Phase 2 study, wecertain tax-exempt organizations. A U.S. holder will be ablesubject to use this informationbackup withholding if such holder is not otherwise exempt and such holder:
We are currently reviewing the clinical data from the Phase 2 trial and performing post hoc analyses, conducting additional market research, including unmet medical need, reimbursement, pricing, and competitive analyses, etc. We are also evaluating a number of clinical, regulatory and commercial pathways
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a U.S. holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS. U.S. holders should consult their tax advisors regarding their qualification for an exemption from backup withholding and the potential future developmentprocedures for obtaining such an exemption.
Tax Considerations Applicable to Non-U.S. Holders
For purposes of FV-100. Based upon the analysesthis discussion, a "non-U.S. holder" is a beneficial owner of the completed Phase 2 study coupled with the additional market research, we are developing a comprehensive clinical strategy for future developmentsubscription rights, shares of FV-100 which is being implemented in 2014. Inhibitex filed for an IND (IND 102,011) on March 19, 2008, which was approved by the FDA on April 20, 2008. This IND was transferred from Inhibitex to its new sponsor, Synergy, on August 27, 2012 and was subsequently transferred to us in April 2014. As a result of this transfer, we will be able to run all clinical trials required to support FV-100 for the use in the treatment of shingles.
Separation from Synergy Pharmaceuticals Inc.
On August 8, 2013, Synergy announced that it intended to separate its FV-100 assets from the remainder of its businesses through a pro rata distribution of the common stock of an entity holding the assets and liabilities associated with the FV-100 product candidate. We were incorporated in Delaware on May 15, 2013 for the purpose of holding such businesses and were previously a subsidiary of Synergy.
On January 28, 2014, the Synergy board of directors approved the distribution of the 9,000,000 issued and outstandingour Series C Convertible Preferred Stock, warrants or shares of our common stock currently held by Synergythat is neither a U.S. holder nor an entity treated as a partnership for U.S. federal income tax purposes.
Receipt, Exercise and Expiration of the Subscription Rights
The discussion assumes that the receipt of subscription rights will be treated as a nontaxable distribution. See "—Tax Consequences Applicable to U.S. Holders—Receipts of Subscription Rights" above. Non-U.S. holders will not be subject to U.S. federal income tax (or any withholding thereof) on the basisreceipt, exercise or expiration of 0.0986the subscription rights.
Exercise of Warrants
A non-U.S. holder generally will not be subject to U.S. federal income tax on the exercise of warrants into shares of our common stock for each share of Synergy common stock held on the record date. On January 28, 2014, Synergy declaredstock. However, if a dividend of our common stock. On the distribution date of February 18, 2014, Synergy stockholders of record ascashless exercise of the closewarrants results in a taxable exchange, as described in "—Tax Considerations Applicable to U.S. Holders—Sale or Other Disposition, Exercise or Expiration of businessWarrants," the rules described below under "Saleor Other Disposition of Series C Convertible Preferred Stock, Common Stock or Warrants" would apply.
Constructive Dividends on February 6, 2014 received .0986 shares of our common stock for every 1 share of Synergy common stock they held. None of our fractional shares were issued. Synergy stockholders received cash in lieu of fractional shares.Warrants
We are now an independent publicly traded company and Synergy retains no ownership interest in us.
We will incur increased costs as a result of becoming an independent, publicly-traded company, primarily from higher charges than As described in the past from Synergy for shared services and from establishing or expanding the corporate support for our businesses, including information technology, human resources, treasury, tax, risk management, accounting and financial reporting, investor relations, legal, procurement and other services. In the first year following the separation, these annual operating costs are estimated to be significantly higher than the general corporate expenses historically allocated from Synergy to us.
Wesection entitled "DividendPolicy," we do not anticipate that increased costs solely from becoming an independent, publicly traded company will have an adverse effect ondeclaring or paying dividends to holders of our growth rateSeries C Convertible Preferred Stock or common stock in the foreseeable future.
FINANCIAL OPERATIONS OVERVIEW
From May 15, 2013 (inception) through December 31, 2013, we have sustained cumulative net losses of approximately $491,000. From inception through December 31, 2013, we have not generated any revenue from operations and expect to incur additional losses to perform further research and development activities and do not currently have any commercial biopharmaceutical products. We do not expect to have such for several years, However, if at all.
Our product development efforts are thusany time during the period in their early stageswhich a non-U.S. holder holds warrants we were to pay a taxable dividend to our stockholders and, we cannot make estimatesin accordance with the anti-dilution provisions of the costswarrants, the exercise price of the warrants were decreased, that decrease would be deemed to be the payment of a taxable dividend to a non-U.S. holder to the extent of our earnings and profits, notwithstanding the fact that such holder will not receive a cash payment. If the exercise price is adjusted in certain other circumstances (or in certain circumstances, there is a failure to make adjustments), such adjustments may also result in the deemed payment of a taxable dividend to a non-U.S. holder. Any resulting withholding tax attributable to deemed dividends may be collected from other amounts payable or distributable to the time they will take to complete. The risk of completionnon-U.S. holder. Non-U.S. holders should consult their tax advisors regarding the proper treatment of any program is high because ofadjustments to the many uncertainties involved in bringing new drugs to market including the long duration of clinical testing, the specific performance of proposed products under stringent clinical trial protocols, the extended regulatory approval and review cycles, our ability to raise additional capital, the nature and timing of research and development expenses and competing technologies being developed by organizations with significantly greater resources.
Table of Contentswarrants.
CRITICAL ACCOUNTING POLICIESDistributions on Series C Convertible Preferred Stock and Common Stock
Financial Reporting Release No. 60 requires all companies to include a discussion of critical accounting policies or methods used As described in the preparation of financial statements. There have been no changes to our critical accounting policies since June 30, 2013.
section entitled "DividendOFF-BALANCE SHEET ARRANGEMENTSPolicy
We had no off-balance sheet arrangements as of December 31, 2013.
RESULTS OF OPERATIONS
We were formed on May 15, 2013 (inception), therefore the discussion below is only for the current year periods, with no prior period comparisons available.
SIX MONTHS ENDED DECEMBER 31, 2013
We had no revenues during the six months ended December 31, 2013 ("Current Period") because" we do not have any commercial biopharmaceutical products and we do not expectanticipate declaring or paying dividends to have such products for several years, if at all. Research and development expenses for the six months ended December 31, 2013 amounted to $22,846, which were primarily scientific advisory fees and clinical data storage.
General and administrative expenses for the six month ended December 31, 2013 amounted to $320,780, which were primarily corporate legal and accounting services related to patent maintenance, Form 10 filings and independent accounting review and auditholders of our interim financial statements and SEC filings.
Net loss for the Current Period was approximately $350,000.
MAY 15, 2013 (INCEPTION) TO JUNE 30, 2013
We had no revenues during the period May 15, 2013 (Inception) to June 30, 2013 because we do not have any commercial biopharmaceutical products and we do not expect to have such products for several years, if at all.
Research and development expenses during the period May 15, 2013 (Inception) to June 30, 2013 amounted to $17,740 were primarily scientific advisory fees and clinical data storage.
General and administrative expenses during the period May 15, 2013 (Inception) to June 30, 2013 amounted to $122,427, which were primarily corporate legal and accounting services related to the formation of the Company, patent maintenance and independent audit of our financial statements.
Net loss for the period May 15, 2013 (Inception) to June 30, 2013 was $140,495.
Liquidity and Capital Resources
As of December 31, 2013, we had $3,275 in cash. Net cash used in operating activities was approximately $333,441 for the six months ended December 31, 2013. Net cash provided from financing activities was $250,000 for the six months ended December 31, 2013, which represented new borrowings under the Loan and Security Agreement between us and Synergy dated June 5, 2013. As of December 31, 2013, we had negative working capital of $489,860, as compared to a negative working capital of $140,495 as of June 30, 2013.
As of June 30, 2013 we had $86,716 in cash. Net cash used in operating activities was $13,284 for the period May 15, 2013 (inception) to June 30, 2013.
On November 18, 2013, we entered into an amendment to the Loan Agreement with Synergy pursuant to which Synergy agreed to increase the aggregate amount available to us under the Loan Agreement from five hundred thousand dollars ($500,000) to one million dollars ($1,000,000). As of December 31, 2013 borrowings under the Note totaled $350,000, plus accrued interest of $4,880. On March 27, 2014, we paid Synergy an aggregate of $461,236, which represented all principal and accrued and unpaid interest that was due and payable on the Note.
On February 4, 2014, we entered into a securities purchase agreement with accredited investors to sell securities and raise gross proceeds of $3,225,000 in a private placement. We sold 9,485,294 units to the investors with each unit consisting of one share of ourSeries C Convertible Preferred Stock or common stock and one warrant to purchase an additional one half share of our common stock. The purchase price paid by the investor was $0.34 for each unit. The warrants expire after six years and are exercisable at $0.37 per share. Based upon our analysis of the criteria contained in ASC Topic 815-40, "Derivatives and Hedging—Contracts in Entity's Own Equity" we have determined that the units issued in connection with this financing transaction must be recorded as derivative liabilities upon issuance and marked to market on a quarterly basis.
As of December 31, 2013, we had an accumulated deficit of $490,712, and expect to incur significant and increasing operating losses for the next several years as we expand our research, development and clinical trials of FV-100. We are unable to predict the extent of any future losses or when we will become profitable, if at all.
We will be required to raise additional capital to continue the development and commercialization of current product candidates and to continue to fund operations at the current cash expenditure levels. We cannot be certain that additional funding will be available on acceptable terms, or at all. Recently worldwide economic conditions and the international equity and credit markets have significantly deteriorated and may remain difficult for the foreseeable future. These developmentsHowever, if we do make distributions of cash or property on our Series C Convertible Preferred Stock or common stock, such distributions will make it more difficultconstitute dividends for U.S. federal income tax purposes to obtain additional equity or credit financing, when needed. To the extent that we raise additional funds by issuing equity securities,paid from our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct delay, scale backcurrent or discontinue the development and/or commercialization of one or more product candidates; (ii) seek collaboratorsaccumulated earnings and profits, as determined under U.S. federal income tax principles. Amounts not treated as dividends for product candidates at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidates or products that we would otherwise seek to develop or commercialize its self on unfavorable terms.
Our audited financial statements as of June 30, 2013 have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has issued a report on our June 30, 2013 financial statements that included an explanatory paragraph referring to our loss from operations, negative working capital and stockholder's deficiency; and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Overview
We were incorporated in Delaware on May 15, 2013 for the purpose of holding certain FV-100 assets of Synergy. We were a majority-owned subsidiary of Synergy until February 18, 2014, the date Synergy completed the spinout of our shares of common stock. We are now an independent publicly traded company and Synergy retains no ownership interest in us.
On June 10, 2013, we and Synergy entered into a Contribution Agreement, as amended and restated August 5, 2013, or the Contribution Agreement, to transfer to us the FV-100 assets, in exchange for the issuance to Synergy of 9,000,000 shares of our common stock representing 100% of the outstanding shares of our common stock as of immediately following such issuance. During the period from August 17, 2012 through September 30, 2013, Synergy made expenditures of $13,638 related to the research and development of FV-100. Pursuant to the Contribution Agreement, Synergy transferred ownership of all intellectual property rights acquired from BMS, including all historical research, clinical study protocols, data, results and patents related to the FV-100 assets as well as assumed the obligations of Synergy, including all liabilities of Synergy, under the BMS Agreement. These obligations include among other things, (i) all liabilities of BMS and Synergy related to the FV-100 assets, including all accounts payable, legal, environmental,U.S. federal income tax or warranty claims and all other liabilities of Synergy of whatever kind and nature, direct or indirect, absolute or contingent, known or unknown, whether or not accrued, arising out of or relating to the FV-100 assets or the ownership, sale or lease of any of the FV-100 assets, including any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any governmental entity, and (ii) the payment of any milestone or royalty payment to BMS under the BMS Agreement. There is no time limit to our assumed ongoing obligations under the BMS Agreement. During the period August 17, 2012 through June 10, 2013, there were no known material liabilities assumed by Synergy under the BMS Agreement and subsequently transferred to us pursuant to the Contribution Agreement.
On August 17, 2012, Synergy entered into an Asset Purchase Agreement with BMS, the BMS Agreement, whereby Synergy acquired certain assets from BMS related to FV-100. The FV-100 assets acquired from BMS are licensed from University College Cardiff Consultants Limited, or Cardiff, pursuant to the terms of that certain Patent and Technology License Agreement, dated as of February 2, 2005, between Cardiff and Contravir Research Incorporated, or CRI, an entity with no prior relationship with us, as amended March 27, 2007, or the Cardiff Agreement.
The Cardiff Agreement shall remain in full force and effect until the date upon which the last of the last patent or the last continuation or extension to any patents within the Patent Rights expires. Any milestone and/or royalty payment under the Cardiff Agreement shall be payable for as long as the Cardiff Agreement is in effect. The Cardiff Agreement may be terminated in its entirety, for among other reasons and in the following manner as set forth below: (a) automatically by Cardiff, if we become bankrupt or insolvent and/or if our business shall be placed in the hands of a receiver, assignee, or trustee; (b) upon ninety (90) calendar days written notice from Cardiff, if we breach or default (i) on the payment or report obligations or use of name obligations or (ii) on any other obligation under the Cardiff Agreement, subject to a ninety (90) calendar-day cure period; (c) if we have defaulted or been in excess of one (1) month late on its payment obligations pursuant to the terms of the Cardiff Agreement on any two (2) occasions in a twelve (12) month period, subject to a cure period; (e) upon one hundred twenty (120) calendar days written notice from us if any particular patent or patents included in Patent Rights and which account for at least thirty (30%) percent of the total royalty to Cardiff, is or are irrevocably adjudicated to be invalid; or (f) upon ninety (90) calendar days written notice from us if Cardiff is in breach of Section 11.1 (Confidential Information and Publication) unless, before the end of the such ninety (90) calendar-day notice period, Cardiff has cured the default or breach to our reasonable satisfaction and so notifies us, stating the manner of the cure.
The terms of the Cardiff Agreement provided in consideration for a license of all of Cardiff's rights in any technical information, know-how, processes, procedures, compositions, devices, methods, formulae, protocols, techniques related to the FV-100 Assets, or the Patent Rights. The Cardiff Agreement provided for an initial base payment of $270,000, which has previously been paid by CRI, subsequent milestone payments covering (i) initiation of a clinical trial at each phase, (ii) marketing (FDA) approval and (iii) on achieving the milestone of aggregate net sales in three different tiers, as well as a low single digit royalty based on net sales. The total aggregate amount of milestone payments that could be payable to Cardiff under the Cardiff Agreement is equal to $550,000, of which $420,000 has been previously paid by CRI.
The terms of the BMS Agreement provided for an initial base payment of $1 million, subsequent milestone payments covering (i) marketing (FDA) approval and (ii) on achieving the milestone of aggregate net sales equal to or greater than $125 million, as well as a single digit royalty based on net sales. The total aggregate amount of milestone payments that could be payable to BMS under the BMS Agreement is equal to $9 million. The duration of any milestone payment obligation owed to BMS shall continue until the earliest of (i) payment, in full, of all milestone payments as required under the BMS Agreement, (ii) our determination using commercially reasonable standards consistent with the exercise of prudent scientific and business judgment and consistent with those standards used by us for its other therapeutic products at a similar stage of development and with similar commercial potential, to terminate the development of the FV-100 assets, and (iii) the tenth (10th) anniversary of the date of the BMS Agreement, The duration of any royalty payment obligation to BMS shall commence on the date of the first commercial sale of the FV-100 assets in a country until the expiration of any claim of an issued and unexpired patent which has not been held permanently revoked, unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction of any of our patents or any other patent covering the use or sale of the FV-100 assets in such country. The transactions contemplated by the BMS Agreement closed on August 17, 2012 and neither party can terminate the remaining obligations owed under the BMS Agreement.
FV-100
FV-100 is an orally available, small molecule nucleoside analogue prodrug of CF-1743 that we are developing for the treatment of herpes zoster, which is an infection caused by the reactivation of varicella zoster virus or VZV. VZV is responsible for producing the infectious disease known as chicken pox in individuals upon initial exposure to the virus. After the initial infection, the virus can remain dormant in nerve endings for many years and if reactivated, causes a painful rash called shingles. FV-100 is being developed specifically for the treatment of shingles. Nucleoside analogs are capable of disrupting replication of the virus. FV-100 is a pro-drug of CF-1743, which enables us to take advantage of FV-100's more readily absorbed properties compared to CF-1743 when given orally. FV-100 is then broken down to the active moiety, CF-1743, upon entry into the blood stream. Published preclinical studies demonstrate that FV-100 is significantly more potent against VZV than currently marketed compounds acyclovir, valacyclovir, and famciclovir, the FDA-approved drugs used for the treatment of shingles. Preclinical studies, including wash-out studies in VZV-infected human embryonic lung cells following exposure to FV-100 or acyclovir, conducted by Inhibitex and specific cellular antiviral activity experiments comparing FV-100 to acyclovir conducted by Balzarini et al (Biochimica et et Biophysica Acta, 1587 pages 287-295) further demonstrate that FV-100 has a more rapid onset of antiviral activity, and may fully inhibit the replication of VZV more rapidly than these drugs at significantly lower concentration levels. In addition, pharmacokinetic data from completed Phase 1 and 2 clinical trials suggest that FV-100 has the potential to demonstrate antiviral activity when dosed orally once-a-day at significantly lower blood levels than valacyclovir, acyclovir, and famciclovir.
A Phase 2 clinical trial for FV-100 in shingles patients was conducted by Inhibitex and completed in December 2010. This trial represented the first evaluation of FV-100 in shingles patients, and was a well-controlled double blind study comparing two different doses of FV-100 to an active control dose of
valacyclovir. A total of 350 patients, aged 50 years and older, were enrolled in one of three treatment arms: 200 mg FV-100 administered once daily; 400 mg FV-100 administered once daily; and 1,000 mg valacyclovir administered three times per day. In addition to further evaluating its safety and tolerability, the main objectives of the trial were to evaluate the potential therapeutic benefit of FV-100 in reducing the severity and duration of shingles-related pain, the incidence of post-herpetic neuralgia (PHN) (burning pain that follows healing of the shingles rash), and the time to lesion healing.
The primary endpoint for the FV-100 study was a 25% reduction in the severity and duration of shingles-related pain during the first 30 days as compared to valacyclovir. The trial missed its primary endpoint which was an endpoint developed by Inhibitex specifically for this trial called "burden of illness over the first 30 days" (BOI—30), as the results from the study did not meet statistical significance with respect to this endpoint. However, numerically favorable treatment differences with respect to the primary endpoint were observed, particularly in those patients that received 400 mg FV-100 relative to valacyclovir patients. Valacyclovir gave a BOI—30 of 118.0 days (6.25). In comparison, 400 mg FV-100 gave a BOI—30 of 110.3 days (6.08), which constitutes a 7% reduction over the value observed for valacyclovir over the first 30 days. As this was a Phase 2 study, we will be able to use this information to help design future clinical studies, as well as discussing future study designs with FDA and regulatory authorities worldwide. There were also favorable, non-statistically significant treatment differences observed for key secondary pain endpoints, including reduction in the severity and duration of shingles-associated pain over 90 days (a 14% relative reduction for 400 mg FV-100 as compared to valacyclovir), and the incidence of PHN (a 39% relative reduction for 400 mg FV-100 as compared to valacyclovir). The secondary endpoints were not, however, powered to demonstrate statistically significant treatment differences between the arms. FV-100 was generally well tolerated at both dose levels, and demonstrated a similar adverse event profile as compared to valacyclovir.
We are currently reviewing the clinical data from the Phase 2 trial and performing post hoc analyses, conducting additional market research, including unmet medical need, reimbursement, pricing, and competitive analyses, etc. We are also evaluating a number of clinical, regulatory and commercial pathways for the potential future development of FV-100. Based upon the analyses of the completed Phase 2 study coupled with the additional market research, we are developing a comprehensive clinical strategy for future development of FV-100 which is being implemented in 2014. Typically, phase 2 clinical trials are conducted to explore efficacy and establish dose ranging data, and typically employ a number of statistical methods for evaluating efficacy on primary and secondary endpoints.
Inhibitex filed for an IND (IND 102,011) on March 19, 2008, which was approved by the FDA on April 20, 2008. This IND was transferred from Inhibitex to its new sponsor, Synergy, on August 27, 2012 and subsequently transferred to us in April 2014. As a result of this transfer, we will be able to run all clinical trials required to support FV-100 for the use in the treatment of shingles.
Market Opportunity for the Treatment of shingles
VZV, a DNA virus and a member of the herpes virus group, is the virus that causes both chickenpox and herpes zoster, or shingles. Chickenpox, the initial infection caused by VZV in an individual, generally occurs during childhood and it is caused by exposure to another individual with an active infection. After the chickenpox infection subsides, VZV remains latent in the individual's nerves including dorsal root and cranial nerve ganglia, and can re-emerge later in life. Therefore, shingles is typically not transmitted from one individual to the next, and only those individuals who have had chickenpox are generally at risk for shingles.
Although shingles can occur in any individual with a prior VZV infection, its incidence varies with its key risk factors, which are advanced age, immune status and being female. Shingles is largely a disease of the aged or aging, with over 50% of all cases occurring in individuals over the age of 60, and approximately 80% occurring in individuals over the age of 40. A study in 2007 based upon data from 2000 implied that
there were approximately 1 million new shingles cases that year. Due to the aging of the population in many industrialized countries, as well as the increasing use of immunosuppressive agents in transplant patients, patients receiving immune suppressants for autoimmune diseases such rheumatoid arthritis and the increased numbers of immunosuppressed patients from cancer therapy, the incidence of shingles has increased and is expected to continue to increase. A recent study from the Centers for Disease Control investigating medical claims data from MarketScan® databases from 1993-2006 indicated that the crude incidence of shingles cases increased 259% over that period of time. Furthermore, a study conducted by the Mayo Clinic suggests that the recurrence rate for shingles is approximately 6.2%, which reflects a much higher rate than prior studies which assessed a shorter follow-up period. It is estimated that approximately 20–30% of all persons in the U.S. will suffer from shingles at some point during their lifetime.
The symptoms associated with shingles generally include localized lesions (rash and blisters) and localized pain. In many cases the patient may notice localized pain prior to the appearance of any lesions; however, the first recognizable symptom of shingles is generally lesions that will continue to form for a week or two. Such lesions generally follow the path of nerves that emanate from the spinal cord around the torso (thoracic); however, the infection is also commonly found on the face, neck, lower back and in certain rare cases, systemically. Within several weeks, the lesions in the infected areas will typically begin to heal, and these dermatological symptoms generally will resolve within a month or less after the appearance of the first lesion. In rare instances, lesions may never appear, but pain will be present.
The pain associated with an episode of shingles is attributed to both the damage caused to the affected nerves by the replication of VZV and the inflammatory response associated with the infection. Pain symptoms are commonly described as a burning sensation, with bouts of stabbing and shooting pain, often set off by contact with the infected area. The majority of shingles patients experience such pain for several weeks in connection with their active infection, referred to as acute pain. For many patients, shingles-associated pain does not resolve when the lesions heal and the inflammation subsides, but, rather, continues for months, or possibly years. Persistent shingles-associated pain that lasts more than three to four weeks is referred to as sub-acute pain or neuralgia. Shingles-associated pain that persists more than three months is generally referred to as PHN, which is the most common and clinically relevant complication of shingles. Approximately 15–20% of all shingles patients experience PHN, although the incidence of PHN is more prevalent in patients over 50 years of age. Previous studies have established that additional risk factors for PHN include greater acute pain intensity, severity of the dermatological symptoms or lesions, and the presence and greater severity of the localized pain preceding the lesions or rash.
Valacyclovir, acyclovir and famciclovir are oral antivirals currently indicated and approved by the FDA, and regulatory agencies in many other countries, for the treatment shingles. These generically available drugs are referred to as "pan-herpetic" drugs, as they are used to treat infections caused by various herpes viruses, including herpes simplex 1 and 2, and VZV. Unlike those drugs, FV-100 only demonstrates antiviral activity against VZV, and not the other herpes viruses. Based upon an analysis by data compiled by IMS Health, Inc. ("IMS") on our behalf, and a recent utilization study of the use of Valtrex® from 1994–2009 conducted by the FDA as well as other market research we have independently conducted, we estimate that 15–30% of the nearly 17 million retail prescriptions written for valacyclovir, acyclovir and famciclovir combined in 2009 were for the treatment of herpes zoster.
Limitations of Current Therapies
Data from various clinical trials conducted in the 1990's demonstrate that a seven day administration of valacyclovir, acyclovir, or famciclovir, beginning less than 72 hours after the first appearance of a shingles-related rash or lesion, can lessen the duration of the dermatological symptoms associated with
shingles and the average duration of shingles-related pain. However, these currently approved antiviral drugs, when used to treat shingles, have a number of limitations, including the following:
We believe there is a significant unmet medical need for a more potent, faster acting, low dose once-daily oral antiviral agent, such as FV-100, which has the potential to further reduce the incidence, severity, and duration of shingles-associated pain and prevent PHN.
FV-100 Clinical Trials
Phase 2. A Phase 2 clinical trial of FV-100 was completed by Inhibitex in December, 2010. The trial was a well-controlled, double-blind study comparing two different doses of FV-100 to an active control (valacyclovir). A total of 350 patients, aged 50 years and older who had shingles-associated pain and presented to the clinic within 72 hours of appearance of their first shingles lesion, were equally randomized to one of three treatment arms: 200 mg FV-100 administered once-daily for seven days; 400 mg FV-100 administered once-daily for seven days; or 1,000 mg valacyclovir administered three times per day for seven days. In addition to further evaluating its safety and tolerability, the objectives of the trial were to evaluate the potential therapeutic benefit of FV-100 in reducing: (i) the severity and duration of shingles-associated pain, (ii) the incidence of PHN, (iii) the time to lesion crusting and healing, and (iv) the use of concomitant pain medications, as compared to valacyclovir. The primary efficacy analysis was conducted on the
modified intent-to-treat population,purposes will constitute a return of capital and first be applied against and reduce a non-U.S. holder's adjusted tax basis in its Series C Convertible Preferred Stock or common stock, as the case may be, but not below zero. Any excess will be treated as capital gain and will be treated as described below in the section relating to the sale or disposition of our Series C Convertible Preferred Stock, our common stock or warrants. Because we may not know the extent to which included all patients that received a dosedistribution is a dividend for U.S. federal income tax purposes at the time it is made, for purposes of the drug except those whose lesions were PCR (-) for varicella zoster viruswithholding rules discussed below we or the applicable withholding agent may treat the entire distribution as a dividend.
Subject to the discussion below on backup withholding and PCR (+) for herpes simplex virus. Polymerase chain reaction,foreign accounts, dividends paid to a non-U.S. holder of our Series C Convertible Preferred Stock or PCR, is a test tube method using enzymes forcommon stock that are not effectively connected with the repeated coping of two strands of DNA genesnon-U.S. holder's conduct of a particular gene sequence. PCR (-) fortrade or business within the varicella zoster virus means thatUnited States will be subject to U.S. federal withholding tax at a rate of 30% of the lesions did not contain DNA genes for that particular varicella zoster virus and PCR (+) forgross amount of the herpes simplex virus indicates that the DNA genes are from the herpes simplex and not the herpes zoster virus. The efficacy endpoints were calculated using a statistical method of handling missing data called last observation carried forward methodology.
FV-100 Efficacy Summarydividends (or such lower rate specified by an applicable income tax treaty).
The primary endpoint for the study wasNon-U.S. holders will be entitled to a 25% reduction in the severity and duration of shingles-related pain during the first 30 days as compared to valacyclovir and the results obtainedor an exemption from the study demonstrate a lack of statistical significance. Shingles patients who received 200 mg or 400 mg FV-100 experienced numerically favorable treatment differences as compared to patients treated with valacyclovir, as measured by the primary endpoint (% of patients experiencing a 25% reduction in pain during the first 30 days following onset of treatment), of 3% and 7%, respectively. In addition, patients treated with 200 mg and 400 mg FV-100 experienced a relative reduction in the amount of shingles-associated pain over the first 90 days after lesion appearance compared to those treated with valacyclovir, of -4% and 14%, respectively (not statistically significant). Statistical significance at the 95% level (p<0.05) indicates that if you were to repeat the experiment, there would be only 5 chances in 100 the result could happen by coincidence. The levels of significance (0.05, 0.001, etc.) are arbitrarily set, however, the lack of statistical significance implies that the two treatments being compared are not different basedwithholding on the design of the experiment. Further, 18% and 12% of the patients receiving 200 mg and 400 mg FV-100, respectively, developed PHN (% of patients reporting pain at 90 days following initiation of treatment) as compared to 20% of the valacyclovir-treated patients, resulting in relative treatment differences of 12% and 39%, respectively. Relative treatment differences reflect the percent difference between any FV-100 dose and the gold standard for treating shingles, valacyclovir. Effectively, this is the ratio of the percent of incidences of post-herpetic neuralgia reported for each treatment. In this case, both doses of FV-100 resulted in lower incidences of PHN when compared to valacyclovir. For patients receiving valacyclovir, the time to lesion crusting was faster than those patients receiving FV-100; however, no differences were noted among the treatment arms on time to full lesion healing. The three treatment arms were well-balanced with regard to demographics and baseline shingles-associated pain levels.
The following table reflects the treatment outcomes among the three treatment arms with respect to the key shingles-associated pain endpoints on the modified intent-to-treat population:
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Area under the curve, or AUC, is a measure whereby daily scores are added up over the specified scoring period. Using a pain scale where 0 = no pain and 10 = worst possible pain, adding up the daily scores provides a measure of effectiveness where lower AUC numbers indicate lower pain scores over time. Post herpetic neuralgia, or PHN, is burning pain that follows healing of the shingles rash. Standard Error of the Mean, or S.E., refers to an estimate of the standard deviation which is computed from the sample of data being analyzed at that time.
FV-100 Safety Summary
A comparison of adverse events, or AE, among the three treatment arms in the Phase 2 trial demonstrated that the overall tolerability and side effect profile of both doses of FV-100 was comparable to valacyclovir. All three treatment arms showed a relatively low proportion of adverse events and serious adverse events, or SAE. In the 400 mg FV-100 dose group, the most common adverse events were headache (reported in 13% of patients) and nausea (9%); no patient discontinued because of headache and one patient terminated due to nausea (grade 1). The most common adverse events in the valacyclovir cohort were nausea (6%) and upper abdominal pain (5%).
The following table lists the summary of adverse event findings from the trial:
Number (%) of Patients Reporting: | 200 mg FV-100 (N=117) | 400 mg FV-100 (N=117) | 3000 mg valacyclovir (N=116) | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
Any AE | 46.2 | 54.7 | 42.2 | |||||||
Treatment-Related AEs | 2 | 25.6 | 19.8 | |||||||
Discontinuation of Drug for AE | 1.7 | 1.7 | 1.7 | |||||||
SAEs | 0 | 4.3 | 3.4 | |||||||
Treatment-Related SAEs | 0 | 0 | 1.7 | |||||||
Adverse events, or AE, means any reported sign or symptom reported by the patient that began following the initiation of therapy. Serious adverse events, or SAE, means any adverse event that is life threatening, requires hospitalization or is considered a significant clinical event according to the treating physician.
Phase 1 Clinical Studies
In August 2008, an FV-100 Phase 1 single-ascending-dose clinical trial was completed. The blinded, placebo-controlled trial evaluated the safety and pharmacokinetics of four doses of FV-100 in six cohorts of healthy volunteers (100, 200, 400, and 800 mg, as welldividends as a two 400 mg food effect groups). Each cohort consistedresult of six subjects that received FV-100 and two that received placebo. There were no serious adverse events observed andeither (a) an applicable income tax treaty or (b) the compound appeared to be generally well tolerated in the trial. In addition, pharmacokinetic data demonstrated that all doses evaluated in the trial maintained plasma levels of CF-1743, the active form of FV-100, which exceeded its EC50 for at least 24 hours.
In January 2009, a blinded, placebo-controlled Phase 1 trial conducted by Inhibitex was completed to evaluate single and multiple doses of FV-100 in healthy subjects 65 years of age and older. One dose cohort consisted of 12 healthy subjects, ten of whom received a single administration of 400 mg of FV-100 and two of whom received placebo, and the second cohort also consisted of 12 healthy subjects, ten of whom received 400 mg of FV-100 administered twice daily for seven consecutive days and two of whom received placebo. The results of this trial demonstrated no significant safety differences between these subjects and those from the multiple ascending dose trial.
In February 2009, a Phase I trial was completed by Inhibitex. The trial, a blinded, placebo-controlled multiple-ascending-dose study, was designed to evaluate the safety and pharmacokinetics of five oral doses of FV-100 (100, 200, 400 and 800 mg administered once daily and 400 mg administered twice daily, each for seven days) in healthy subjects aged 18 to 55. Each dose cohort consisted of six subjects that received FV-100 and two that received placebo. The results of the trial demonstrated that there were no serious adverse events and FV-100 appeared to be generally well tolerated at all dose levels. Further, pharmacokinetic data demonstrated that all doses studied maintained mean plasma levels of CF-1743, the active form of FV-100, which exceeded its EC 50 for at least 24 hours, supporting the evaluation of once-daily dosing of FV-100 in future clinical trials. The EC 50 represents the concentration of drug that is required for 50% inhibition of viral replicationin vitro.
Intellectual Property
Patents and other proprietary intellectual rights are crucial innon-U.S. holder holding our business, and establishing and maintaining these rights are essential to justify the development of our product candidate. We have sought, and intend to continue to seek, patent protection for our inventions and rely upon patents, trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain a competitive advantage for our product candidate. In order to protect these rights, know-how and trade secrets, we typically require employees, consultants, collaborators and advisors to enter into confidentiality agreements with us, generally stating that they will not disclose any confidential information about us to third parties for a certain period of time, and will otherwise not use confidential information for anyone's benefit but ours.
As patent applications in the U.S. are maintained in secrecy until patents are publishedSeries C Convertible Preferred Stock or issued, unless earlier publication is required under applicable law orcommon stock in connection with patents filedthe conduct of a trade or business within the United States and dividends being effectively connected with that trade or business. To claim such a reduction in or exemption from withholding, the non-U.S. holder must provide the applicable withholding agent with a properly executed (a) IRS Form W-8BEN or W-8BEN-E (or other applicable documentation) claiming an exemption from or reduction of the withholding tax under the Patent Cooperation Treaty ("PCT")benefit of an income tax treaty between the United States and the country in which the non-U.S. holder resides or is established, or (b) IRS Form W-8ECI stating that the dividends are not subject to withholding tax because they are effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States, as publication of discoveries in the scientific or patent literature often lags behind the actual discoveries, we cannotmay be certain that we or our licensors were the first to make the inventions described in our pending patent applications or that we or our licensors were the first to file patent applications for such inventions. Furthermore, the patent positions of biotechnology and pharmaceutical companies are highly uncertain and involve complex legal and factual questions, and therefore, the breadth of claims allowed in biotechnology and pharmaceutical patents or their enforceability cannotapplicable. These certifications must be predicted.
Pursuantprovided to the terms of the Uruguay Round Agreements Act, patents filed on or after June 8, 1995 have a term of 20 years from the date of filing, irrespective of the period of time it may take for the patentapplicable withholding agent prior to ultimately issue. This may shorten the period of patent protection afforded to our products as patent applications in the biopharmaceutical sector often take considerable time to issue. Under the Drug Price Competition and Patent Term Restoration Act of 1984, a sponsor may obtain marketing exclusivity for a period of time following FDA approval of certain drug applications, regardless of patent status, if the drug is a new chemical entity or if new clinical studies were used to support the marketing application for the drug. The Drug Price Competition and Patent Term Restoration Act of 1984 also allows a patent owner to obtain an extension of applicable patent terms for a period equal to one-half the period of time elapsed between the filing of an IND and the filing of the corresponding New Drug Application ("NDA") plus the period of time between the filing of the NDA and FDA approval, with a five year maximum patent extension. We cannot be sure that we will be able to take advantage of either the patent term extension or marketing exclusivity provisions of this law.
Pursuant to the Contribution Agreement, Synergy transferred ownership of all intellectual property rights acquired from BMS, including all historical research, clinical study protocols, data, results and patents related to the FV-100 assets as well as assumed the obligations of Synergy, including all liabilities of Synergy, under the BMS Agreement. These obligations include among other things, (i) all liabilities of BMS and Synergy related to the FV-100 assets, including all accounts payable, legal, environmental, tax, or warranty claims and all other liabilities of Synergy of whatever kind and nature, direct or indirect, absolute or contingent, known or unknown, whether or not accrued, arising out of or relating to the FV-100 assets or the ownership, sale or lease of any of the FV-100 assets, including any claim, action, suit, arbitration, inquiry, proceeding or investigation by or before any governmental entity, and (ii) the payment of dividends and must be updated periodically. Non-U.S. holders that do not timely provide the applicable withholding agent with the required certification, but that qualify for a reduced rate under an applicable income tax treaty, may obtain a refund of any milestoneexcess amounts withheld by timely filing an appropriate claim for refund with the IRS.
If dividends paid to a non-U.S. holder are effectively connected with the non-U.S. holder's conduct of a trade or royalty paymentbusiness within the United States (and, if required by an applicable income tax treaty, the non-U.S. holder maintains a permanent establishment in the United States to BMSwhich such dividends are attributable), then, although exempt from U.S. federal withholding tax (provided the non-U.S. holder provides appropriate certification, as described above), the non-U.S. holder will be subject to U.S. federal income tax on such dividends on a net income basis at the regular graduated U.S. federal income tax rates. In addition, a non-U.S. holder that is a corporation may be subject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on its effectively connected earnings and profits for the taxable year that are attributable to such dividends, as adjusted for certain items. Non-U.S. holders should consult their tax advisors regarding their entitlement to benefits under the BMS Agreement. During the period August 17, 2012 through June 10, 2013, there were no material liabilities assumed by Synergy under the BMS Agreement and subsequently transferred to us pursuantany applicable income tax treaty.
Sale or Other Disposition of Series C Convertible Preferred Stock, Common Stock or Warrants
Subject to the Contribution Agreement.
The FV-100 assets acquired by us from Synergy are licensed from Cardiff pursuantdiscussions below on backup withholding and foreign accounts, a non-U.S. holder will not be subject to U.S. federal income tax on any gain realized upon the terms of the Cardiff Agreement which we assumed from Synergy. Cardiff and Rega Foundation ("Rega") were originally the joint owners of the Patent Rights. Pursuant to the terms of an agreement, dated September 24, 1998, as amended December 23, 2004, Cardiff received from Rega an exclusive, irrevocable
worldwide license to manufacture, use, sell,sale or otherwise deal in or with products utilizing the Patent Rights, including the right to grant sublicenses thereunder. Synergy assumed the obligations under the Cardiff Agreement from BMS pursuant to the terms of the BMS Agreement. BMS assumed the obligations under the Cardiff agreement from Inhibitex upon its acquisition of Inhibitex in January 2012. Inhibitex assumed the obligations under the Cardiff Agreement upon its acquisition of FermaVir Pharmaceuticals, Inc. in September 2010. FermaVir was the successor to CRI in a merger consummated in August 2005. As of February 6, 2014 we currently license from Cardiff the three issued United States patents related to FV-100 which we acquired from Synergy pursuant to the Contribution Agreement. One of these patents covers the composition-of-matter of FV-100 and was issued on December 11, 2012 and will expire in 2028. The other two cover the precursor and close analogs of FV-100 and were issued on October 26, 2001 and June 3, 2003 and will both expire in 2018. In addition we currently license from Cardiff 38 granted foreign patents which cover composition-of-matter of FV-100 and expire in 2027. These foreign patents cover Australia, Austria, Belgium, Bulgaria, China, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Latvia, Lithuania, Luxembourg, Malta, Monaco, Netherlands, New Zealand, Pakistan, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Turkey, United Kingdom and the Russian Federation. We also own 5 pending foreign applications which cover the composition of matter of FV-100. We also own 45 additional foreign patents that cover the precursor and close analogs of FV-100. We also currently license from Cardiff 6 foreign applications and 1 US application pending, which cover the FV-100 process and polymorph composition.
Patents extend for varying periods according to the date of patent filing or grant and the legal term of patents in the various countries where patent protection is obtained. The actual protection afforded by a patent, which can vary from country to country, depends on the type of patent, the scope of its coverage and the availability of legal remedies in the country.
While trade secret protection is an essential elementtaxable disposition of our business and we have taken security measures to protectSeries C Convertible Preferred Stock, warrants or our proprietary information and trade secrets, we cannot give assurance that our unpatented proprietary technology will afford us significant commercial protection. We seek to protect our trade secrets by entering into confidentiality agreements with third parties, employees and consultants. Our employees and consultants also sign agreements requiring that they assign to us their interests in intellectual property arising from their work for us. All employees sign an agreement not to engage in any conflicting employment or activity during their employment with us and not to disclose or misuse our confidential information. However, it is possible that these agreements may be breached or invalidated, and if so, there may not be an adequate corrective remedy available. Accordingly, we cannot ensure that employees, consultants or third parties will not breach the confidentiality provisions in our contracts, infringe or misappropriate our trade secrets and other proprietary rights or that measures we are taking to protect our proprietary rights will be adequate.
In the future, third parties may file claims asserting that our technologies or products infringe on their intellectual property. We cannot predict whether third parties will assert such claims against us or against the licensors of technology licensed to us, or whether those claims will harm our business. If we are forced to defend ourselves against such claims, whether they are with or without merit and whether they are resolved in favor of, or against, our licensors or us, we may face costly litigation and the diversion of management's attention and resources. As a result of such disputes, we may have to develop costly non-infringing technology or enter into licensing agreements. These agreements, if necessary, may be unavailable on terms acceptable to us, or at all.
Sales and Marketing
We currently do not have any commercialization or sales and marketing capabilities, and currently have no plans to invest in or build such capabilities internally. At this time, we anticipate partnering or collaborating with, or licensing certain rights to, other larger pharmaceutical or biopharmaceutical
companies to support the development of our antiviral product candidate through late-stage clinical development and, if successful, commercialization. However, we may decide not to license any development and commercialization rights to our product candidate in the future.
Manufacturing
We do not own or operate any facilities in which we can formulate and manufacture our product candidate. We intend to rely on contract manufacturers to produce all materials required to conduct preclinical studies and clinical trials under current good manufacturing practices ("cGMP"), with management and oversight of these activities by our management team. We have identified alternate sources of supply and other contract manufacturers that can produce materials for our preclinical and clinical trial requirements on a timely basis. However, if an existing or future contract manufacture fails to deliver on schedule, or at all, it could delay or interrupt the development process for our product candidate and affect our operating results and estimated time lines.
We intend to use contract manufacturers to produce clinical trial material for use in the clinical trials of FV-100.
Pharmaceutical Pricing and Reimbursement
In the U.S. and most foreign markets, any revenue associated with the sale of our product candidate, if approved for sale, will depend largely upon the availability of reimbursement from third-party payers. Third-party payers include various government health authorities such as The Centers for Medicare and Medicaid Services ("CMS"), which administers Medicare and Medicaid in the U.S., managed-care providers, private health insurers and other organizations. Third-party payers are increasingly challenging the price and examining the cost-effectiveness of medical products and services, including pharmaceuticals. In addition, significant uncertainty exists as to the reimbursement status of newly approved pharmaceutical products. Our products may ultimately not be considered cost-effective, and adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to support a profitable operation or generate an appropriate return on our investment in product development.
The U.S. and foreign governments periodically propose and pass legislation designed to reduce the cost of healthcare and pharmaceutical products. Accordingly, legislation and regulations affecting the pricing of pharmaceuticals may change before our product candidate is ever approved for sale. In addition, the adoption of new legislation could further limit reimbursement for pharmaceuticals. Further, an increasing emphasis on managed care in the U.S. has and will continue to increase the pressure on pharmaceutical pricing. The marketability of our products may suffer if the government and other third-party payers fail to provide adequate coverage and reimbursement rates for our product candidate.
We, and our existing collaborators, intend to obtain coverage and reimbursement from these third-party payers for any of our products that may be approved for sale; however, we cannot assure you that we will be successful in obtaining adequate coverage, reimbursement, or pricing, if any.
Regulatory Matters
Overview
The preclinical and clinical testing, manufacture, labeling, storage, distribution, promotion, sale, export, reporting and record-keeping of drug products and product candidates are subject to extensive regulation by numerous governmental authorities in the U.S., principally the FDA and corresponding state agencies, and regulatory agencies in foreign countries.
Non-compliance with applicable regulatory requirements can result in, among other things, total or partial suspension of the clinical development of a product candidate, manufacturing and marketing,
failure of the FDA or similar regulatory agency in other countries to grant marketing approval, withdrawal of marketing approvals, fines, injunctions, seizure of products and criminal prosecution.
U.S. Regulatory Approval
Pursuant to FDA regulations, we are required to successfully undertake a long and rigorous development process before our product candidate can be marketed or sold in the U.S. This regulatory process typically includes the following steps:common stock unless:
Successfully completing this development process requires a substantial amount of time and financial resources. We cannot assure you that this process will resultnonresident alien individual present in the granting of an approvalUnited States for our product candidate on a timely basis, if at all,183 days or that we will have sufficient financial resources to seemore during the process for our product candidate through to completion.
Preclinical Studies
Preclinical studies generally include laboratory, orin vitro, evaluation of a product candidate, its chemistry, formulation, stability and toxicity, as well as certainin vivo animal studies to assess its potential safety and biologic activity. We must submit the results of these preclinical studies, together with other information, including manufacturing records, analytical data and proposed clinical trial protocols, to the FDA as part of an Investigational New Drug application, or IND, which must be reviewed and become effective before we may begin any human clinical trials. An IND generally becomes effective approximately 30 days after receipt by the FDA, unless the FDA, within this 30-day time period, raises material concerns or questions about the intended conducttaxable year of the trialsdisposition and imposes what is referred to as a clinical hold. If our product candidate is placed on clinical hold, we may be required to resolve any outstanding issues to the satisfaction of the FDA before we could begin,certain other requirements are met; or continue, clinical trials of such product candidate. Preclinical studies supportive of an IND generally take a year or more to complete, and there is no guarantee that an IND based on those studies will become effective, allowing human clinical testing to begin.
Certain preclinical studies must be conducted in compliance with the FDA's GLP regulations and the U.S. Department of Agriculture's Animal Welfare Act. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring such studies to be conducted again.
Clinical Trials
This clinical trial phase of drug development follows a successful IND submission and involves the activities necessary to demonstrate the safety, tolerability, biologic activity, efficacy and dosage of an investigational new drug substance in humans, as well as the ability to produce the drug substance in accordance with the FDA's cGMP requirements. Clinical trials are conducted under protocols detailing, among other things, the objectives of the study and the parameters to be used in assessing the safety and the activity or efficacy of the product candidate. Each clinical trial protocol must be submitted to the FDA as part of the IND prior to beginning the trial. Each trial and the clinical protocol must be reviewed, approved and conducted under the auspices of an IRB and, with limited exceptions, requires the patient's informed consent to participate in the trial. Sponsors, investigators, and IRBs also must satisfy extensive GCPs, including regulations and guidelines for obtaining informed consent from the study subjects, complying with the protocol and investigational plan, adequately monitoring the clinical trial, and reporting any serious adverse events on a timely basis. The FDA, the IRB or the sponsor may suspend a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health or safety risk.
Clinical trials to support a NDA or BLA for marketing approval are typically conducted in three sequential phases: Phase 1, 2 and 3, with Phase 4 clinical trials often conducted after marketing approval has been granted. The FDA may require sponsors to conduct Phase IV clinical trials to study certain safety issues or other patient populations. Data from these activities are compiled in a NDA or a BLA for submission to the FDA requesting approval to market the drug. These phases may be compressed, may overlap, or may be omitted in some circumstances.
Generally, the purpose of a Phase 1 trial is to assess a product candidate's safety and the ability of the human body to tolerate it at different dose levels. Absorption, metabolism, distribution and pharmacokinetic trials are also generally performed at this stage. Phase 1 trials typically evaluate these aspects of the investigational drug in both single doses, as well as multiple doses.
In Gain described in the case of product candidates being developed for serious or life-threatening diseases, such as HCV, Phase 1 trialsfirst bullet point above generally will be subject to U.S. federal income tax on a net income basis at the regular graduated rates. A Non-U.S. holder that is a corporation also may be conductedsubject to a branch profits tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on such effectively connected gain, as adjusted for certain items.
Gain described in patientsthe second bullet point above will be subject to U.S. federal income tax at a rate of 30% (or such lower rate specified by an applicable income tax treaty) on any gain derived from the disposition, which may be offset by U.S. source capital losses of the non-U.S. holder (even though the individual is not considered a resident of the United States), provided the non-U.S. holder has timely filed U.S. federal income tax returns with respect to such losses.
With respect to the respective disease rather thanthird bullet point above, we believe we are not currently and do not anticipate becoming a USRPHC. Because the determination of whether we are a USRPHC depends on the fair market value of our USRPIs relative to the fair market value of our other business assets and our non-U.S. real property interests, however, there can be no assurance we are not a USRPHC or will not become one in healthy volunteers. These studiesthe future.
Non-U.S. holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide initial evidencefor different rules.
Conversion of activity or efficacy traditionally obtained in Phase II clinical trials, and therefore these trials may be referred to as Phase1/2 or Phase 1b clinical trials.Our Series C Convertible Preferred Stock into Our Common Stock
A company may request an "end-of-Phase 2 Meeting"non-U.S. holder generally will not recognize any gain or loss in respect of the receipt of our common stock upon the conversion of our Series C Convertible Preferred Stock.
Constructive Dividends on Series C Convertible Preferred Stock
As described above under "—Tax Consequences Applicable to U.S. Holders—Constructive Dividends on Series C Convertible Preferred Stock," in certain circumstances, a non-U.S. holder will be deemed to receive a constructive distribution from us. Adjustments in the conversion rate (or failures to adjust the conversion rate) that increase the proportionate interest of a non-U.S. holder in our earnings and profits could result in deemed distributions to the non-U.S. holder that are treated as dividends for U.S. federal income tax purposes. Any constructive dividend deemed paid to a non-U.S. holder will be subject to U.S. federal income tax or withholding tax in the manner described above under "—Tax Consequences Applicable to Non-U.S. Holders—Distributions on Series C Convertible Preferred Stock and Common Stock ." It is possible that U.S. federal tax on the constructive dividend would be withheld, if applicable, from subsequent payments on the Series C Convertible Preferred Stock or our common stock.
Information Reporting and Backup Withholding
Subject to the discussion below on foreign accounts, a non-U.S. holder will not be subject to backup withholding with respect to distributions on our Series C Convertible Preferred Stock or common stock we make to the non-U.S. holder, provided the applicable withholding agent does not have actual knowledge or reason to know such holder is a United States person and the holder certifies its non-U.S. status, such as by providing a valid IRS Form W-8BEN, W-8BEN-E or W-8ECI, or other applicable certification. However, information returns generally will be filed with the FDA to assess the safety of the dose regimen to be studiedIRS in the Phase 3 clinical trial, to evaluate the planned design of a Phase 3 trial,connection with any distributions (including deemed distributions) made on our Series C Convertible Preferred Stock, warrants and to identify any additional information that will be needed to support a NDA. If a Phase 3 clinical trial has been the subject of discussion at an "end-of-Phase2 Meeting," the trial sponsor may be eligible for a Special Protocol Assessment ("SPA"), by the FDA, a process by which the FDA, at the request of the sponsor, will evaluate the trial protocol and issues relatingour common stock to the protocol within 45 days to assessnon-U.S. holder, regardless of whether it is deemed toany tax was actually withheld. Copies of these information returns may also be adequate to meetmade available under the scientific and regulatory requirements identified by the sponsor. If the FDA and the sponsor reach agreement on the design and size of a Phase 3 clinical trial intended to form the primary basis of an efficacy claim in a NDA or BLA, the FDA may reduce the understanding to writing. The SPA, however, is not a guarantee of product approval by the FDA, or approval of any permissible claims about the product.
Throughout the various phases of clinical development, samples of the product candidate made in different batches are tested for stability to establish any shelf life constraints. In addition, large-scale production protocols and written standard operating procedures for each aspect of commercial manufacture and testing must be developed. Phase 1, 2, and 3 testing may not be completed successfully within any specified time period, if at all. The FDA closely monitors the progress of each of the three phases of clinical development that are conducted under an IND and may, at its discretion, reevaluate, alter, suspend, or terminate further evaluation or trials based upon the data accumulated to that point and the FDA's assessment of the risk/benefit ratio to the subject or patient. The FDA, the sponsor, or an IRB may suspend or terminate a clinical trial at any time for various reasons, including a finding that the subjects or patients are being exposed to an unacceptable health or safety risk. The FDA can also request additional clinical trials be conducted as a condition to product approval or advancement to the next stage of development. Additionally, new government requirements may be established that could delay or prevent regulatory approval of products under development. Furthermore, IRBs, which are independent entities constituted to protect human subjects in the institutions in which clinical trials are being conducted, have the authority to suspend clinical trials in their respective institutions at any time for a variety of reasons, including safety issues. A Data Safety Monitoring Board may suspend or terminate a clinical trial at any time on various grounds, including a finding that the subjects or patients are being exposed to an unacceptable health or safety risk.
Clinical trials performed outside the U.S. under an IND must meet the same requirements that apply to studies conducted in the U.S. The FDA may accept a foreign clinical study not conducted under an IND only if the study is well-designed, well-conducted, performed by qualified investigators, and conforms to the ethical principles contained in the Declaration of Helsinki, or with the laws and regulations of the country in which the research was conducted, whichever provides greater protection of the human subjects.
Certain information about clinical trials, including a description of the study, participation criteria, location of study sites, and contact information, is required to be sent to the National Institutes of Health, ("NIH") for inclusion in a publicly-accessible database that is available at www.clinicaltrials.gov. Sponsors also are subject to certain state laws imposing requirements to make publicly available certain information on clinical trial results. In addition, the Food and Drug Administration Amendments Act of 2007 directed the FDA to issue regulations that will require sponsors to submit to the NIH the results of all controlled clinical studies, other than Phase 1 studies.provisions
New Drug and Biologics License Applications
If and when we believe that all the requisite clinical trials forof a product candidate have been completed with satisfactory and supporting clinical data, we must submit a NDAspecific treaty or BLAagreement to the FDAtax authorities of the country in orderwhich the non-U.S. holder resides or is established.
Information reporting and backup withholding may apply to obtain approval for the marketing and saleproceeds of a product candidate insale or other taxable disposition of our Series C Convertible Preferred Stock, warrants or our common stock within the U.S. Among many other items, a NDA or BLA typically includes the results of all preclinicalUnited States, and toxicology studies and human clinical trials and a description of the manufacturing process and quality control methods. The FDA must approve the NDA or BLA priorinformation reporting may (although backup withholding generally will not) apply to the marketing and sale of the related product. The FDA may deny a NDA or BLA if it believes all applicable regulatory criteria are not satisfied, or it may require additional data, including clinical, toxicology, safety or manufacturing data prior to approval. The FDA has 60 days from its receiptproceeds of a NDAsale or BLA to reviewother taxable disposition of our Series C Convertible Preferred Stock, warrants or our common stock outside the application to ensureUnited States conducted through certain U.S.- related financial intermediaries, in each case, unless the beneficial owner certifies under penalty of perjury that it is sufficiently completea non-U.S. holder on IRS Form W-8BEN or W-8BEN-E, or other applicable form (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or such owner otherwise establishes an exemption. Proceeds of a disposition of our Series C Convertible Preferred Stock, warrants or our common stock conducted through a non-U.S. office of a non-U.S. broker generally will not be subject to backup withholding or information reporting.
Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be allowed as a refund or a credit against a non-U.S. holder's U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
Additional Withholding Tax on Payments Made to Foreign Accounts
Withholding taxes may be imposed under the Foreign Account Tax Compliance Act, or FATCA, on certain types of payments made to non-U.S. financial institutions and certain other non-U.S. entities. Specifically, a 30% withholding tax may be imposed on dividends (including deemed dividends) paid on our common stock or warrants, or gross proceeds from the sale or other disposition of our Series C Convertible Preferred Stock, warrants or our common stock paid to a "foreign financial institution" or a "non-financial foreign entity" (each as defined in the Code), unless (1) the foreign financial institution undertakes certain diligence and reporting obligations, (2) the non-financial foreign entity either certifies it does not have any "substantial United States owners" (as defined in the Code) or furnishes identifying information regarding each substantial United States owner, or (3) the foreign financial institution or non-financial foreign entity otherwise qualifies for an exemption from these rules. If the payee is a substantive review before acceptingforeign financial institution and is subject to the diligence and reporting requirements in (1) above, it for filing. The FDA may request additional information rather than accept a NDA or BLA for filing. In this event, the NDA or BLA must be amendedenter into an agreement with the additional information. The FDA may also refer applications for novel drug products or drug products which present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the application should be approved. The FDA is not bound by the recommendation of an advisory committee.
A NDA or BLA can receive either standard or priority review. A product candidate representing a potentially significant improvement in the treatment, prevention or diagnosis of a life threatening or serious disease may receive a priority review. In addition, product candidates studied for their safety and effectiveness in treating serious or life-threatening illnesses that provide meaningful therapeutic benefit over existing treatments may also receive accelerated approval on the basis of adequate and well-controlled clinical trials establishing that the drug product has an effect on a surrogate endpoint that is reasonably likely to predict clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity. As a condition of approval, the FDA may require that a sponsor of a drug receiving accelerated approval perform adequate and well-controlled post-marketing Phase 4 clinical trials. Priority review and accelerated approval do not change the standards for approval, but may expedite the approval process.
If the resultsU.S. Department of the FDA's evaluation of the NDA or BLA, and inspection of manufacturing facilities are favorable, the FDA will issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for a specific indication. As a condition of NDA or BLA approval, the FDA may require post-approval testing, including Phase 4 trials, and surveillance to monitor the drug's safety or efficacy and may impose other conditions, including labeling or distribution restrictions which can materially impact the potential market and profitability of the drug. Once granted, product approvals may be withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing.
If the FDA determines that it cannot approve the application in its present form, it generally issues what is referred to as a complete response letter. A complete response letter will describe all of the specific deficiencies that the agency has identified in an application that must be met in order to secure final approval of the NDA or BLA. If and when those conditions are met to the FDA's satisfaction, the FDA will typically re-review the application and possibly issue an approval letter. However, even after submitting this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval. It can take several years for the FDA to approve a NDA or BLA once it is submitted, and the actual time required for any product candidate to be approved may vary substantially, depending upon the nature, complexity and novelty of the product candidate.
We cannot assure you that the FDA, or any other similar regulatory agency in another country, will grant approval for our product candidate on a timely basis, if at all. Success in preclinical or early-stage clinical trials does not assure success in later stage clinical trials. Data obtained from preclinical and
clinical activities is not always conclusive and may be susceptible to varying interpretations that could delay, limit or prevent regulatory approval.
Post-Approval Regulations
If and when a product candidate receives regulatory approval to be marketed and sold, the approval is typically limited to a specific clinical indication or use. Further, even after regulatory approval is obtained, subsequent discovery of previously unknown safety problems with a product may result in restrictions on its use, or even complete withdrawal of the product from the market. Any FDA-approved products manufactured or distributed by us are subject to continuing regulation by the FDA, including record-keeping requirements and reporting of adverse events or experiences. Further, drug manufacturers and their subcontractors are required to register their establishments with the FDA and state agencies, and are subject to periodic inspections by the FDA and state agencies for compliance with cGMP regulations, which impose rigorous procedural and documentation requirements upon us and our contract manufacturers. We cannot be certain that we, or our present or future contract manufacturers or suppliers, will be able to comply with cGMP regulations and other FDA regulatory requirements. Failure to comply with these requirements may result in,Treasury requiring, among other things, totalthat it undertake to identify accounts held by certain "specified United States persons" or partial suspension of production activities for our current and future product candidates, failure of the FDA to grant approval for marketing of such product candidate, and withdrawal, suspension, or revocation of marketing approvals.
If the FDA approves our product candidate, we, or our collaborators if applicable, and our contract manufacturers must provide the FDA with certain updated safety, efficacy and manufacturing information. Product changes,"United States-owned foreign entities" (each as well as certain changesdefined in the manufacturing process or facilities where the manufacturing occurs or other post-approval changes may necessitate additional FDA review and approval. We rely, and expect to continue to rely, on third parties for the formulation and manufacture of clinical and commercial quantities of our products. Future FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution, or require substantial resources to correct.
The labeling, advertising, promotion, marketing and distribution of an approved drug or biologic product must also comply with FDA and Federal Trade Commission ("FTC") requirements which include, among others, standards and regulations for direct-to-consumer advertising, off-label promotion, industry sponsored scientific and educational activities, and promotional activities involving the Internet. The FDA and FTC have very broad enforcement authority, and failure to abide by these regulations can result in penalties, including the issuance of a Warning Letter directing the company to correct deviations from regulatory standards and enforcement actions that can include seizures, fines, injunctions and criminal prosecution.
The FDA's policies may change in the future and additional government regulations may be enacted that could prevent or delay regulatory approval of our product candidate. Moreover, increased attention to the containment of health care costs in the U.S. and in foreign markets could result in new government regulations that could have a material adverse effect on our business. We cannot predict the likelihood, nature or extent of adverse governmental regulation that might arise from future legislative or administrative action, either in the U.S. or abroad, or the impact such changes could have on our business.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. After approval, some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further FDA review and approval. In addition, the FDA may require testing and surveillance programs to monitor the effect of approved products that have been commercialized, and in some circumstances the FDA has the power to prevent or limit further marketing of a product based on the results of these post-marketing programs.
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition, FDA regulations and guidance are often revised or reinterpreted by the agency in ways that may significantly affect our business and our products. It is impossible to predict whether legislative changes will be enacted, or whether FDA regulations, guidance or interpretations will change or what the impact of such changes, if any, may be.
Fast Track Drug Status
The FDA has developed "Fast Track" policies, which provide for the potential of an expedited review of a NDA or BLA. However, there is no assurance that the FDA will, in fact, accelerate the review process for a Fast Track product candidate. Fast Track status is provided for those new and novel therapies that are intended to treat persons with life-threatening and severely debilitating diseases where there is a defined unmet medical need, especially where no satisfactory alternative therapy exists or the new therapy appears to be significantly superior to existing alternative therapies. During the development of product candidates that qualify for this status, the FDA may expedite consultations and reviews of these experimental therapies. Fast Track status also provides for the potential for a "priority review"Code), whereby the FDA agrees to reduce the time it takes to review a NDA or BLA. The FDA can base approval of a marketing application for a Fast Track product on a clinical endpoint or on a surrogate endpoint that is reasonably likely to predict clinical benefit. The FDA generally requires as a condition of the approval of an application for certain Fast Track products, additional post-approval studies or Phase 4 clinical studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint. Further, Fast Track status allows for a rolling NDA or BLA submission, whereby portions of the application can be submitted to the FDA for review prior to the completion of the entire application. A rolling submission could result in a reduction in the length of time it would otherwise take the FDA to complete its review of the application. Fast Track status may be revoked by the FDA at any time if the clinical results of a trial fail to continue to support the assertion that the respective product candidate has the potential to address an unmet medical need. In addition, Fast Track status may be granted for a specific application of a drug candidate.
Foreign Regulatory Approval
Outside of the U.S., our ability to market any of our existing or future product candidates will also be contingent upon receiving marketing authorizations from the appropriate foreign regulatory authorities whether or not FDA approval has been obtained. The foreign regulatory approval process in most industrialized countries generally includes risks that are similar to the FDA approval process described above. The requirements governing conduct of clinical trials and marketing authorizations, and the time required to obtain requisite approvals may vary widely from country to country and differ from that required for FDA approval.
Employees
At May 12, 2014, we had one direct employee. Our operations were previously conducted on a contract basis under a Shared Services Agreement with Synergy. The terms of that Shared Services Agreement are as follows:
On July 8, 2013, we entered into the SSA with Synergy under which Synergy will provide and/or make available to us various administrative, financial, accounting, legal, insurance, facility, information technology, laboratory, real estate and other services to be provided by, or on behalf of, Synergy, together with such other services as may be mutually and reasonably agreed.
In consideration for such services, we will pay fees to Synergy for the services provided, and those fees will generally be in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services. The personnel performing services under the SSA will
be employees and/or independent contractors of Synergy and will not be under our direction or control. These personnel costs will be comparable to those arrived at on an arm's-length basis and will be based upon the allocated percentages of time spent by Synergy personnel performing services for us under the shared services agreement. We will also reimburse Synergy for direct out-of-pocket costs incurred by Synergy for third party services provided to us.
Effective April 1, 2014, we terminated the shared services agreement.
Properties
Our corporate headquarters, located at 420 Lexington Avenue, Suite 300, New York, New York 10170, at a cost of $2,100 per month. The term of our lease expires in June 2014. We are currently evaluating whether our current office space is suitable and adequate for our current needs.
Legal Proceedings
We are not currently involved in any legal proceedings, however, from time to time, we may become a party to various legal actions and complaints arising in the ordinary course of business. In addition to commitments and obligations in the ordinary course of business, we are subject to various claims, pending and potential legal actions for damages, investigations relating to governmental laws and regulations and other matters arising out of the normal conduct of our business. It is possible that cash flows or results of operations could be materially affected in any particular period by the unfavorable resolution of one or more of these contingencies.
Executive Officers and Directors
Set forth below isannually report certain information with respectabout such accounts, and withhold 30% on certain payments to the individuals who are our directors and executive officers as of May 12, 2014:
James Sapirstein has served as our Chief Executive Officer and a Director since March 19, 2014. Mr. Sapirstein was the chief executive officer of Alliqua Therapeutics at Alliqua Inc., where he helped lead the transformation of transdermal wound care and drug delivery technology into a premier wound care organization from October 2012 to February 2014. Mr. Sapirstein was the chief executive officer of Tobira Therapeutics, a New Jersey based biopharmaceutical company focused on the development of novel HIV and infectious disease compounds, from October 2006 to April 2011. From June 2002 until May 2005, Mr. Sapirstein was Executive Vice President for Serono Laboratories where he led a team of over 100 professionals to rebuild a struggling HIV and pediatric growth hormone business. Mr. Sapirstein also served in the Global Marketing group at Gilead, beginning in 2000 where he led and developed the global marketing strategy for its flagship HIV drug, Viread as well as played a key role in the development of the drug combination strategy that resulted in Gilead's acquisition of Triangle's nucleoside portfolio. He held a number of positions at Hoffmann-LaRoche, including Product Director and International Operations Manager, and was actively involved with numerous product launches including several antivirals. In 1996, he became the Director of International Marketing of the Infectious Disease Division at Bristol Myers Squibb (BMS). Mr. Sapirstein directed the international HIV product marketing strategy at BMS and was an integral part of the international development and launch of a number of infectious disease products while at BMS.
Gary S. Jacob, Ph.D. has served as our Chairman of the Board of Directors since March 19, 2014, and earlier served as our Chief Executive Officer from May 15, 2013 until March 19, 2014. Dr. Jacob is currently the Chairman of the Board, President and Chief Executive Officer of Synergy Pharmaceuticals Inc., a biopharmaceutical company, where he has held various positions since July 2008. Dr. Jacob served as Chief Executive Officer of Callisto Pharmaceuticals, Inc. from May 2003 until January 2013 and a director from October 2004 until January 2013. Dr. Jacob currently serves as a director of Trovagene, Inc., a diagnostics company. Dr. Jacob has over twenty-five years of experience in the pharmaceutical and biotechnology industries across multiple disciplines including research & development, operations and business development. Prior to 1999, Dr. Jacob served as a Monsanto Science Fellow, specializing in the field of glycobiology, and from 1997 to 1998 was Director of Functional Genomics, Corporate Science & Technology, at Monsanto Company. Dr. Jacob also served from 1990 to 1997 as Director of Glycobiology at G.D. Searle Pharmaceuticals Inc. During the period of 1986 to 1990, he was Manager of the G.D. Searle Glycobiology Group at Oxford University, England.
Bernard F. Denoyer has served as our Chief Financial Officer and Secretary since May 15, 2013 and as Synergy's Senior Vice President, Finance and Secretary since July 2008. From December 2007 until January 2013, Mr. Denoyer served as Senior Vice President, Finance and Secretary of Callisto Pharmaceuticals, Inc. and from January 2004 to November 2007 Mr. Denoyer served as Callisto's Vice President, Finance and Secretary. From October 2000 to December 2003, Mr. Denoyer was an independent consultant providing interim CFO and other services to emerging technology companies,
including Callisto and certain portfolio companies of Marsh & McLennan Capital, LLC. From October 1994 until September 2000, Mr. Denoyer served as Chief Financial Officer and Senior Vice President at META Group, Inc., a public information technology research company, where he was instrumental in their 1995 IPO. From 1990 to 1993 he served as Vice President Finance of Environetics, Inc., a pharmaceutical water diagnostic test business, acquired by IDEXX Laboratories, Inc.
John P. Brancaccio, a retired CPA, has served as a director of our company since May 15, 2013 and as a director of Synergy since July 2008. Since April 2004, Mr. Brancaccio has been the Chief Financial Officer of Accelerated Technologies, Inc., an incubator for medical device companies. From May 2002 until March 2004, Mr. Brancaccio was the Chief Financial Officer of Memory Pharmaceuticals Corp., a biotechnology company. From 2000 to 2002, Mr. Brancaccio was the Chief Financial Officer/Chief Operating Officer of Eline Group, an entertainment and media company. Mr. Brancaccio is currently a director of Alfacell Corporation as well as a director of Trovagene, Inc. Mr. Brancaccio's chiefnon-compliant foreign financial officer experience provides him with valuable financial and accounting expertise which the Board believes qualifies him to serve as a director of our company.
Christopher McGuigan, M.Sc., Ph.D. has served as a director of our company since May 15, 2013 and as a director of Synergy since July 2008. Since 1995, Dr. McGuigan has been Professor of Medicinal Chemistry, Welsh School of Pharmacy, Cardiff University, UK. He is also Deputy Pro Vice-Chancellor Cardiff University, with responsibility for research. Dr. McGuigan is immediate past president of the International Society for Antiviral Research. Dr. McGuigan has over 200 publications and 20 patents. Dr. McGuigan was Chairman of Departmental Research Committee and Director of Research, Head of Medicinal Chemistry. Dr. McGuigan currently serves as a director of Trovagene, Inc. Dr. McGuigan's experience in developing new drug agents from discovery to human clinical trials qualifies him to serve as a director of our company.
Dr. Timothy Block has served as a director of our company since November 26, 2013. Dr. Block is Professor of Microbiology and Immunology, Drexel University College of Medicine and Director of its Drexel Institute for Biotechnology and Virology Research, and is also the Co-founder and President of the Hepatitis B Foundation (HBF) and its Baruch S. Blumberg Institute (formerly called the Institute for Hepatitis and Virus Research), the nation's leading nonprofit organizations dedicated to finding a cure for hepatitis B and improving the lives of those affected worldwide through research, education and patient advocacy. Dr. Block is also President and CEO of the Pennsylvania Biotechnology Center. Dr. Block has been a member of medical school faculties as a professional researcher for more than 28 years, publishing more than 180 papers, 12 U.S. patents, and since 2006, has led or "co-led" more than $50 million in research funding. Honors include an honorary Medical Doctorate (Bulgarian Academy of Medicine); the Lifetime Achievement Award from the Centrals Bucks Chamber of Commerce; named one the regions 100 Most Outstanding People of the Century by the Daily Intelligencer; Distinguished Service Recognition from the National Cancer Institute's Early Detection Research Network; and a Special Citation from the U.S. House of Representatives in recognition of "outstanding achievements." Dr. Block has given frequent testimony to the U.S. Congress and State legislatures; has served on U.S. FDA and numerous NIH panels as well as commercial boards including the Bristol Myers Squibb Entecavir Advisory Board. In 2009, Dr. Block was named an elected Fellow of the American Association for the Advancement of Science (AAAS). Dr. Block's experience and expertise in the medical field with respect to Hepatitis B qualifies him to serve as a director of our company.
Director Independence
Our securities are not listed on a national securities exchange or in an inter-dealer quotation system that requires that a majority of our board of directors be independent. As of the date of this prospectus, our board of directors has determined that a majority of the board consists of members who are currently "independent" as that term is defined under current listing standards of NASDAQ.
Committees of the Board of Directors
Audit Committee
The Audit Committee's responsibilities include: (i) reviewing the independence, qualifications, services, fees, and performance of the independent registered public accountants, (ii) appointing, replacing and discharging the independent auditors, (iii) pre-approving the professional services provided by the independent auditors, (iv) reviewing the scope of the annual audit and reports and recommendations submitted by the independent auditors, and (v) reviewing our financial reporting and accounting policies, including any significant changes, with management and the independent auditors. The Audit Committee also prepares the Audit Committee report that is required pursuant to the rules of the SEC.
The Audit Committee currently consists of John Brancaccio, chairman of the Audit Committee, and Christopher McGuigan. We believe that each of Mr. Brancaccio and Mr. McGuigan is "independent" as that term is defined under applicable SEC and NASDAQ rules. Mr. Brancaccio is our audit committee financial expert. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Audit Committee prior to the consummation of the proposed offering which will be available on our website at www.contravir.com.
Compensation Committee
The Compensation Committee has responsibility for assisting the board of directors in, among other things, evaluating and making recommendations regarding the compensation of the executive officers and directors of our company; assuring that the executive officers are compensated effectively in a manner consistent with our stated compensation strategy; producing an annual report on executive compensation in accordance with the rules and regulations promulgated by the SEC; periodically evaluating the terms and administration of our incentive plans and benefit programs and monitoring of compliance with the legal prohibition on loans to our directors and executive officers.
The Compensation Committee currently consists of Timothy Block, chairman of the Compensation Committee, and John Brancaccio. We believe that all of the members are "independent" under the current listing standards of NASDAQ. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Compensation Committee prior to the consummation of the proposed offering which will be available on our website at www.contravir.com.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation committee is an officer or employee of our company. None of our executive officers currently serves, or in the past year has served, as a member of the board of directors or compensation committee of any entity, excluding Synergy, that has one or more executive officers serving on our board of directors or compensation committee.
Corporate Governance/Nominating Committee
The Corporate Governance/Nominating Committee has responsibility for assisting the board of directors in, among other things, effecting board organization, membership and function including identifying qualified board nominees; effecting the organization, membership and function of board committees including composition and recommendation of qualified candidates; establishment of and subsequent periodic evaluation of successor planning for the chief executive officer and other executive officers; development and evaluation of criteria for Board membership such as overall qualifications, term limits, age limits and independence; and oversight of compliance with the Corporate Governance Guidelines. The Corporate Governance/Nominating Committee shall identify and evaluate the qualifications of all candidates for nomination for election as directors. Potential nominees are identified by the Board of Directors based on the criteria, skills and qualifications that have been recognized by the
Corporate Governance/Nominating Committee. While our nomination and corporate governance policy does not prescribe specific diversity standards, the Corporate Governance/Nominating Committee and its independent members seek to identify nominees that have a variety of perspectives, professional experience, education, differences in viewpoints and skills, and personal qualities that will result in a well-rounded Board of Directors.
The Compensation Committee currently consists of Timothy Block, chairman of the Compensation Committee. We believe that all of the members are "independent" under the current listing standards of NASDAQ. The board of directors has adopted a written charter setting forth the authority and responsibilities of the Corporate Governance/Nominating Committee prior to the consummation of the proposed offering which will be available on our website at www.contravir.com.
Corporate Governance
Stockholder Recommendations for Director Nominees
Our by-laws will contain provisions that address the process by which a stockholder may nominate an individual to stand for election to our Board of Directors. We expect that our Board of Directors will adopt a policy concerning the evaluation of stockholder recommendations of board candidates by the Nominating and Governance Committee.
Code of Conduct
In connection with our separation, we expect to adopt a Code of Conduct to ensure that our business is conducted in a consistently legal and ethical manner. All of our employees, including our executive officers and directors, will be required to comply with our Code of Conduct.
The full text of the Code of Conduct will be posted on our website. Any waiver of the Code of Conduct for directors or executive officers must be approved by our Audit Committee. We will disclose future amendments to our Code of Conduct, or waivers from our Code of Conduct for our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our website within four business days following the date of the amendment or waiver. In addition, we will disclose any waiver from our Code of Conduct for our other executive officers and our directors on our website.
Other Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any bankruptcy or criminal proceedings, nor have there been any judgments or injunctions brought against any of our directors or executive officers during the last ten years that we consider material to the evaluation of the ability and integrity of any director or executive officer.
EXECUTIVE AND DIRECTOR COMPENSATION
Executive Compensation
Prior to February 18, 2014, we were a majority-owned subsidiary of Synergy. Our Compensation Committee is currently reviewing the impact of the spin-off from Synergy and will review all aspects of compensation and intends to adopt an appropriate structure for our executive compensation arrangements. As of the date hereof, the Compensation Committee has not reviewed our executive compensation arrangements and the specifics of our compensation programs and policies have not yet been determined.
The following table contain compensation information for our prior Chief Executive Officerinstitutions and certain other executive officers who were the most highly compensated expected officers for the fiscal six month period ended December 31, 2013.
Name & Principal Position | Year | Salary(2) | Bonus | Options granted(3) | Total | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Gary S. Jacob | 2013 | $ | 18,888 | $ | — | $ | 2,534 | $ | 21,422 | |||||||
Chairman of the Board and former Chief Executive Officer(1) | ||||||||||||||||
Bernard Denoyer, Chief Financial Officer | 2013 | $ | 14,333 | $ | — | $ | 845 | $ | 15,178 | |||||||
Outstanding Equity Awards
We had no equity awards outstanding at June 30, 2013.
Director Compensation
During the period ended June 30, 2013, our non-employee directors did not receive any compensation for their services to the board.
On March 12, 2014, the Board of Directors determined that compensation for our non-employee directors will be comprised of an annual cash retainer and an annual equity award in the form of stock
options. In addition, we expect to grant new directors, including the directors who will be joining our board, a one-time equity award in the form of stock options in connection with their election to the board. Since the end of our fiscal year ended June 30, 2013, we have granted the following options to our non-employee directors:
Description of the ContraVir 2013 Equity Incentive Plan
The ContraVir 2013 Equity Incentive Plan was adopted by the Board of Directors on June 3, 2013. The 2013 Equity Incentive Plan provides for the granting of either "incentive stock options" or "non-qualified stock options" to acquire ContraVir common stock (collectively, "Options") to employees of ContraVir. The 2013 Equity Incentive Plan also provides for the granting of restricted stock to eligible participants in addition to or in lieu of, stock options. An aggregate of 1,500,000 shares of ContraVir common stock have been reserved for issuance under the 2013 Equity Incentive Plan. In the event that any outstanding options expire or are terminated or forfeited, the shares allocable to such expired, terminated or forfeited Options shall again become available for the granting of Options.
ContraVir's Board of Directors approved the 2013 Equity Incentive Plan to provide for the granting of either "incentive stock options" or "non-qualified stock options." The 2013 Equity Incentive Plan does not pose a limit or restriction on the number of shares, which ContraVir's Board of Directors may grant as either incentive or non-qualified stock options. Under present law, however, incentive stock options may only be granted to employees. The granting of incentive stock options allows ContraVir to reward key employees for their contribution to the growth of ContraVir and to the appreciation in stockholder value. In not restricting the number of available shares for either incentive or non-qualified stock options, ContraVir's Board of Directors will have greater flexibility in determining the type of options thatUnited States governing FATCA may be granted.
ContraVir's Board of Directors approved the 2013 Equity Incentive Plansubject to also provide for the granting of restricted stock to eligible participants in addition to, or in lieu of, stock options. The Board of Directors believes that it is prudent to have the flexibility to grant a variety of stock-based awards to
eligible grantees, in order to accomplish ContraVir's goal of giving the necessary incentive to ContraVir's employees, officers, directors and consultants.different rules.
Under the 2013 Equity Incentive Plan, ContraVir's Boardapplicable Treasury Regulations and administrative guidance, withholding under FATCA generally applies to payments of Directors hasdividends (including deemed dividends), and will apply to payments of gross proceeds from the authority to determine when options will vest and when options may be exercised, subject to applicable law. This provides ContraVir's Board of Directors the flexibility necessary to determine the terms and conditions of options that are to be granted. By giving the Board of Directors the discretion to decide the vesting and exercise periods, ContraVir's Board of Directors may tailor option grants to individual grantees, taking into account the performance of ContraVir and the particular contributions made by the grantee.
Optionees receive the right to purchase a specified number of shares of ContraVir common stock at a specified option price and subject to such other terms and conditions as are specified in connection with the option grant. ContraVir may grant options at an exercise price less than, equal to or greater than the fair market value of ContraVir Common Stock on the date of grant. Under present law, incentive stock options and options intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code may not be granted at an exercise price less than the fair market value of the common stock on the date of grant or less than 110% of the fair market value in the case of incentive stock options granted to optionees holding more than 10% of the voting power of ContraVir The 2013 Equity Incentive Plan permits ContraVir's Board of Directors to determine how optionees may pay the exercise price of their options, including by cash or check, or a cash equivalent acceptable to ContraVir's Board of Directors.
ContraVir's Board of Directors administers the 2013 Equity Incentive Plan. ContraVir's Board of Directors has the authority to adopt, amend and repeal the rules, guidelines and practices of the 2013 Equity Incentive Plan and to interpret its provisions. It may delegate authority under the 2013 Equity Incentive Plan to one or more committees of ContraVir's Board of Directors and, subject to certain limitations to a member of ContraVir's Board of Directors or, to one or more of ContraVir's executive officers. Subject to any applicable limitations contained in the 2013 Equity Incentive Plan, ContraVir's Board of Directors or any committee, member of the Board of Directors or executive officer to whom ContraVir's Board of Directors delegates authority, as the case may be, selects the recipients of awards and determines:
Future grants of options under the 2013 Equity Incentive Plan are in the discretion of the ContraVir Board of Directors and, thus the amount of such grants, if any, are not presently determinable.
Employment Agreements
On March 19, 2014, the Company entered into an executive agreement with James Sapirstein under which he will serve as Chief Executive Officer of the Company. The term of the agreement is effective as of March 19, 2014 until March 19, 2017 and is automatically renewed for successive one year periods at the end of each term. Under the terms of the agreement, Mr. Sapirstein will receive an annual salary of $350,000. He is eligible to receive a cash bonus of up to 50% of his base salary. The bonus shall be earned upon the Company's achievement of performance milestones for a fiscal year to be mutually agreed upon by Mr. Sapirstein and the board or its Compensation Committee. Mr. Sapirstein is also eligible to receive a
realization bonus equal to $2,000,000 in either cash or registered common stock or a combination thereof as mutually agreed by Mr. Sapirstein and us, in the event that during the term of the agreement, for a period of 90 consecutive trading days, the market pricedisposition of our common stock is $6.25Series C Convertible Preferred Stock, warrants or more and the value of the common stock daily trading volume is $625,000 or more. Additionally, Mr. Sapirstein received incentive stock options to purchase 1,000,000 shares of our common stock exercisable at $2.31 per share, the closing sale price of our common stock on or after January 1, 2019. Because we may not know the OTC BB on March 18, 2014. The options vest over four years in 4 annual installments.
Ifextent to which a distribution is a dividend for U.S. federal income tax purposes at the agreementtime it is terminated by us other thanmade, for causepurposes of these withholding rules we or if Mr. Sapirstein terminates his employment for good reason, Mr. Sapirstein shall receive, after he has been employed by the Company for six months, (i) any portion of unpaid base compensation due for periods prior to date of termination, (ii) a severance payment equal to base salary for twelve (12) months from date of termination, (iii) any bonus and/or realization bonus earned and not yet paid through date of termination, (iv) all expenses reasonably and necessarily incurred by Mr. Sapirstein and (v) payment ofapplicable withholding agent may treat the cost of medical insurance for a period of twelve months following termination.
In the event Mr. Sapirstein's employment is terminatedentire distribution as a result of a change of control Mr. Sapirstein shall receive, after he has been employed by the Company for six months, the compensation set forth above in addition to the vesting of all of the Company options, warrants and other convertible securities held by him which will be exercisable for a period of six months following the date of termination.
Mr. Sapirstein's agreement contains customary provisions relating to confidential information.
On January 1, 2014 the Company entered into a consulting agreement with Bernard Denoyer, who is currently serving as the Company's Chief Financial Officer, to provide on-going financial advisory services. The agreement is for a term of up to one year at a cost of approximately $4,000 per month and is cancellable upon 30 days' notice. During the period January 1, 2014 through March 31, 2014 Mr. Denoyer was paid $11,000 under this agreement.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Agreements with Synergy
Loan and Security Agreement
On June 5, 2013, ContraVir entered into a Loan and Security Agreement with Synergy pursuant to which Synergy agreed to lend ContraVir up to five hundred thousand dollars ($500,000) for working capital purposes (the "Loan Agreement"). Also on June 5, 2013, August 29, 2013, October 18, 2013 and January 9, 2014, pursuant to the Loan Agreement, Synergy made an advance to ContraVir of $100,000, $100,000, $150,000 and $100,000, respectively, under a promissory note (the "Note"). The Note bears interest at six percent (6%) per annum and such interest shall be paid on the 15th of each of January, March, June and September, beginning September 15, 2013. The Note matures on the earlier of June 10, 2014 or the date that the entire principal amount and interest shall become due and payable by reason of an event of default under the Note or otherwise. In addition, Synergy has the right to demand payment of the unpaid principal amount and all accrued but unpaid interest thereon at any time after August 4, 2013, upon providing us fifteen (15) days prior written notice. In connection with the Loan Agreement ContraVir granted Synergy a security interest in all of its assets, including its intellectual property, until the Note is repaid in full. On November 18, 2013, we entered into an amendment to the Loan Agreement with Synergy pursuant to which Synergy agreed to increase the aggregate amount available to us under the Loan Agreement from five hundred thousand dollars ($500,000) to one million dollars ($1,000,000). On March 27, 2014, we paid $461,236 to Synergy in full repayment of the advance, including accrued but unpaid interest thereon. As of the date of this prospectus, we have not taken any further advances under the Loan Agreement.
Shared Services Agreement
On July 8, 2013, we entered into a Shared Services Agreement, as amended and restated August 5, 2013, with Synergy, effective May 16, 2013. Under the Shared Services Agreement, Synergy has provided and/or made available to us various administrative, financial (including internal audit and payroll functions), legal, insurance, facility, information technology, laboratory, real estate and other services to be provided by, or on behalf of, Synergy, together with such other services as reasonably requested by us. In consideration for such services, we have paid fees to Synergy for the services provided, and those fees will generally be in amounts intended to allow the party providing services to recover all of its direct and indirect costs incurred in providing those services. The personnel performing services under the Shared Services Agreement are employees and/or independent contractors of Synergy and are not under our direction or control. These personnel costs are based upon the actual percentages of time spent by Synergy personnel performing services for us under the Shared Services Agreement. We will also reimburse Synergy for direct out-of-pocket costs incurred by Synergy for third party services provided to us. Effective April 1, 2014, we terminated the shared services agreement with Synergy.
The following table sets forth certain informationdividend. Prospective investors should consult their tax advisors regarding the beneficial ownershippotential application of our common stock as of May 12, 2014, on an actual basis and as adjusted to reflect the sale of our common stock offered by this prospectus, by:these withholding provisions.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities. Shares of common stock that may be acquired by an individual or group within 60 days of May 12, 2014, pursuant to the exercise of options or warrants, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. Percentage of ownership is based on 18,485,294 shares of common stock outstanding on May 12, 2014 and shares of common stock outstanding after the completion of this offering.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o ContraVir Pharmaceuticals, Inc., 420 Lexington Avenue, Suite 300, New York, NY 10170.
| | | Percentage of Common Stock Beneficially Owned | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Beneficial Owner | Number of Shares Beneficially Owned | Before Offering | After Offering(1) | |||||||
Directors and Executive Officers | ||||||||||
James Sapirstein | 0 | * | * | |||||||
Gary S. Jacob(2) | 232,935 | 1.25 | * | |||||||
Bernard F. Denoyer | 1,030 | * | * | |||||||
John Brancaccio | 2,015 | * | * | |||||||
Christopher McGuigan | 0 | * | * | |||||||
Timothy Block | 0 | * | * | |||||||
All current executive officers and directors as a group (6 persons) | 235,980 | 1.26 | ||||||||
DESCRIPTION OF CAPITAL STOCKSECURITIES
The following is a summary of the material termsPreferred Stock
We may issue shares of our capitalpreferred stock that will be containedfrom time to time, in the amended and restatedone or more series. Under our certificate of incorporation, our board of directors has the authority, without further action by stockholders, to designate up to 20,000,000 shares of preferred stock in one or more series and by-laws,to fix the rights, preferences, privileges, qualifications and is qualifiedrestrictions granted to or imposed upon the preferred stock, including dividend rights, conversion rights, voting rights, rights and terms of redemption, liquidation preference and sinking fund terms, any or all of which may be greater than the rights of the common stock.
If we issue preferred stock, we will fix the rights, preferences, privileges, qualifications and restrictions of the preferred stock of each series that we sell under this prospectus and applicable prospectus supplements in its entiretythe certificate of designations relating to that series. If we issue preferred stock, we will incorporate by reference to these documents. You should refer to our amended and restated certificate of incorporation and by-laws, which are included as exhibits tointo the registration statement of which this information statementprospectus is a part along with the applicable provisionsform of Delaware law.
General
The following description of our common stock and preferred stock, summarizes the material terms and provisions of the our common stock and preferred stock and is not complete. For the complete terms of our common stock and preferred stock, please refer to ourany certificate of incorporation, which may be further amended from time to time, any certificates of designation for our preferred stock, and our bylaws, as amended from time to time. The Delaware General Corporation Law, or DGCL, may also affectdesignations that describes the terms of these securities.
As of the date of this registration statement, our authorized capital stock consisted of 120,000,000 shares of common stock, $0.0001 par value per share, and 20,000,000 sharesseries of preferred stock $0.0001 par value per share. Ourwe are offering before the issuance of the related series of preferred stock. We urge you to read the prospectus supplement related to any series of preferred stock we may offer, as well as the complete certificate of designations that contains the terms of the applicable series of preferred stock.
Series C Convertible Preferred Stock
We will authorize the Series C Convertible Preferred Stock by filing a certificate of designation with the Secretary of State of Delaware. The certificate of designation may be authorized by our Board without approval by our stockholders.
Conversion. Each share of Directors may establishSeries C Convertible Preferred Stock will be convertible, at our option at any time on or after the first anniversary of the closing of the rights and preferencesoffering or at the option of the preferred stock fromholder at any time, to time. Asinto the number of the date of this prospectus, there were 18,485,294 shares of our common stock issued and outstanding and no sharesdetermined by dividing the $1,000 stated value per share of preferred stock issued and outstanding. Also 1,500,000 shares of common stock have been reserved for issuance under the 2013 Equity Incentive Plan. 204,000 options had been granted under the plan as of December 31, 2013, atSeries C Convertible Preferred Stock by a weighted average exerciseconversion price of $0.11. On January 24, 2014, we issued options$1.55 per share. In addition, the conversion price per share is subject to purchase (i) 200,000adjustment for stock dividends, distributions, subdivisions, combinations or reclassifications. Subject to limited exceptions, a holder of the Series C Convertible Preferred Stock will not have the right to convert any portion of the Series C Convertible Preferred Stock to the extent that, after giving effect to the conversion, the holder, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of our common stock at an exercise priceoutstanding immediately after giving effect to its conversion.
Fundamental Transactions. In the event we effect certain mergers, consolidations, sales of $0.37 persubstantially all of our assets, tender or exchange offers, reclassifications or share to Gary Jacob,exchanges in which our Chairmancommon stock is effectively converted into or exchanged for other securities, cash or property, we consummate a business combination in which another person acquires 50% of the Board, for services rendered (ii) 30,000outstanding shares of our common stock, at an exercise priceor any person or group becomes the beneficial owner of $0.37 per share50% of the aggregate ordinary voting power represented by our issued and outstanding common stock, then, upon any subsequent conversion of the Series C Convertible Preferred Stock, the holders of the Series C Convertible Preferred Stock will have the right to John Brancaccio, a director, for services rendered, (iii) 10,000receive any shares of our common stock at an exercise price of $0.37 per sharethe acquiring corporation or other consideration it would have been entitled to Timothy Block,receive if it had been a director, for services rendered, (iv) 250,000 shares of our common stock at an exercise price of $0.37 per share to Chris McGuigan, a director, for services rendered and (v) an aggregate of 90,000 shares of our common stock at an exercise price of $0.37 per share to various consultants for services rendered. On March 12, 2014, we issued options to purchase (i) 21,897 shares of our common stock at an exercise price of $2.37 per share to John Brancaccio, a director, for services rendered, (ii) 19,777 shares of our common stock at an exercise price of $2.37 per share to Timothy Block, a director, for services rendered, and (iii) 16,596 shares of our common stock at an exercise price of $2.37 per share to Chris McGuigan, a director, for services rendered. On March 19, 2014, we issued options to purchase (i) 300,000 shares of our common stock at an exercise price of $2.31 per share to Gary Jacob, our Chairmanholder of the Board, for services rendered and (ii) 1,000,000 sharesnumber of our common stock at an exercise price of $2.31 per share to James Sapirstein, our chief executive officer, in accordance with the terms of his employment agreement. As of May 12, 2014 the Company had outstanding an aggregate of 2,142,270 options to purchase its common stock under the Plan, at a weighted average exercise price of $1.58 per share, of which 230,000 options had vested.
In addition, on February 4, 2014, we entered into securities purchase agreements with certain accredited investors, as defined in Regulation D promulgated under the Securities Act, pursuant to which we sold the investors an aggregate of 9,485,294 units, each unit consisting of one (1) share of our common stock, par value $0.0001 per share (or 9,485,294 shares of common stock then issuable upon conversion in full of the Series C Convertible Preferred Stock.
Dividends. Holders of Series C Convertible Preferred Stock shall be entitled to receive dividends (on an as-if-converted-to-common-stock basis) in the aggregate) and a warrant to purchase one-half (1/2) sharesame form as dividends actually paid on shares of ourthe common stock (or 4,742,647when, as and if such dividends are paid on shares of Common Stock in the aggregate), or the Warrants, for aggregate gross proceeds of $3,225,000. The Warrants are exercisable for a period of six years from the date of issuance at an initial exercise price of $0.37, subject to adjustment.common stock.
Voting Rights. Except as otherwise provided in the certificate of designation or as otherwise required by law, the Series C Convertible Preferred Stock has no voting rights.
Liquidation Preference. Upon our liquidation, dissolution or winding-up, whether voluntary or involuntary, holders of Series C Convertible Preferred Stock will be entitled to receive out of our assets, whether capital or surplus, an amount equal to the $1,000 stated value per share for each share of Series C Convertible Preferred Stock before any distribution or payment shall be made to the holders of any junior securities.
Redemption Rights. We are not obligated to redeem or repurchase any shares of Series C Convertible Preferred Stock. Shares of Series C Convertible Preferred Stock are not otherwise entitled to any redemption rights, or mandatory sinking fund or analogous provisions.
Warrants
Warrants Included in Units Issuable in the Rights Offering
The warrants to be issued as a part of this rights offering will be designated as our "Series " warrants. These warrants will be separately transferable following their issuance and through their expiration five (5) years from the date of issuance. Each warrant will entitle the holder to purchase one share of common stock at an exercise price of $1.55 per share from the date of issuance through its expiration.
All warrants that are purchased in the rights offering as part of the units will be issued in book-entry, or uncertificated, form meaning that you will receive a DRS account statement from our transfer agent reflecting ownership of warrants if you are a holder of record of shares or warrants. The subscription agent will arrange for the issuance of the warrants as soon as practicable after the closing, which will occur as soon as practicable after the rights offering has expired but which may occur up to five business days thereafter. At closing, all prorating calculations and reductions contemplated by the terms of the rights offering will have been effected and payment to us for the subscribed-for units will have cleared. If you hold your shares of common stock in the name of a bank, broker, dealer, or other nominee, DTC will credit your account with your nominee with the warrants you purchased in the rights offering.
Exercisability. Each warrant will be exercisable at any time and will expire five (5) years from the date of issuance. The warrants will be exercisable, at the option of each holder, in whole or in part by delivering to us a duly executed exercise notice and payment in full for the number of shares of our common stock purchased upon such exercise, except in the case of a cashless exercise as discussed below.
The number of shares of common stock issuable upon exercise of the warrants is subject to adjustment in certain circumstances, including a stock split of, stock dividend on, or a subdivision, combination or recapitalization of the common stock.
Cashless Exercise. If at any time there is no effective registration statement registering, or the prospectus contained therein is not available for issuance of, the shares issuable upon exercise of the warrant, the holder may exercise the warrant only on a cashless basis. When exercised on a cashless basis, a portion of the warrant is cancelled in payment of the purchase price payable in respect of the number of shares of our common stock purchasable upon such exercise.
Exercise Price. Each warrant represents the right to purchase one share of common stock at an exercise price of $1.55 per share. In addition, the exercise price per share is subject to adjustment for stock dividends, distributions, subdivisions, combinations, or reclassifications. Subject to limited exceptions, a holder of warrants will not have the right to exercise any portion of the warrant to the extent that, after giving effect to the exercise, the holder, together with its affiliates, and any other
person acting as a group together with the holder or any of its affiliates, would beneficially own in excess of 4.99% of the number of shares of our common stock outstanding immediately after giving effect to its exercise. The holder, upon notice to the Company, may increase or decrease the beneficial ownership limitation provisions of the warrant, provided that in no event shall the limitation exceed 9.99% of the number of shares of our common stock outstanding immediately after giving effect to the exercise of the warrant.
Transferability. Subject to applicable laws and restrictions, a holder may transfer a warrant upon surrender of the warrant to us with a completed and signed assignment in the form attached to the warrant. The transferring holder will be responsible for any tax that liability that may arise as a result of the transfer.
Rights as Stockholder. Except as set forth in the warrant, the holder of a warrant, solely in such holder's capacity as a holder of a warrant, will not be entitled to vote, to receive dividends, or to any of the other rights of our stockholders.
Redemption Rights. We may redeem the warrants for $0.01 per warrant if our common stock closes above $6.20 per share for ten consecutive trading days, provided that we may not do so prior to the first anniversary of closing of the rights offering, and provided further that we may not do so if the redemption would cause the warrant holder to exceed its beneficial ownership limitation among other conditions.
Amendments and Waivers. The provisions of each warrant may be modified or amended or the provisions thereof waived with the written consent of us and the holder.
The warrants will be issued pursuant to a warrant agent agreement by and between us and Philadelphia Stock Transfer, Inc., the warrant agent.
Series A Preferred Stock
On October 14, 2014, we filed a Certificate of Designation, Preference and Rights of Series A Convertible Preferred Stock (the "Series A Preferred Stock") with the Secretary of State of the State of Delaware. The number of shares of Series A Preferred Stock designated is 1,250,000 and each share of Series A Preferred Stock has a stated value equal to $10.00 (the "Series A Stated Value").
Voting Rights. Except as otherwise provided therein and as otherwise prohibited by law, the Series A Preferred Stock shall have voting rights on an as converted basis. So long as any shares of Series A Preferred Stock are outstanding, the Company shall not, without the affirmative vote of the Holders of the shares of the Series A Preferred Stock then outstanding, (a) alter or change adversely the powers, preferences or rights given to the Series A Preferred Stock or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Series A Liquidation (as defined herein) senior to or otherwise pari passu with the Series A Preferred Stock, or (c) enter into any agreement with respect to the foregoing.
Liquidation. Upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary (a "Series A Liquidation"), the holders shall be entitled to receive out of the assets of the Company, whether such assets are capital or surplus, for each share of Series A Preferred Stock an amount equal to 100% of the Series A Stated Value per share plus any other fees or liquidated damages owing thereon before any distribution or payment shall be made to the holders of any junior securities, and if the assets of the Company shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be distributed among the holders ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversions at Option of Holder. Each share of Series A Preferred Stock shall be convertible into that number of shares of Common Stock determined by dividing the Series A Stated Value of such share of Series A Preferred Stock by $3.84 (the "Series A Conversion Price"), at the option of the holder, at any time and from time to time from and after October 14, 2014.
Subsequent Equity Sales. If, at any time while this Series A Preferred Stock is outstanding, the Company sells or grants any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any common stock or common stock equivalents entitling any person to acquire shares of common stock (a "Series A Subsequent Financing") at an effective price per share that is lower than the then Series A Conversion Price (such lower price, the "Series A Base Conversion Price" and such issuances collectively, a "Series A Dilutive Issuance") (if the holder of the common stock or common stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of common stock at an effective price per share that is lower than the Series A Conversion Price, such issuance shall be deemed to have occurred for less than the Series A Conversion Price on such date of the Series A Dilutive Issuance), the Series A Conversion Price then in effect shall be reduced to the Series A Base Conversion Price. The holder's rights under this section shall terminate upon the Company completing a Series A Subsequent Financing at an effective price per share equal to or greater than the Series A Conversion Price then in effect which results in minimum gross proceeds to the Company of $20 million.
Lock-Up. The shares of Series A Preferred Stock and the shares of common stock underlying the shares of Series A Preferred Stock were subject to a lock-up agreement until July 31, 2016.
Registration Rights. In the event we close a Series A Subsequent Financing of common or preferred stock, which does not include any warrants or convertible securities, at an effective price per share that is lower than 160% ("Series A Premium Price") of the then Series A Conversion Price (the "Series A Registration Price") and the purchasers of the securities in the Series A Subsequent Financing are given registration rights for such securities or such securities are issued on a registered basis, the holders shall receive at such time (i) equivalent registration rights for the Series A Preferred Stock and the shares issuable upon conversion of the Series A Preferred Stock in the event purchasers of the securities in the Series A Subsequent Financing receive registration rights or (ii) demand registration rights in the event purchasers of the securities in the Series A Subsequent Financing receive registered shares. In the event, the Series A Subsequent Financing includes warrants or other convertible securities, the Series A Premium Price shall increase by 1% for every 1% of warrant or other convertible security coverage in the Subsequent Financing. The holder's rights under this section shall terminate upon us completing a Series A Subsequent Financing at an effective price per share equal to or greater than the Series A Registration Price which results in minimum gross proceeds to us of $20 million.
Series B Preferred Stock
On December 18, 2014, we filed a Certificate of Designation, Preference and Rights of Series B Convertible Preferred Stock (the "Series B Preferred Stock") with the Secretary of State of the State of Delaware. The number of shares of Series B Preferred Stock designated is 120,000 and each share of Series B Preferred Stock has a stated value equal to $10.00 (the "Series B Stated Value").
Voting Rights. Except as otherwise provided therein and as otherwise prohibited by law, the Series B Preferred Stock shall have voting rights on an as converted basis. So long as any shares of Series B Preferred Stock are outstanding, we shall not, without the affirmative vote of the holders of the shares of the Series B Preferred Stock then outstanding, (a) alter or change adversely the powers,
preferences or rights given to the Series B Preferred Stock or alter or amend the Certificate of Designation, (b) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a Series B Liquidation (as defined herein) senior to or otherwise pari passu with the Series B Preferred Stock, or (c) enter into any agreement with respect to the foregoing.
Liquidation. Upon any liquidation, dissolution or winding-up of us, whether voluntary or involuntary (a "Series B Liquidation"), the holders shall be entitled to receive out of our assets, whether such assets are capital or surplus, for each share of Series B Preferred Stock an amount equal to 100% of the Series B Stated Value per share plus any other fees or liquidated damages owing thereon on apari passu basis with the holders of Series A Preferred Stock and before any distribution or payment shall be made to the holders of any junior securities, and if our assets shall be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders shall be distributed among the holders, and the holders of Series A Preferred Stock, ratably in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversions at Option of Holder. Each share of Series B Preferred Stock shall be convertible into that number of shares of common stock determined by dividing the Series B Stated Value of such share of Series B Preferred Stock by $8.96 (the "Series B Conversion Price"), at the option of the holder.
Subsequent Equity Sales. If, at any time while this Series B Preferred Stock is outstanding, we sell or grant any option to purchase or sells or grants any right to reprice its securities, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition) any common stock or common stock equivalents entitling any person to acquire shares of Common Stock (a "Series B Subsequent Financing") at an effective price per share that is lower than the then Series B Conversion Price (such lower price, the "Series B Base Conversion Price" and such issuances collectively, a "Series B Dilutive Issuance") (if the holder of the common stock or common stock equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of common stock at an effective price per share that is lower than the Series B Conversion Price, such issuance shall be deemed to have occurred for less than the Series B Conversion Price on such date of the Series B Dilutive Issuance), the Series B Conversion Price then in effect shall be reduced to the Series B Base Conversion Price. The Holder's rights under this Section shall terminate upon the Company completing a Series B Subsequent Financing at an effective price per share equal to or greater than the Series B Conversion Price then in effect which results in minimum gross proceeds to us of $20 million.
Registration Rights. In the event we close a Series B Subsequent Financing of common or preferred stock, which does not include any warrants or convertible securities, at an effective price per share that is lower than 160% ("Series B Premium Price") of the then Series B Conversion Price (the "Series B Registration Price") and the purchasers of the securities in the Series B Subsequent Financing are given registration rights for such securities or such securities are issued on a registered basis, the holders shall receive at such time (i) equivalent registration rights for the Series B Preferred Stock and the shares of common stock issuable upon conversion of the Series B Preferred Stock in the event purchasers of the securities in the Series B Subsequent Financing receive registration rights or (ii) demand registration rights in the event purchasers of the securities in the Series B Subsequent Financing receive registered shares. In the event, the Series B Subsequent Financing includes warrants or other convertible securities, the Series B Premium Price shall increase by 1% for every 1% of warrant or other convertible security coverage in the Series B Subsequent Financing. The holder's rights under this Section shall terminate upon the Company completing a Series B Subsequent
Financing at an effective price per share equal to or greater than the Series B Registration Price which results in minimum gross proceeds to us of $20 million.
Common Stock
Holders of common stock are entitled to receive ratably dividends out of funds legally available, if and when declared from time to time by our Board. We have never paid any cash dividends on our common stock and our Board does not anticipate that we will pay cash dividends in the foreseeable future. The future payment of dividends, if any, on our common stock is within the discretion of the Board and will depend upon earnings, capital requirements, financial condition and other relevant factors. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of the shareholders. Except as otherwise required under Delaware law, a majority of the votes cast at a shareholder meeting at which a quorum is present must approve all shareholder matters. Our certificate of incorporation does not provide for cumulative voting. Holders of our common stock are entitled to receive ratably such dividends, if any, as may be declared by Synergy's Board of Directors out of legally available funds. However, the current policy of our Board is to retain earnings, if any, for the operation and expansion of our business. Upon liquidation, dissolution or winding-up, the holders of our common stock are entitled to share ratably in all of our assets which are legally available for distribution, after payment of or provision for all liabilities. The holders of our common stock have no preemptive, subscription, redemption or conversion rights.
Preferred Stock
As of the date of this prospectus, no shares of our preferred stock are issued and outstanding. Our certificate of incorporation provides that our Board of Directors may by resolution, without further vote or action by the stockholders, establish one or more classes or series of preferred stock having the number of shares and relative voting rights, designation, dividend rates, liquidation, and other rights, preferences, and limitations as may be fixed by them without further stockholder approval. Once designated by our Board of Directors, each series of preferred stock will have specific financial and other terms that will be described in a Form 8-K. The description of the preferred stock that is set forth in any Form 8-K is not complete without reference to the documents that govern the preferred stock. These include our certificate of incorporation and any certificates of designation that our Board of Directors may adopt. Prior to the issuance of shares of each series of preferred stock, our Board of Directors is required by the DGCL and our certificate of incorporation to adopt resolutions and file a certificate of designation with the Secretary of State of the State of Delaware. The certificate of designation fixes for each class or seriesshare held on each matter to be voted on by stockholders. There is no cumulative voting in the designations, powers, preferences, rights, qualifications, limitations and restrictions, including, but not limited to, some or allelection of the following:
Table of ContentsAnti-Takeover Devices
whether now or hereafter authorized, or of any bonds, debentures, notes, or other securities of ContraVir, whether or not convertible into shares of stock with ContraVir.
Although our Board of Directors has no intention at the present time of doing so, it could authorize the issuance of a series of preferred stock that could, depending on the terms of such series, impede the completion of a merger, tender offer or other takeover attempt.
Anti-Takeover Effects of Certain Provisions of ContraVir Certificate of Incorporation, Bylaws and the DGCL
Certain provisions of our certificateCertificate of incorporationIncorporation and bylaws,Bylaws, which are summarized in the following paragraphs, may have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our certificatethe Certificate of incorporationIncorporation and bylawsBylaws and Delaware law, as applicable, among other things:
These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of ContraVirus to first negotiate with its board. These provisions may delay or prevent someone from acquiring or merging with ContraVir,us, which may cause theour market price of ContraVirour common stock to decline.
Blank Check Preferred. Our Board of Directors is authorized to create and issue from time to time, without stockholder approval, up to an aggregate of 20,000,000 shares of preferred stock in one or more series and to establish the number of shares of any series of preferred stock and to fix the designations, powers, preferences and rights of the shares of each series and any qualifications, limitations or restrictions of the shares of each series.
The authority to designate preferred stock may be used to issue series of preferred stock, or rights to acquire preferred stock, that could dilute the interest of, or impair the voting power of, holders of the common stock or could also be used as a method of determining, delaying or preventing a change of control.
Advance Notice Bylaws. The Bylaws contain an advance notice procedure for stockholder proposals to be brought before any meeting of stockholders, including proposed nominations of persons for election to our Board of Directors. Stockholders at any meeting will only be able to consider
proposals or nominations specified in the notice of meeting or brought before the meeting by or at the direction of our Board of Directors or by a stockholder who was a stockholder of record on the record date for the meeting, who is entitled to vote at the meeting and who has given Synergy'sour corporate secretary timely written notice, in proper form, of the stockholder's intention to bring that business before the meeting. Although the Bylaws do not give our Board of Directors the power to approve or disapprove stockholder nominations of candidates or proposals regarding other business to be conducted at a special or annual meeting, the Bylaws may have the effect of precluding the conduct of certain business at a meeting if the proper procedures are not followed or may discourage or deter a potential acquirer from conducting a solicitation of proxies to elect its own slate of directors or otherwise attempting to obtain control of us.
Interested Stockholder Transactions. We are subject to Section 203 of the DGCL which, subject to certain exceptions, prohibits "business combinations" between a publicly-held Delaware corporation and an "interested stockholder," which is generally defined as a stockholder who becomes a beneficial owner of
15% or more of a Delaware corporation's voting stock for a three-year period following the date that such stockholder became an interested stockholder.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Philadelphia Stock Transfer, Inc.
Quotation
Our common stock is currently quoted on the NASDAQ Capital Market under the symbol "CTRV".
LimitationsTable of Contents
We will distribute rights certificates and copies of this prospectus to those persons who were holders of our common stock or who were holders of certain outstanding warrants on Liability,June 14, 2018, the record date for the rights offering, promptly following the effective date of the registration statement of which this prospectus forms a part. We are offering the rights and the shares of common stock underlying the rights directly to you. Those directors and officers of the Company who may assist in the rights offering will not register with the SEC as brokers in reliance on certain safe harbor provisions contained in Rule 3a4-1 under the Exchange Act. Philadelphia Stock Transfer is acting as our subscription agent to effect the exercise of the rights and the issuance of the underlying common stock. Therefore, while certain of our director, officers or employees may solicit responses from you, they will not receive any commissions or compensation for those services.
Delivery of Series C Convertible Preferred Stock and Warrants
If your shares are held in the name of a broker, dealer, custodian bank or other nominee, then you should send your subscription documents and subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights certificate, notice of guaranteed delivery and subscription payment to the address provided below. If sent by mail, we recommend that you send documents and payments by registered mail, properly insured, with return receipt requested, and that a sufficient number of days be allowed to ensure delivery to the subscription agent. Do not send or deliver these materials to the Company.
| By Registered Certified or Express Mail | Overnight Courier |
| PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 | PHILADELPHIA STOCK TRANSFER, INC. 2320 HAVERFORD RD. SUITE 230 ARDMORE, PA 19003 |
See "TheRights Offering—Method of Exercising Subscription Rights." If you have any questions regarding the Company or the rights offering, or you have any questions regarding completing a rights certificate or submitting payment in the rights offering, please contact the subscription agent, Philadelphia Stock Transfer, toll free at 484-416-3124, or by email at bwinterle@philadelphiastocktransfer.com.
Other than as described in this prospectus, we do not know of any existing agreements between any stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the underlying securities.
Maxim Group LLC is the dealer-manager of this rights offering. In such capacity, such dealer-manager will provide marketing assistance and financial advice (including determining the subscription price and the structure of the rights offering) to us in connection with this offering and will solicit the exercise of basic subscription rights and participation in the over-subscription privilege. The dealer-manager will provide us with updated investor feedback and recommendations on pricing and structure through to the end of the subscription period. The dealer-manager is not underwriting or placing any of the basic subscription rights and does not make any recommendation with respect to such basic subscription rights (including with respect to the exercise or expiration of such basic subscription rights.
In connection with this rights offering, we have agreed to pay fees to Maxim Group LLC as dealer-manager a cash fee equal to 6.0% of the gross proceeds received by us directly from exercises of the subscription rights. We advanced $20,000 to Maxim Group LLC for its anticipated out-of-pocket expenses related to the offering (the "Advance"). Any portion of the Advance not offset by actual
expenses will be returned to us. In addition, we have agreed to pay to the dealer-manager a non-accountable expense allowance equal to $30,000.
Subject to completion of this offering, we have agreed to grant to the dealer-manager a warrant (the "Dealer-Manager Warrant") to purchase a number of shares of common stock equal to four percent (4%) of the total number of shares issuable upon conversion of the Series C Convertible Preferred Stock sold in this rights offering at the initial conversion price of $1.55 per share. The Dealer-Manager Warrant shall not be exercisable for six (6) months from the effective date of the registration statement and shall expire five (5) years after such effective date. The Dealer-Manager Warrant shall be exercisable at a price per share equal to 110% of conversion price of the Series C Convertible Preferred Stock. The Dealer-Manager Warrant shall not be redeemable. The Dealer-Manager Warrant shall not be sold, transferred, assigned or hypothecated for a period of six (6) months from the effective date of registration statement, except that it may be assigned, in whole or in part, to any successor, officer, or partner of the Dealer-Manager (or to officers or partners of any such successor) and shall contain unlimited piggy-back registration rights for 5 years from the effective date.
We have also agreed to indemnify the dealer-manager and its respective affiliates against certain liabilities arising under the Securities Act. The dealer-manager's participation in this offering is subject to customary conditions contained in the dealer-manager agreement, including the receipt by the dealer-manager of an opinion of our counsel. The dealer-manager and its affiliates may provide to us from time to time in the future in the ordinary course of their business certain financial advisory, investment banking and other services for which they will be entitled to receive fees.
Maxim Group LLC is a broker-dealer registered with the U.S. Securities and Exchange Commission and a member of the Financial Industry Regulatory Authority, Inc. The principal business address of Maxim Group LLC is 405 Lexington Avenue, New York, New York 10174.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The consolidated financial statements as of December 31, 2017 and for the six month transition period ended December 31, 2017 and as of June 30, 2017 and 2016 and the years then ended incorporated by reference in this Prospectus have been so incorporated in reliance on the report of BDO USA, LLP, an independent registered public accounting firm (the report on the consolidated financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern), incorporated by reference herein, given on the authority of said firm as experts in auditing and accounting.
Certain legal matters relating to the validity of the securities offered by this prospectus will be passed upon for us by Sheppard, Mullin, Richter & Hampton LLP New York, New York.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document filed by the Company at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The Company's filings with the SEC are also available to the public at the SEC's Internet web site athttp://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete, and in each instance we refer you to the copy of the contract or document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows the Company to "incorporate by reference" the information that is filed by the Company with the SEC, which means that the Company can disclose important information to you by referring you to those documents. The documents incorporated by reference are:
1. The Company's Annual Report on Form 10-K for the year ended June 30, 2017, filed with the SEC on September 28, 2017;
2. The Company's Transition Report on Form 10-KT for the transition period from July 1, 2017 to December 31, 2017, filed with the SEC on March 26, 2018;
3. The Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 2017 and March 31, 2018;
4. The Company's Definitive Proxy Statements filed on October 27, 2017 and January 24, 2018;
5. The Company's Current Reports on Form 8-K filed on August 3, 2017, September 11, 2017, October 3, 2017, October 17, 2017, October 19, 2017, October 24, 2017, November 6, 2017, December 8, 2017, December 13, 2017, December 18, 2017, December 21, 2017, January 2, 2018, January 3, 2018, February 5, 2018, February 6, 2018, February 9, 2018, February 12, 2018, February 21, 2018, February 22, 2018, March 9, 2018, April 13, 2018, May 24, 2018, May 29, 2018, May 30, 2018 and May 31, 2018;
6. The description of the Company's common stock contained in the registration statement on Form 8-A filed with the Commission on February 24, 2015 pursuant to Section 12 of the Exchange Act of 1934, as amended (the "Exchange Act"), including any amendment or report filed for the purpose of updating that description; and
7. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, after the date of the original Registration Statement and prior to effectiveness of the registration statement of which this prospectus is a part, provided that all documents "furnished" by the Company to the SEC and not "filed" are not deemed incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this registration statement to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this registration statement. Under no circumstances will any information filed under
items 2.02 or 7.01 of Form 8-K be deemed to be incorporated by reference unless such Form 8-K expressly provides to the contrary.
The Company will provide, without charge, to each person, including any beneficial owner, to whom a copy of this prospectus is delivered, upon such person's written or oral request, a copy of any and all of the information incorporated by reference in this prospectus, other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information that this prospectus incorporates. Requests should be directed to the Secretary at ContraVir Pharmacueticals, Inc., 399 Thornall Street, First Floor, Edison, New Jersey, 08837, phone (732) 902-4000. You may also find these documents in the "Investors" section of our website, www.contravir.com. The information on our website is not incorporated into this prospectus.
PROSPECTUS
Subscription Rights to Purchase Up to 20,000 Units
Consisting of an Aggregate of Up to 20,000 Shares of Series C Convertible Preferred Stock and Warrants to Purchase Up to 6,460,000 Shares of Common Stock at a Subscription Price of $1,000 Per Unit
Dealer-Manager
Maxim Group LLC
, 2018
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following are the estimated expenses of the distribution of the Shares registered hereunder on Form S-1 (the amounts set forth above are estimate, except the SEC Registration Fee:
Registration Fee—Securities and Exchange Commission | $ | 2,490 | ||
FINRA filing fee | $ | 3,500 | ||
Accountants Fees and Expenses | $ | 50,000 | ||
Legal Fees and Expenses | $ | 150,000 | ||
Miscellaneous | $ | 9,010 | ||
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Total | $ | 215,000 |
ITEM 14. Indemnification of Officers and Directors and InsuranceOfficers.
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties as directors and our amended and restated certificate of incorporation will includeincludes such an exculpation provision. Our certificate of incorporation and by-laws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of us, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our certificate of incorporation and by-laws will also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. Our certificate of incorporation will expressly authorizeauthorizes us to carry directors' and officers' insurance to protect us, our directors, officers and certain employees for some liabilities. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director's duty of care. The provisions will not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any of our directors, officers or employees for which indemnification is sought.
Authorized but Unissued Shares.
Our authorized but unissued shares of common stock and preferred stock will be available for future issuance without your approval. We may use additional shares for a variety of purposes, including future public offerings to raise additional capital, to fund acquisitions and as employee compensation. The existence of authorized but unissued shares of common stock and preferred stock could render more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is Philadelphia Stock Transfer, Inc.
Representative's Warrants
We have agreed to issue to the representative of the underwriters in this offering warrants to purchase up to shares of our common stock at a per share exercise price equal to the greater of 125% of the public offering price or $2.00. A complete description of these warrants is included in the "Underwriting—Representative's Warrants" section of this prospectus.
Stock Market Listing
Our common stock is quoted on the OTC Bulletin Board under the symbol "CTRV.OB."
Aegis Capital Corp. is acting as the sole manager of the offering and as representative of the underwriters, or the Representative. We have entered into an underwriting agreement dated , 2014 with the Representative. Subject to the terms and conditions of the underwriting agreement, we have agreed to sell to each underwriter named below and each underwriter named below has severally agreed to purchase, at the public offering price less the underwriting discount set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
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The underwriters are committed to purchase all the shares of common stock offered by us other than those covered by the option to purchase additional shares described below, if they purchase any shares. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, pursuant to the underwriting agreement, the underwriters' obligations are subject to customary conditions, representations and warranties contained in the underwriting agreement, such as receipt by the underwriters of officers' certificates and legal opinions.
The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase a maximum of additional shares (15% of the shares sold in this offering) from us to cover over-allotments, if any. If the underwriters exercise all or part of this option, they will purchase shares covered by the option at the public offering price per share that appears on the cover page of this prospectus, less the underwriting discount. If this option is exercised in full, the total price to the public will be $ and the total net proceeds, before expenses, to us will be $ .
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
Discount
The following table shows the public offering price, underwriting discount and proceeds, before expenses, to us. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
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The underwriters propose to offer the shares offered by us to the public at the public offering price set forth on the cover of this prospectus. In addition, the underwriters may offer some of the shares to other securities dealers at such price less a concession of $ per share. If all of the shares offered by us are
not sold at the public offering price, the Representative may change the offering price and other selling terms by means of a supplement to this prospectus.
We have paid an expense deposit of $15,000 to the Representative, which will be applied against accountable expenses and reimbursed to us to the extent not actually incurred. The Representative will also be entitled to a non-accountable expense allowance of $ that will be paid by us in connection with this offering.
We have also agreed to pay the Representative's expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of our officers and directors in an amount not to exceed $5,000 per individual and $15,000 in the aggregate; (b) all fees, expenses and disbursements relating to the registration, qualification or exemption of securities offered under the securities laws of such states and other jurisdictions designated by the Representative, up to a maximum of $15,000; (c) the cost of all mailing and printing of underwriting documents; (d) upon successfully completing this offering, $21,775 for the underwriters' use of certain software for this offering; and (e) upon successfully completing this offering, up to $20,000 of the representative's actual accountable road show expenses for the offering.
We estimate that the total expenses of the offering payable by us, excluding the total underwriting discount, will be approximately $250,000.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Lock-Up Agreements
Pursuant to certain "lock-up" agreements, we, our directors and officers and certain holders of 5% or more of our outstanding shares of common stock have agreed, for a period ending 90 days from the date of the final prospectus for the offering, not to (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, encumber, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our securities or any securities convertible into or exercisable or exchangeable for shares of our common stock owned or acquired on or prior to the closing date of this offering (including any shares of common stock acquired after the closing date of this offering upon the conversion, exercise or exchange of such securities); (2) file or caused to be filed any registration statement relating to the offering of any shares of our capital stock; or (3) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described in clause (1), (2) or (3) above is to be settled by delivery of common stock or such other securities, in cash or otherwise, except for certain exceptions and limitations.
The above restrictions do not apply to (i) shares sold in this offering, (ii) the issuance of stock options, restricted stock or other equity-based compensation awards under any employee benefit or equity incentive plan, (iii) the filing of a registration statement on Form S-8, and (iv) securities issued in connection with a transaction that includes a commercial relationship (including but not limited to joint ventures, marketing or distribution arrangements, option or collaboration agreements or intellectual property license agreements) or any acquisition of assets or not less than a majority or controlling portion of the equity of another entity; provided that the aggregate number of shares or securities issued pursuant to clause (v) does not exceed 10% of the total number of outstanding shares of common stock immediately following the issuance and sale of the shares in this offering.
Representative's Warrants
We have agreed to issue to the representative warrants to purchase up to a total of [ • ] shares of common stock (3% of the shares of common stock sold in this offering). The warrants are exercisable at a per share price equal to the greater of 125% of the public offering price per share in the offering or $2.00, commencing on a date which is one year from the date of the closing of the offering under this prospectus and expiring five years from the date of the closing of the offering. The warrants have been deemed compensation by FINRA and are therefore subject to a one-year lock-up pursuant to Rule 5110(g)(1) of FINRA. The representative (or permitted assignees under Rule 5110(g)(1)) will not sell, transfer, assign, pledge, or hypothecate these warrants or the securities underlying these warrants, nor will they engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying securities for a period of 180 days from the date of this prospectus. In addition, the warrants provide for registration rights upon request, in certain cases. In addition, the warrants provide for registration rights upon request, in certain cases. The demand registration right provided will not be greater than five years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H)(iv). The piggyback registration right provided will not be greater than seven years from the effective date of the offering in compliance with FINRA Rule 5110(f)(2)(H)(v). We will bear all fees and expenses attendant to registering the securities issuable on exercise of the warrants other than underwriting commissions incurred and payable by the holders. The exercise price and number of shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary cash dividend or our recapitalization, reorganization, merger or consolidation. However, the warrant exercise price or underlying shares will not be adjusted for issuances of shares of common stock at a price below the warrant exercise price.
Right of First Refusal
Subject to certain limited exceptions, until twelve months from the effective date of this offering, the Representative has a right of first refusal to act as sole book-running manager for any public or private equity or public debt offerings in which we or any of our successors or subsidiaries may engage during that period.
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters or selling group members, if any, participating in this offering and one or more of the underwriters participating in this offering may distribute prospectuses electronically. The representative may agree to allocate a number of shares to underwriters and selling group members for sale to their online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us or any underwriter in its capacity as underwriter, and should not be relied upon by investors.
Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our securities or preventing or retarding a decline in the market price of our securities. As a result, the price of our securities in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our securities. These transactions may be effected on the OTCBB, in the rest of the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on the OTCBB in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the shares and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker's bid, then that bid must then be lowered when specified purchase limits are exceeded.
Other Relationships
Certain of the underwriters and their affiliates may in the future provide various investment banking and other financial services for us and our affiliates for which they may in the future receive customary fees.
Offer Restrictions Outside the United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer for the offeree under this prospectus.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People's Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to "qualified domestic institutional investors."
European Economic Area—Belgium, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of common stock will be made pursuant to an exemption under the Directive 2003/71/EC ("Prospectus Directive"), as implemented in Member States of the European Economic Area (each, a "Relevant Member State"), from the requirement to produce a prospectus for offers of securities.
An offer to the public of common stock has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers ("AMF"). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d'investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the "Prospectus Regulations"). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority, or the ISA, nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with the offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Società e la Borsa, "CONSOB") pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 ("Decree No. 58"), other than:
Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the "FIEL") pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article 2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are
"qualified investors" (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are "qualified investors" (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange ("SIX") or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor has the Company received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by the Company.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended ("FSMA")) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to "qualified investors" (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA.
This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 ("FPO"), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together "relevant persons"). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
The validity of the issuance of the common stock offered by us in this offering will be passed upon for us by Sichenzia Ross Friedman Ference LLP, New York, New York and for the underwriters by Kramer Levin Naftalis & Frankel LLP, New York, New York.
The financial statements as of June 30, 2013 and for the period from May 15, 2013 (inception) to June 30, 2013 included in this Prospectus and in the Registration Statement have been so included in reliance on the report of BDO USA, LLP, an independent registered public accounting firm, appearing elsewhere herein and in the Registration Statement, given on the authority of said firm as experts in auditing and accounting. (The report on the financial statements contains an explanatory paragraph regarding the Company's ability to continue as a going concern.)
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a registration statement on Form S-1 under the Securities Act with respect to the common stock offered by this prospectus. This prospectus, which is part of the registration statement, omits certain information, exhibits, schedules and undertakings set forth in the registration statement. For further information pertaining to us and our common stock, reference is made to the registration statement and the exhibits and schedules to the registration statement. Statements contained in this prospectus as to the contents or provisions of any documents referred to in this prospectus are not necessarily complete, and in each instance where a copy of the document has been filed as an exhibit to the registration statement, reference is made to the exhibit for a more complete description of the matters involved.
You may read and copy all or any portion of the registration statement without charge at the public reference room of the Securities and Exchange Commission at 100 F Street, N.E., Washington, D.C. 20549. Copies of the registration statement may be obtained from the Securities and Exchange Commission at prescribed rates from the public reference room of the Securities and Exchange Commission at such address. You may obtain information regarding the operation of the public reference room by calling 1-800-SEC-0330. In addition, registration statements and certain other filings made with the Securities and Exchange Commission electronically are publicly available through the Securities and Exchange Commission's website at http://www.sec.gov. The registration statement, including all exhibits and amendments to the registration statement, has been filed electronically with the Securities and Exchange Commission.
We are a reporting company and file annual, quarterly and special reports, and other information with the Securities and Exchange Commission. Copies of the reports and other information may be read and copied at the SEC's Public Reference Room at 100 F Street NE, Washington, D.C. 20549. You can request copies of such documents by writing to the SEC and paying a fee for the copying cost. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
INDEX TO THE FINANCIAL STATEMENTS
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CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)CONDENSED BALANCE SHEETS
| | December 31, 2013 | June 30, 2013 | |||||
|---|---|---|---|---|---|---|---|
| | (unaudited) | | |||||
ASSETS | |||||||
Current Assets: | |||||||
Cash | $ | 3,275 | $ | 86,716 | |||
Prepaid insurance | 5,552 | — | |||||
| | | | | | | | |
Total Assets | $ | 8,827 | $ | 86,716 | |||
| | | | | | | | |
| | | | | | | | |
LIABILITIES AND STOCKHOLDER'S DEFICIENCY | |||||||
Current Liabilities: | |||||||
Accounts payable | $ | 55,507 | $ | 3,617 | |||
Accrued expenses | 33,562 | 40,000 | |||||
Due to parent | 54,738 | 83,266 | |||||
Demand note payable to parent and accrued interest | 354,880 | 100,328 | |||||
| | | | | | | | |
Total Current Liabilities | 498,687 | 227,211 | |||||
Stockholder's Deficiency: | |||||||
Preferred stock, par value $0.0001 per share. Authorized 20,000,000 shares, none issued and outstanding. | — | — | |||||
Common stock, par value of $.0001 per share. Authorized 120,000,000 shares, issued and outstanding 9,000,000 shares. | 900 | 900 | |||||
Additional paid-in capital | (48 | ) | (900 | ) | |||
Deficit accumulated during development stage | (490,712 | ) | (140,495 | ) | |||
| | | | | | | | |
Total Stockholder's Deficiency | (489,860 | ) | (140,495 | ) | |||
| | | | | | | | |
Total Liabilities and Stockholder's Deficiency | $ | 8,827 | $ | 86,716 | |||
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these condensed financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)CONDENSED STATEMENTS OF OPERATIONS(Unaudited)
| | Six Months Ended December 31, 2013 | For the period May 15, 2013 (inception) to December 31, 2013 | |||||
|---|---|---|---|---|---|---|---|
Revenues | $ | — | $ | — | |||
| | | | | | | | |
Costs and Expenses: | |||||||
Research and development | 22,846 | 40,587 | |||||
General and administrative | 320,780 | 443,207 | |||||
| | | | | | | | |
Loss from Operations | (343,626 | ) | (483,794 | ) | |||
| | | | | | | | |
Interest expense | (6,591 | ) | (6,918 | ) | |||
| | | | | | | | |
Net loss | $ | (350,217 | ) | $ | (490,712 | ) | |
| | | | | | | | |
| | | | | | | | |
Weighted Average Common Shares Outstanding | |||||||
Basic and Diluted | 9,000,000 | ||||||
Net Loss per Common Share | |||||||
Basic and Diluted | $ | (0.04 | ) | ||||
| | | | | | | | |
| | | | | | | | |
The accompanying notes are an integral part of these condensed financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)STATEMENTS OF CHANGES IN STOCKHOLDER'S DEFICIENCY
| | Common Shares | Common Stock, Par Value | Additional Paid in Capital | Deficit Accumulated during the Development Stage | Total Stockholder's Deficiency | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at inception, May 15, 2013 | — | $ | — | $ | — | $ | — | $ | — | |||||||
Issuance of Common Stock | 9,000,000 | 900 | (900 | ) | — | — | ||||||||||
Net loss for the period | — | — | — | (140,495 | ) | (140,495 | ) | |||||||||
| | | | | | | | | | | | | | | | | |
Balance June 30, 2013 | 9,000,000 | $ | 900 | $ | (900 | ) | $ | (140,495 | ) | $ | (140,495 | ) | ||||
Stock based compensation expense | — | — | 852 | — | 852 | |||||||||||
Net loss for the period | — | — | — | (350,217 | ) | (350,217 | ) | |||||||||
| | | | | | | | | | | | | | | | | |
Balance December 31, 2013 (Unaudited) | 9,000,000 | $ | 900 | $ | (48 | ) | $ | (490,712 | ) | $ | (489,860 | ) | ||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)CONDENSED STATEMENTS OF CASH FLOW(Unaudited)
| | Six Months Ended December 31, 2013 | Period from May 15, 2013 (Inception) to December 31, 2013 | |||||
|---|---|---|---|---|---|---|---|
Cash Flows From Operating Activities: | |||||||
Net loss | $ | (350,217 | ) | $ | (490,712 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: Interest expense on note payable to parent | 4,553 | 4,880 | |||||
Stock based compensation expense | 852 | 852 | |||||
Changes in operating assets and liabilities: | |||||||
Accounts payable, accrued expenses and due to parent | 16,923 | 143,807 | |||||
Prepaid expenses | (5,552 | ) | (5,552 | ) | |||
| | | | | | | | |
Total Adjustments | 16,776 | 143,987 | |||||
| | | | | | | | |
Net Cash used in Operating Activities | (333,441 | ) | (346,725 | ) | |||
| | | | | | | | |
Cash Flows From Financing Activities: | |||||||
Proceeds from demand note payable to parent | 250,000 | 350,000 | |||||
| | | | | | | | |
Net Cash provided by Financing Activities | 250,000 | 350,000 | |||||
| | | | | | | | |
Net (decrease) increase in cash | (83,441 | ) | 3,275 | ||||
Cash at beginning of period | 86,716 | — | |||||
| | | | | | | | |
Cash at end of period | $ | 3,275 | $ | 3,275 | |||
| | | | | | | | |
Supplementary disclosure of cash flow information: | |||||||
Cash paid for taxes | $ | — | $ | — | |||
Cash paid for interest | $ | 2,038 | $ | 2,038 | |||
The accompanying notes are an integral part of these condensed financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)NOTES TO FINANCIAL STATEMENTS(Unaudited)
1. Business Overview
ContraVir Pharmaceuticals Inc. ("ContraVir" or the "Company") is a biopharmaceutical company focused primarily on the clinical development of FV-100 to treat herpes zoster (HZ), or shingles, which is an infection caused by the reactivation of varicella zoster virus (VZV) or "chickenpox".
2. Basis of Presentation and Going Concern
These unaudited financial statements have been prepared following the requirements of the Securities and Exchange Commission ("SEC") and United States generally accepted accounting principles ("GAAP") for interim reporting. In the opinion of management, the accompanying unaudited financial statements include all adjustments, which include only normal recurring adjustments, necessary to present fairly ContraVir's interim financial information. The accompanying unaudited financial statements should be read in conjunction with the audited financial statements as of and for the period ended June 30, 2013 contained in the Company's initial Form 10 Registration Statement ("Form 10") filed with the Securities Exchange Commission ("SEC") on August 8, 2013, as amended September 20, 2013 and October 22, 2013.
ContraVir is a wholly owned subsidiary of Synergy Pharmaceuticals Inc. ("Synergy"). ContraVir was organized in Delaware on May 15, 2013 (inception) for the purpose of developing Synergy's FV-100 assets, which Synergy had previously acquired under an Asset Purchase Agreement, dated August 17, 2012 (the "BMS Purchase Agreement"), with Bristol-Myers Squibb Company ("BMS").
Pursuant to the BMS Purchase Agreement Synergy purchased from BMS certain assets defined as "Acquired Assets" and assumed from BMS certain liabilities defined as "Assumed Liabilities", in each case relating to the business being conducted by BMS as of the date of the BMS Purchase Agreement, consisting of the research, development, product design and related activities of BMS relating solely to FV-100, the valylester pro-drug of Cf1743, a bicyclic nucleoside analogue (the "FV-100 Product").
On June 10, 2013 ContraVir and Synergy entered into a Contribution Agreement, as amended and restated August 5, 2013 (the "Contribution Agreement"), to transfer to ContraVir the FV-100 Product, in exchange for the issuance to Synergy of 9,000,000 shares of ContraVir common stock, par value $0.0001 per share (the "Common Stock"), representing 100% of the outstanding shares of Common Stock as of immediately following such issuance. During the period from August 17, 2012 through June 10, 2013 Synergy made no expenditures related to the research and development of FV-100, thus, ContraVir determined that the acquired asset did not meet the definition of a business, as defined in ASC 805, "Business Combinations" and was accounted for under ASC 350, "Intangibles Goodwill and Other" as an acquisition of assets. The acquisition of this asset was accounted for at Synergy's net book value which was zero.
Going Concern
As of December 31, 2013 ContraVir had $3,275 in cash. Net cash used in operating activities was $333,441 for the six months ended December 31, 2013. Net loss for the three and six months ended December 31, 2013 was $168,155 and $350,217. As of December 31, 2013 ContraVir had a negative working capital and a stockholder's deficiency of $489,860.
These unaudited financial statements have been prepared under the assumption that the Company will continue as a going concern. ContraVir's ability to continue as a going concern is dependent upon its
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
2. Basis of Presentation and Going Concern (Continued)
ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ContraVir will be required to raise additional capital within the next year to continue the development and commercialization of its current product candidate and to continue to fund operations at the current cash expenditure levels. ContraVir cannot be certain that additional funding will be available on acceptable terms, or at all. Any debt financing, if available, may involve restrictive covenants that impact ContraVir's ability to conduct business. If ContraVir is unable to raise additional capital when required or on acceptable terms, ContraVir may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of its product candidate; (ii) seek collaborators for product its candidate at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidate or products that ContraVir would otherwise seek to develop or commercialize ourselves on unfavorable terms.
3. Recent Accounting Pronouncements
There are no recent accounting pronouncements affecting the Company.
4. Fair Value of Financial Instruments
Financial instruments consist of cash, accounts payable and notes payable. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short term nature.
5. Stockholder's Deficiency
On June 10, 2013, ContraVir and Synergy entered into a Contribution Agreement, as amended and restated August 5, 2013, to transfer to ContraVir the FV-100 Product, in exchange for the issuance to Synergy of 9,000,000 shares of ContraVir common stock, par value $0.0001 per share (the "Common Stock"), representing 100% of the outstanding shares of Common Stock as of immediately following such issuance.
6. Accounting for Shared-Based Payments
ASC Topic 718"Compensation—Stock Compensation" requires companies to measure the cost of employee services received in exchange for the award of equity instruments based on the estimated fair value of the award at the date of grant. The expense is to be recognized over the period during which an employee is required to provide services in exchange for the award.
ContraVir accounts for shares of stock options issued to non-employees based on the fair value of the stock option, if that value is more reliably measurable than the fair value of the consideration or services received. The Company accounts for stock options issued and vesting to non-employees in accordance with ASC Topic 505-50 "Equity-Based Payment to Non-Employees" and accordingly the value of the stock compensation to non-employees is based upon the measurement date as determined at either a) the date
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Accounting for Shared-Based Payments (Continued)
at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete. Accordingly the fair value of these options is being "marked to market" quarterly until the measurement date is determined.
ASC Topic 718 requires that cash flows resulting from tax deductions in excess of the cumulative compensation cost recognized for options exercised (excess tax benefits) be classified as cash inflows from financing activities and cash outflows from operating activities. Due to ContraVir's accumulated deficit position, no excess tax benefits have been recognized. ContraVir accounts for stock options granted to employees and non-employees based on the fair market value of the instrument, using the Black-Scholes option pricing model based on assumptions for expected stock price volatility, term of the option, risk-free interest rate and expected dividend yield, at the grant date.
On June 3, 2013, ContraVir adopted the 2013 Equity Incentive Plan (the "Plan"). Stock options granted under the Plan typically will vest after three years of continuous service from the grant date and will have a contractual term of ten years. ContraVir has reserved 1,500,000 shares of common stock issuable pursuant to the Plan.
A summary of stock option activity and of changes in stock options outstanding under the Plan is presented below:
| | Number of Options | Exercise Price Per Share | Weighted Average Exercise Price Per Share | Intrinsic Value | Weighted Average Remaining Contractual Term | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance outstanding, July 1, 2013 | — | $ | — | $ | — | $ | — | — | ||||||||
Granted | 204,000 | $ | 0.11 | $ | 0.11 | — | 9.9 years | |||||||||
Exercised | — | — | — | — | — | |||||||||||
Forfeited | — | — | — | — | — | |||||||||||
| | | | | | | | | | | | | | | | | |
Balance outstanding, December 31, 2013 | 204,000 | $ | 0.11 | $ | 0.11 | $ | — | 9.9 years | ||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Exercisable at December 31, 2013 | — | $ | — | $ | — | $ | — | — | ||||||||
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
The following weighted average assumptions were used in the Black-Scholes valuation model to estimate fair value of stock option awards during the periods indicated.
| | Three Months Ended December 31, 2013 | |||
|---|---|---|---|---|
Stock price | $ | 0.11 | ||
Risk-free interest rate | 2.40 | % | ||
Dividend yield | — | |||
Expected volatility | 90 | % | ||
Expected term (in years) | 6 years | |||
Stock Price—ContraVir stock is closely held, entirely by Synergy, at December 31, 2013. There is no public market for the stock. Management believes that the best alternative indication of stock value is what
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
6. Accounting for Shared-Based Payments (Continued)
Synergy paid for the FV-100 Product, in an arms-length transaction, to BMS on August 17, 2012, or $1,000,000. Thus $1,000,000 divided by the 9,000,000 shares outstanding during the quarter ended December 31, 2013 results is a stock price of $0.11 per share.
Risk-free interest rate—Based on the daily yield curve rates for U.S. Treasury obligations with maturities which correspond to the expected term of the Company's stock options.
Dividend yield—ContraVir has not paid any dividends on common stock since its inception and does not anticipate paying dividends on its common stock in the foreseeable future.
Expected volatility—Because the ContraVir has one sole shareholder and does not have an active market for the Company's stock, the Company based expected volatility on that of comparable public development stage biotechnology companies and management's expectation that the company's stock will be trading in the near future.
Expected term—ContraVir has had no stock options exercised since inception. The expected option term represents the period that stock-based awards are expected to be outstanding based on the simplified method provided in Staff Accounting Bulletin ("SAB") No. 107,Share-Based Payment, ("SAB No. 107"), which averages an award's weighted-average vesting period and expected term for "plain vanilla" share options. Under SAB No. 107, options are considered to be "plain vanilla" if they have the following basic characteristics: (i) granted "at-the-money"; (ii) exercisability is conditioned upon service through the vesting date; (iii) termination of service prior to vesting results in forfeiture; (iv) limited exercise period following termination of service; and (v) options are non-transferable and non-hedgeable.
In December 2007, the SEC issued SAB No. 110,Share-Based Payment, ("SAB No. 110"). SAB No. 110 was effective January 1, 2008 and expresses the views of the Staff of the SEC with respect to extending the use of the simplified method, as discussed in SAB No. 107, in developing an estimate of the expected term of "plain vanilla" share options in accordance with ASC Topic 718. The Company will use the simplified method until it has the historical data necessary to provide a reasonable estimate of expected life in accordance with SAB No. 107, as amended by SAB No. 110. For the expected term, the Company has "plain-vanilla" stock options, and therefore used a simple average of the vesting period and the contractual term for options granted as permitted by SAB No. 107.
Forfeitures—ASC Topic 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. ContraVir estimated future unvested option forfeitures based on the historical experience of its parent.
The unrecognized compensation cost related to non-vested stock options outstanding at December 31, 2013, net of expected forfeitures, was approximately $15,000 to be recognized over a weighted-average remaining vesting period of approximately 2.9 years.
7. Income Taxes
At December 31, 2013, ContraVir has net operating loss carry forwards ("NOLs") aggregating approximately $490,000, which, if not used, expire in 2033. The utilization of these NOLs may become
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
7. Income Taxes (Continued)
subject to limitations based on past and future changes in ownership of ContraVir pursuant to Internal Revenue Code Section 382.
ContraVir records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the substantial doubt related to ContraVir's ability to continue as a going concern and utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at December 31, 2013. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying consolidated statements of operations to offset pre-tax losses.
ContraVir has no uncertain tax positions subject to examination by the relevant tax authorities as of December 31, 2013 because no tax returns have yet been filed for the period May 15, 2013 (inception) to December 31, 2013. ContraVir will file U.S. and state income tax returns in jurisdictions with varying statutes of limitations.
8. Loan and Demand Note Payable
On June 5, 2013 ContraVir entered into a Loan and Security Agreement with Synergy pursuant to which Synergy agreed to lend ContraVir up to five hundred thousand dollars ($500,000) for working capital purposes (the "Loan Agreement"). Pursuant to the Loan Agreement, the promissory note (the "Note") bears interest at six percent (6%) per annum and such interest shall be paid on the 15th of each of January, March, June and September, beginning September 15, 2013. The Note matures on the earlier of June 10, 2014 or the date that the entire principal amount and interest shall become due and payable by reason of an event of default under the Note or otherwise. In addition, Synergy has the right to demand payment of the unpaid principal amount and all accrued but unpaid interest thereon at any time after August 4, 2013, upon providing ContraVir fifteen (15) days prior written notice. In connection with the Loan Agreement, ContraVir granted Synergy a security interest in all of its assets, including its intellectual property, until the Note is repaid in full. As of December 31, 2013 borrowings under the Note totaled $350,000, plus accrued interest of $4,880.
On November 18, 2013, ContraVir and Synergy entered into Amendment No. 1 to the Loan and Security Agreement, dated June 5, 2013, pursuant to which the total aggregate amount which could be borrowed by ContraVir from Synergy was increased from $500,000 to $1,000,000.
9. Related Parties
On July 8, 2013, ContraVir entered into a Shared Services Agreement with Synergy, effective May 16, 2013. Under the Shared Services Agreement, Synergy will provide and/or make available to ContraVir various administrative, financial (including accounting, reporting, treasury, accounts payable processing, and payroll functions), legal, insurance, facility, information technology, laboratory, real estate and other services to be provided by, or on behalf of, Synergy, together with such other services as reasonably requested by ContraVir.
In consideration for such services, ContraVir will pay fees to Synergy for the services provided, and those fees will generally be in amounts intended to allow Synergy to recover all of its direct and indirect costs incurred in providing those services. The personnel performing services under the Shared Services
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
9. Related Parties (Continued)
Agreement will be employees and/or independent contractors of Synergy and will not be under ContraVir's direction or control. These personnel costs will be allocated based upon the actual time spent by Synergy personnel performing services for ContraVir under the shared services agreement.
As of December 31, 2013 and June 30, 2013, the balances due to Synergy on shared services and allocated expenses are comprised of the following amounts:
| | December 31, 2013 | June 30, 2013 | |||||
|---|---|---|---|---|---|---|---|
Legal, patent and corporate | $ | 7,973 | $ | 45,787 | |||
Salaries and benefits | 33,405 | 16,703 | |||||
Financial advisory fees | — | 10,000 | |||||
Insurance | 5,421 | 2,934 | |||||
Temporary labor | 878 | 2,550 | |||||
Rent, utilities, and property taxes | 6,845 | 3,363 | |||||
Other | 216 | 1,929 | |||||
| | | | | | | | |
Total Shared Services | $ | 54,738 | $ | 83,266 | |||
| | | | | | | | |
prior written notice, (2) by either party if the non-defaulting party shall have failed to perform any of its material obligations under the agreement, provided the non-defaulting party shall have notified the defaulting party in writing and such failure shall have continued for a period of at least 30 days after receipt of such written notice. This agreement was amended and restated on August 5, 2013 to clarify certain indemnification provisions.
10. Loss per Share
Basic and diluted net loss per share is presented in conformity with ASC Topic 260,Earnings per Share, ("ASC Topic 260") for all periods presented. In accordance with ASC Topic 260, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. The 204,000 stock options outstanding as of December 31, 2013 were excluded from the calculation of diluted loss per share because the effect was antidilutive.
11. Subsequent Events
On January 9, 2014, ContraVir borrowed an additional $100,000 from Synergy under the Loan and Security Agreement which increased the aggregate principal owed under the Note to $450,000 plus accrued but unpaid interest thereon (See footnote 8)). On March 27, 2014, ContraVir paid $461,236 to Synergy in full repayment of the Note, including accrued but unpaid interest thereon.
On January 23, 2014 the Company entered into a three year consulting agreement with Chris McGuigan, Ph.D. for scientific and technical advisory services. Dr. McGuigan is a director of the Company and was instrumental in the early development of the Company's FV-100 drug candidate. His total compensation under the agreement is a grant of 250,000 common stock options, at an exercise price of $0.37 per share, vesting over three years.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
(Unaudited)
11. Subsequent Events (Continued)
On January 28, 2014, ContraVir's parent company Synergy ("Synergy") declared a dividend of ContraVir Common Stock. On the distribution date of February 18, 2014, Synergy stockholders of record as of the close of business on February 6, 2014 will receive .0986 shares of ContraVir common stock for every 1 share of Synergy common stock they hold. No fractional shares of ContraVir will be issued. Synergy stockholders will receive cash in lieu of fractional shares. After the distribution ContraVir will be an independent publicly traded company and Synergy will retain no ownership interest in ContraVir.
On February 4, 2014, ContraVir entered into a securities purchase agreement with accredited investors to sell securities and raise gross proceeds of $3,225,000 in a private placement. The Company sold 9,485,294 units to the investors with each unit consisting of one share of the Company's common stock and one warrant to purchase an additional one half share of the Company's common stock. The purchase price paid by the investor was $0.34 for each unit. The warrants expire after six years and are exercisable at $0.37 per share. Based upon the Company's analysis of the criteria contained in ASC Topic 815-40, "Derivatives and Hedging—Contracts in Entity's Own Equity" the Company has determined that the units issued in connection with this Financing transaction must be recorded as derivative liabilities upon issuance and marked to market on a quarterly basis.
Effective April 1, 2014, Synergy and ContraVir terminated the shared services agreement.
Report of Independent Registered Public Accounting Firm
Board of Directors and StockholderContraVir Pharmaceuticals, Inc.New York, New York
We have audited the accompanying balance sheet of ContraVir Pharmaceuticals, Inc. (a development stage company) (the "Company") as of June 30, 2013, the related statements of operations, changes in stockholder's deficiency and cash flows for the period from May 15, 2013 (inception) to June 30, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ContraVir Pharmaceuticals, Inc. as of June 30, 2013, and the results of its operations and its cash flows for the period from May 15, 2013 (inception) to June 30, 2013, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered losses from operations, has negative working capital and a stockholder's deficiency; and will continue to have large losses in the future, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
/s/ BDO USA, LLP
New York, New YorkAugust 8, 2013
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)BALANCE SHEET
| | June 30, 2013 | |||
|---|---|---|---|---|
Current Assets: | ||||
Cash | $ | 86,716 | ||
| | | | | |
Total Assets | $ | 86,716 | ||
| | | | | |
Current Liabilities: | ||||
Accounts payable | $ | 3,617 | ||
Accrued expenses | 40,000 | |||
Due to parent | 83,266 | |||
Demand note payable to parent and accrued interest | 100,328 | |||
| | | | | |
Total Current Liabilities | 227,211 | |||
Stockholder's Deficiency: | ||||
Preferred stock, par value $0.0001per share, Authorized 20,000,000 shares, none issued and outstanding | — | |||
Common stock, par value of $.0001per share. Authorized 120,000,000 shares issued and outstanding 9,000,000 shares | 900 | |||
Additional paid-in capital | (900 | ) | ||
Deficit accumulated during development stage | (140,495 | ) | ||
| | | | | |
Total Stockholder's Deficiency | (140,495 | ) | ||
| | | | | |
Total Liabilities and Stockholder's Deficiency | $ | 86,716 | ||
| | | | | |
The accompanying notes are an integral part of these financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)STATEMENT OF OPERATIONS
| | For the period May 15, 2013 (inception) to June 30, 2013 | |||
|---|---|---|---|---|
Revenues | $ | — | ||
Costs and Expenses: | ||||
Research and development | 17,740 | |||
General and administrative | 122,427 | |||
| | | | | |
Loss from Operations | (140,167 | ) | ||
Interest expense | 328 | |||
| | | | | |
Net loss | $ | (140,495 | ) | |
| | | | | |
Weighted Average Common Shares Outstanding | ||||
Basic and Diluted | 9,000,000 | |||
Net Loss per Common Share | ||||
Basic and Diluted | $ | (0.02 | ) | |
The accompanying notes are an integral part of these financial statements
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)STATEMENT OF CHANGES IN STOCKHOLDER'S DEFICIENCY
| | Common Shares | Common Stock, Par Value | Additional Paid in Capital | Deficit Accumulated during the Development Stage | Total Stockholder's Deficiency | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Balance at inception, May 15, 2013 | — | $ | — | $ | — | $ | — | $ | — | |||||||
Issuance of Common Stock | 9,000,000 | 900 | (900 | ) | — | — | ||||||||||
Net loss for the period | — | — | — | (140,495 | ) | (140,495 | ) | |||||||||
| | | | | | | | | | | | | | | | | |
Balance June 30, 2013 | 9,000,000 | $ | 900 | $ | (900 | ) | $ | (140,495 | ) | $ | (140,495 | ) | ||||
| | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)STATEMENT OF CASH FLOW
| | Period from May 15, 2013 (Inception) to June 30, 2013 | |||
|---|---|---|---|---|
Cash Flows From Operating Activities: | ||||
Net loss | $ | (140,495 | ) | |
Adjustments to reconcile net loss to net cash used in operating activities: | ||||
Interest expense on note payable | 328 | |||
Changes in operating assets and liabilities: | ||||
Accounts payable, accrued expenses and other short term liabilities | 126,883 | |||
| | | | | |
Total Adjustments | 127,211 | |||
Net Cash used in Operating Activities | (13,284 | ) | ||
Cash Flows From Financing Activities: | ||||
Proceeds from demand note payable to parent | 100,000 | |||
| | | | | |
Net Cash provided by Financing Activities | 100,000 | |||
Net increase in cash | 86,716 | |||
| | | | | |
Cash at beginning of period | — | |||
Cash at end of period | $ | 86,716 | ||
| | | | | |
Supplementary disclosure of cash flow information: | ||||
Cash paid for taxes | $ | — | ||
Cash paid for interest | $ | — | ||
The accompanying notes are an integral part of these financial statements.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)NOTES TO FINANCIAL STATEMENTS
1. Business Overview
ContraVir Pharmaceuticals Inc. ("ContraVir" or the "Company") is a biopharmaceutical company focused primarily on the clinical development of FV-100 to treat herpes zoster (HZ), or shingles, which is an infection caused by the reactivation of varicella zoster virus (VZV) or "chickenpox".
2. Basis of Presentation and Going Concern
ContraVir Pharmaceuticals, Inc. (ContraVir) is a wholly-owned subsidiary of Synergy Pharmaceuticals Inc. (Synergy). ContraVir was organized in Delaware on May 15, 2013 (inception) for the purpose of developing Synergy's FV-100 assets, which Synergy had previously acquired under an Asset Purchase Agreement, dated August 17, 2012 (the "BMS Purchase Agreement"), with Bristol-Myers Squibb Company ("BMS").
Pursuant to the BMS Purchase Agreement Synergy purchased from BMS certain assets defined as "Acquired Assets" and assumed from BMS certain liabilities defined as "Assumed Liabilities", in each case relating to the business being conducted by BMS as of the date of the BMS Purchase Agreement, consisting of the research, development, product design and related activities of BMS relating solely to FV-100, the valyl ester pro-drug of Cf1743, a bicyclic nucleoside analogue (the "Product").
On June 10, 2013 ContraVir and Synergy entered into a Contribution Agreement, as amended and restated August 5, 2013 (the "Contribution Agreement"), to transfer to ContraVir the FV-100 Product, in exchange for the issuance to Synergy of 9,000,000 shares of ContraVir common stock, par value $0.0001 per share (the "Common Stock"), representing 100% of the outstanding shares of Common Stock as of immediately following such issuance. During the period since August 17, 2012 through June 30, 2013 Synergy made no expenditures related to the research and development of FV-100, thus, the Company determined that the acquired asset did not meet the definition of a business, as defined in ASC 805, "Business Combinations" and was accounted for under ASC 350, "Intangibles Goodwill and Other" as an acquisition of assets. The acquisition of this asset was accounted for at Synergy's net book value which was zero.
Going Concern
As of June 30, 2013 ContraVir had $86,716 in cash. Net cash used in operating activities was $13,284 for the period May 15, 2013 (inception) to June 30, 2013. Net loss for the period May 15, 2013 (inception) to June 30, 2013 was $140,495. As of June 30, 2013 ContraVir had a negative working capital and a stockholder's deficiency of $140,495.
These financial statements have been prepared under the assumption that the Company will continue as a going concern. ContraVir's ability to continue as a going concern is dependent upon its ability to obtain additional equity or debt financing, attain further operating efficiencies and, ultimately, to generate revenue. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
ContraVir will be required to raise additional capital within the next year to continue the development and commercialization of current product candidate and to continue to fund operations at the current cash expenditure levels. ContraVir cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that ContraVir raises additional funds by issuing equity securities, ContraVir's stockholders may experience significant dilution. Any debt financing, if available, may involve
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Going Concern (Continued)
restrictive covenants that impact ContraVir's ability to conduct business. If ContraVir is unable to raise additional capital when required or on acceptable terms, ContraVir may have to (i) significantly delay, scale back or discontinue the development and/or commercialization of its product candidate; (ii) seek collaborators for product its candidate at an earlier stage than otherwise would be desirable and on terms that are less favorable than might otherwise be available; or (iii) relinquish or otherwise dispose of rights to technologies, product candidate or products that ContraVir would otherwise seek to develop or commercialize ourselves on unfavorable terms.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Changes in estimates and assumptions are reflected in reported results in the period in which they become known. Actual results could differ from those estimates.
Cash
As of June 30, 2013, the amount of cash was approximately $87,000 and consists of checking accounts held at U.S. commercial banks.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts payable and notes payable due with in one year. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature.
Property, equipment and depreciation
As of June 30, 2013 ContraVir had no property or equipment. Expenditures for additions, renewals and improvements will be capitalized at cost. Depreciation will generally be computed on a straight-line method based on the estimated useful lives of the related assets. The estimated useful lives of the major classes of depreciable assets will be 2 to 5 years for equipment and furniture and fixtures. Leasehold improvements will be depreciated over the remaining useful life of the lease. Expenditures for repairs and maintenance are charged to operations as incurred. ContraVir will periodically evaluate whether current events or circumstances indicate that the carrying value of its depreciable assets may not be recoverable.
Income Taxes
ContraVir has not filed any Federal tax returns since May 15, 2013 (inception). The amount of any tax liability that could arise since inception is undetermined at this time, however, the Company believes that because it has sustained losses since inception, the amount of any tax liability, if any, that could arise would be immaterial to the ContraVir's financial statements. Any interest or penalties would be recorded in its statement of operations. ContraVir intends to record a valuation allowance against any deferred tax assets upon the filing of its tax returns to the extent that it is more likely than not that some portion, or all of, the
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
2. Basis of Presentation and Going Concern (Continued)
deferred tax assets will not be realized. As a result there are no income tax benefits reflected in the consolidated statements of operations to offset pre-tax losses.
Contingencies
In the normal course of business, ContraVir is subject to loss contingencies, such as legal proceedings and claims arising out of its business, that cover a wide range of matters, including, among others, government investigations, shareholder lawsuits, product and environmental liability, and tax matters. In accordance with FASB ASC Topic 450,Accounting for Contingencies , ("ASC Topic 450"), ContraVir records accruals for such loss contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. ContraVir, in accordance with this guidance, does not recognize gain contingencies until realized.
Research and Development
Research and development costs, which include expenditures in connection with an in-house research and development laboratory, salaries and staff costs, application and filing for regulatory approval of proposed products, purchased in-process research and development, regulatory and scientific consulting fees, as well as contract research, insurance and FDA consultants, are accounted for in accordance with ASC Topic 730-10-55-2,Research and Development. Also, as prescribed by this guidance, patent filing and maintenance expenses are considered legal in nature and therefore classified as general and administrative expense, if any.
ContraVir does not currently have any commercial biopharmaceutical products, and does not expect to have such for several years if at all. Accordingly our research and development costs are expensed as incurred. While certain of our research and development costs may have future benefits, our policy of expensing all research and development expenditures is predicated on the fact that ContraVir has no history of successful commercialization of product candidates to base any estimate of the number of future periods that would be benefited.
Also as prescribed by ASC Topic 730,Research and Development non-refundable advance payments for goods or services that will be used or rendered for future research and development activities should be deferred and capitalized. As the related goods are delivered or the services are performed, or when the goods or services are no longer expected to be provided, the deferred amounts would be recognized as an expense. ContraVir had no recorded prepaid research and development costs of June 30, 2013.
Loss Per Share
Basic and diluted net loss per share is presented in conformity with ASC Topic 260,Earnings per Share, ("ASC Topic 260") for all periods presented. In accordance with this guide, basic and diluted net loss per common share was determined by dividing net loss applicable to common stockholders by the weighted-average common shares outstanding during the period. Diluted weighted-average shares are the same as basic weighted-average shares because there were no shares issuable pursuant to the exercise of stock options or warrants. For the year ended and as of June 30, 2013 ContraVir had no outstanding stock options or warrants.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
3. Stockholder's Deficiency
On June 10, 2013, ContraVir and Synergy entered into a Contribution Agreement, as amended and restated August 5, 2013, to transfer to ContraVir the FV-100 Product, in exchange for the issuance to Synergy of 9,000,000 shares of ContraVir common stock, par value $0.0001 per share (the "Common Stock"), representing 100% of the outstanding shares of Common Stock as of immediately following such issuance.
4. Accounting for Shared-Based Payments
On June 3, 2013, ContraVir adopted the 2013 Equity Incentive Plan (the "Plan"). Stock options granted under the Plan typically will vest after three years of continuous service from the grant date and will have a contractual term of ten years. ContraVir has reserved 1,500,000 shares of common stock issuable pursuant to the Plan and has not issued any stock options as of June 30, 2013.
5. Income Taxes
At June 30, 2013, ContraVir has net operating loss carry forwards ("NOLs") aggregating approximately $140,000, which, if not used, expire in 2033. The utilization of these NOLs may become subject to limitations based on past and future changes in ownership of ContraVir pursuant to Internal Revenue Code Section 382.
ContraVir records a valuation allowance against deferred tax assets to the extent that it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Due to the substantial doubt related to ContraVir's ability to continue as a going concern and utilize its deferred tax assets, a valuation allowance for the full amount of the deferred tax assets has been established at June 30, 2013. As a result of this valuation allowance there are no income tax benefits reflected in the accompanying consolidated statements of operations to offset pre-tax losses.
ContraVir has no uncertain tax positions subject to examination by the relevant tax authorities as of June 30, 2013 because no tax returns have yet been filed for the period May 15, 2013 (inception) to June 30, 2013. ContraVir will file U.S. and state income tax returns in jurisdictions with varying statutes of limitations.
6. Loan and Demand Note Payable
On June 5, 2013, ContraVir entered into a Loan and Security Agreement with Synergy pursuant to which Synergy agreed to lend ContraVir up to five hundred thousand dollars ($500,000) for working capital purposes (the "Loan Agreement"). Also on June 5, 2013, pursuant to the Loan Agreement, Synergy made an advance to ContraVir of $100,000 under a promissory note (the "Note"). The Note bears interest at six percent (6%) per annum and such interest shall be paid on the 15th of each of January, March, June and September, beginning September 15, 2013. The Note matures on the earlier of June 10, 2014 or the date that the entire principal amount and interest shall become due and payable by reason of an event of default under the Note or otherwise. In addition, Synergy has the right to demand payment of the unpaid principal amount and all accrued but unpaid interest thereon at any time after August 4, 2013, upon providing us fifteen (15) days prior written notice. In connection with the Loan Agreement ContraVir granted Synergy a security interest in all of its assets, including its intellectual property, until the Note is repaid in full. As of June 30, 2013 borrowings under this arrangement totaled $100,000.
CONTRAVIR PHARMACEUTICALS, INC.(A development stage company)
NOTES TO FINANCIAL STATEMENTS (Continued)
7. Related Parties
Effective May 16, 2013 ContraVir and Synergy entered into a Shared Services Agreement which set forth their agreement with respect to Synergy's provision of certain administrative, financial, legal, tax, insurance, facility, information technology and other services to ContraVir. These shared services are allocated to the Company based on time spent by Synergy employees on ContraVir matters and actual resources utilized during the period. Prior to funding the Note discussed in Note 5, on June 5, 2013 Synergy made certain legal and other administrative start-up payments on behalf of ContraVir which were also allocated to ContraVir during the period ended June 30, 2013. ContraVir may cancel any or all of the provided services upon 30 days written notice. For the period May 15, 2013 (inception) to June 30, 2013 ContraVir has incurred $83,266 for shared services and allocated expenses comprised of the following amounts:
Legal, patent and corporate | $ | 45,787 | ||
Salaries and benefits | 16,703 | |||
Financial advisory fees | 10,000 | |||
Insurance | 2,934 | |||
Temporary labor | 2,550 | |||
Rent, utilities, and property taxes | 3,363 | |||
Other | 1,929 | |||
| | | | | |
Total Shared Services | $ | 83,266 | ||
| | | | | |
| | | | | |
, 2014
PART II—INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth all expenses, other than the underwriting discounts and commissions, payable by the registrant in connection with the sale of the common stock being registered. All the amounts shown are estimates except the SEC registration fee and the FINRA filing fee.
| | Amount to be paid | |||
|---|---|---|---|---|
SEC registration fee | $ | 2,475.29 | ||
FINRA filing fee | $ | * | ||
Blue sky qualification fees and expenses | $ | * | ||
Transfer agent and registrar fees | $ | * | ||
Accounting fees and expenses | $ | * | ||
Legal fees and expenses | $ | * | ||
Printing and engraving expenses | $ | * | ||
Miscellaneous | $ | * | ||
| | | | | |
Total | $ | * | ||
| | | | | |
| | | | | |
Item 14. Indemnification of Directors and Officers
The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties as directors and our amended and restated certificate of incorporation will include such an exculpation provision. Our certificate of incorporation and by-laws will include provisions that indemnify, to the fullest extent allowable under the DGCL, the personal liability of directors or officers for monetary damages for actions taken as a director or officer of us, or for serving at our request as a director or officer or another position at another corporation or enterprise, as the case may be. Our certificate of incorporation and by-laws will also provide that we must indemnify and advance reasonable expenses to our directors and officers, subject to our receipt of an undertaking from the indemnified party as may be required under the DGCL. Our certificate of incorporation will expressly authorize us to carry directors' and officers' insurance to protect us, our directors, officers and certain employees for some liabilities. The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and by-laws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against our directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director's duty of care. The provisions will not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding against any of our directors, officers or employees for which indemnification is sought.
Item 15. Recent Sales of Unregistered SecuritiesITEM 16. Exhibit Index.
On June 10, 2013, we issued 9,000,000 shares of common stock, par value $0.0001 per share,See Exhibit Index set forth on page II-4 to Synergy in accordance with the terms of the contribution agreement, as amended and restated August 5, 2013.
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On October 2, 2013 we issued options to purchase (i) 30,000 shares of our common stock at an exercise price of $0.11 per share to Gary Jacob, our Chairman of the Board, for services rendered (ii) 30,000 shares of our common stock at an exercise price of $0.11 per share to John Brancaccio, a director, for services rendered, (iii) 30,000 shares of our common stock at an exercise price of $0.11 per share to Chris McGuigan, a director, for services rendered. On November 26, 2013, we issued options to purchase 30,000 shares of our common stock at an exercise price of $0.11 per share to Timothy Block, a director, for services rendered.
On January 24, 2014, we issued options to purchase (i) 200,000 shares of our common stock at an exercise price of $0.37 per share to Gary Jacob, our chief executive officer, for services rendered (ii) 30,000 shares of our common stock at an exercise price of $0.37 per share to John Brancaccio, a director, for services rendered, (iii) 10,000 shares of our common stock at an exercise price of $0.37 per share to Timothy Block, a director, for services rendered, (iv) 250,000 shares of our common stock at an exercise price of $0.37 per share to Chris McGuigan, a director, for services rendered and (v) an aggregate of 90,000 shares of our common stock at an exercise price of $0.37 per share to various consultants for services rendered.
On February 4, 2014, we entered into securities purchase agreements with certain accredited investors, as defined in Regulation D promulgated under the Securities Act, pursuant to which we sold the investors an aggregate of 9,485,294 units, each unit consisting of one (1) share of our common stock, par value $0.0001 per share (or 9,485,294 shares of common stock in the aggregate) and a warrant to purchase one-half (1/2) share of our common stock (or 4,742,647 shares of Common Stock in the aggregate), or the Warrants, for aggregate gross proceeds of $3,225,000. The Warrants are exercisable for a period of six years from the date of issuance at an initial exercise price of $0.37, subject to adjustment.
On March 12, 2014, we issued options to purchase (i) 21,897 shares of our common stock at an exercise price of $2.37 per share to John Brancaccio, a director, for services rendered, (ii) 19,777 shares of our common stock at an exercise price of $2.37 per share to Timothy Block, a director, for services rendered, and (iii) 16,596 shares of our common stock at an exercise price of $2.37 per share to Chris McGuigan, a director, for services rendered.
On March 19, 2014, we issued options to purchase (i) 300,000 shares of our common stock at an exercise price of $2.31 per share to Gary Jacob, our Chairman of the Board, for services rendered and (ii) 1,000,000 shares of our common stock at an exercise price of $2.31 per share to James Sapirstein, our chief executive officer, in accordance with the terms of his employment agreement.
Unless otherwise stated, the sales of the above securities were deemed to be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) of the Securities Act (or Regulation D promulgated thereunder), or Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving any public offering or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions.this Registration Statement.
Item 16. Exhibits and Financial Statement SchedulesITEM 17. Undertakings.
See the Exhibit Index on the page immediately preceding the exhibits for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
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Schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by sectionSection 10(a)(3) of the Securities Act of 1933;
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(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20%20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; andstatement.
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of the registration statement.
(2) That, for the purposespurpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of thesuch securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(5) (ii)(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, eachpurchaser:
(A) Each prospectus filed by the registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in this Registration Statement; and
(B) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering other than registration statements relying onmade pursuant to Rule 430B415(a)(1)(i), (vii), or other than prospectuses filed in reliance on Rule 430A,(x) for the purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date itsuch form of prospectus is first used after effectiveness.effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use,effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statementthis
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Registration Statement or made in any such document immediately prior to such date of first use.effective date.
(6) For(5) That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securitiessecurities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by
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means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(h)The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act, of 1933 (the "Act")as amended, may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange CommissionSEC such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities other(other than the payment by the registrant of expenses incurred andor paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding,proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, hereby, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
(i) The undersigned Registrantregistrant hereby undertakes that it will:
(1)to file an application for the purpose of determining any liabilitythe eligibility of the trustee to act under subsection (a) of Section 310 of the SecuritiesTrust Indenture Act treat("Act") in accordance with the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430Arules and contained in a form of prospectus filedregulations prescribed by the registrantCommission under Rule 424(b)(1), or (4) or 497(h) under the Securities Act as part of this registration statement asSection 305(b)(2) of the time the Commission declared it effective.Act.
(2) for determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
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Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on the 12th day of May, 2014.
We, the undersigned officers and directors of Contravir Pharmaceuticals, Inc., hereby severally constitute and appoint James Sapirstein and Bernard Denoyer, and each of them singly, our true and lawful attorneys with full power to any of them, and to each of them singly, to sign for us and in our names, in the capacities indicated below, the Registration Statement on Form S-1 filed herewith and any and all pre-effective and post-effective amendments to said registration statement and any subsequent registration statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same with all exhibits thereto, and the other documents in connection therewith, with the Securities and Exchange Commission, and generally to do all such things in our name and behalf in our capacities as officers and directors to enable ContraVir Pharmaceuticals, Inc. to comply with the provisions of the Securities Act of 1933, as amended, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys, or any of them, to said registration statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated below.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this Amendment No. 1 to registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Edison, New Jersey on the 4th day of June 2018.
| CONTRAVIR PHARMACEUTICALS, INC. | ||||
By: | /s/ JAMES SAPIRSTEIN James Sapirstein Chief Executive Officer | |||
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated
Signature | Title | Date | ||||
|---|---|---|---|---|---|---|
| /s/ JAMES SAPIRSTEIN James Sapirstein | Chief Executive Officer and Director (Principal Executive Officer) | June 4, 2018 | ||||
/s/ JOHN CAVAN John Cavan | Chief Financial Officer (Principal Financial and Accounting Officer) | June 4, 2018 | ||||
* Gary S. Jacob | Chairman of the Board | June 4, 2018 | ||||
* John P. Brancaccio | Director | June 4, 2018 | ||||
* Thomas Adams | Director | June 4, 2018 | ||||
* Arnold Lippa | Director | June 4, 2018 | ||||
* Timothy Block | Director | June 4, 2018 | ||||
* Tamar Howson | Director | June 4, 2018 | ||||
*By | /s/ JAMES SAPIRSTEIN Attorney-in-Fact | |||||
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