UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, DC 20549
FORM 10-K/A
x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31,
2011
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934
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For the transition period from______________________
to____________________________
Commission File Number: 1-12584
SYNTHETIC BIOLOGICS, INC.
(Name of small business issuer in its
charter)
Nevada
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13-3808303
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification Number)
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3985 Research Park Drive, Suite 200
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Ann Arbor, MI
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48108
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(Address of principal executive offices)
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(Zip Code)
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Registrant’s telephone number,
including area code:
(734) 332-7800
Securities registered pursuant to Section 12(b) of the Act:
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Name of each exchange on which registered
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(Title of Class)
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Common Stock, $0.001 par value per share
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NYSE AMEX
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Securities registered pursuant to Section
12(g) of the Act:
None
Indicate by check mark if the registrant
is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
x
Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
¨
No
x
Indicate by check mark whether the issuer:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes
x
No
¨
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of issuer’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K.
x
Indicate by check mark whether the registrant
has submitted electronically and posted on its corporate website, if any, every interactive data file required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (section 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).Yes
x
No
¨
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated file, a non-accelerated file, or a smaller reporting company. See the definitions
of “large accelerated filer, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of
the Exchange Act. (Check one):
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Large accelerated filer
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£
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Accelerated filer
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Non-accelerated filer
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£
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Smaller reporting company
x
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
x
The aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant as of June 30, 2011
, was approximately
$16,266,000 based on $0.86
, the price at which the registrant’s common stock was last sold on that date.
As of
March 26, 2012,
the issuer had 32,701,984 shares of common stock outstanding.
Documents incorporated by reference: None.
EXPLANATORY NOTE
On May 1, 2012, we were informed by Berman & Company, P.A.
(“Berman & Company”), our independent registered accounting firm, that during a regular Public Company Accounting
Oversight Board (“PCAOB”) inspection of Berman & Company, the PCAOB issued a comment that the audit opinion included
in our Annual Report on Form 10-K for the year ended December 31, 2011 was issued by a partner at Berman & Company who was
not authorized under the PCAOB rules to issue the opinion or act as our named engagement partner with respect to the Form 10-K
audit (or prior 2011 Form 10-Q interim reviews) after the original engagement partner rotated off the account under the Securities
and Exchange Commission’s independence rules as it pertains to partner rotation (S-X Rule 2-01 - Qualifications of Accountants).
We believe that our previously filed
financial statements for the year ended December 31, 2011 are accurate. In addition, we have not been informed by Berman
& Company or the PCAOB, that our previously filed financial statements for the year ended December 31, 2011 are not
accurate or otherwise invalid. As a matter of precaution the new engagement partner at Berman & Company has since: (i)
taken full responsibility for the audit as the lead engagement partner on the audit, (ii) performed a detailed review of all
audit procedures related to the original audit for sufficiency and (iii) reissued the audit opinion. We are filing this
Annual Report on Form 10-K/A solely for the purpose of providing the reissued audit opinion and related disclosure, and
subsequent event disclosure regarding the appointment of an independent, non-executive Chairman of the Board on May 10, 2012.
The review performed by the new audit partner did not result in any changes to our financial statements or notes to
the financial statements for the year ended December 31, 2011, other than the addition of the May 1, 2012 and May 10, 2012
disclosures in the subsequent event note to the financial statements.
SYNTHETIC BIOLOGICS, INC.
FORM 10-K/A
TABLE OF CONTENTS
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Page
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PART I.
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Item 1.
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Business
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3
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Item 1A.
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Risk Factors
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15
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Item 1B.
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Unresolved Staff Comments
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26
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Item 2.
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Properties
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26
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Item 3.
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Legal Proceedings
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27
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Item 4.
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Mine Safety Disclosures
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27
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PART II.
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Item 5.
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Market for Registrant’s Common Equity Related Stockholder Matters and Issuer Purchases of Equity Securities
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28
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Item 6.
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Selected Financial Data
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29
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Item 7.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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30
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Item 7A.
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Quantitative and Qualitative Disclosures About Market Risk
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36
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Item 8.
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Financial Statements and Supplementary Data
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37
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Item 9.
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Changes in and Discussions with Accountants on Accounting and Financial Disclosure
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59
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Item 9A.
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Controls and Procedures
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59
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Item 9B.
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Other Information
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60
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PART III.
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Item 10.
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Directors, Executive Officers and Corporate Governance
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61
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Item 11.
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Executive Compensation
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65
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Item 12.
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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68
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Item 13.
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Certain Relationships and Related Transactions, and Director Independence
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69
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Item 14.
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Principal Accountant Fees and Services
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69
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PART IV.
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Item 15.
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Exhibits and Financial Statement Schedules
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71
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SIGNATURES
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75
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GLOSSARY
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PART I
Forward-Looking Statements
Most of the matters discussed within
this report include forward-looking statements on our current expectations and projections about future events. In some cases
you can identify forward-looking statements by terminology such as “may,” “should,” “potential,”
“continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,”
“estimates,” and similar expressions. These statements are based on our current beliefs, expectations, and assumptions
and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control,
that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. Such
risks and uncertainties include the risks noted under “Item 1A Risk Factors.” We do not undertake any obligation
to update any forward-looking statements. Unless the context requires otherwise, references to “we,” “us,”
“our,” and “Synthetic Biologics,” refer to Synthetic Biologics, Inc. (formerly Adeona Pharmaceuticals,
Inc.) and its subsidiaries.
Item 1.
Business
We are a biotechnology company focused
on the development of synthetic DNA-based therapeutics and innovative disease-modifying medicines for serious illnesses. Our initial
synthetic biologic product candidate is intended to treat pulmonary arterial hypertension (PAH), a serious life-threatening lung
disease, by locally delivering therapeutic DNA to the lungs of PAH patients and controlling long-term expression of such DNA via
an oral daily pill. We also intend to expand new and existing collaborations in the area of DNA-based therapeutics. In addition,
we have several small molecule clinical-stage programs, the majority of which are being funded, or partially funded, by grants,
charitable organizations and corporate partners. In this area we are developing, or have partnered the development of, product
candidates to treat relapsing-remitting multiple sclerosis (MS), cognitive dysfunction in MS, fibromyalgia and amyotrophic lateral
sclerosis (ALS).
Product Pipeline:
Synthetic Biologics:
|
·
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Our initial synthetic
biologic product candidate is intended to treat PAH, a serious life-threatening lung disease. This product is
designed to deliver DNA that encodes a therapeutic protein called prostacyclin synthase (PGIS) locally to the
pulmonary arteries of PAH patients via a single procedure, and, via an oral daily pill, control the long-term local
expression of such therapeutic protein. We are developing this initial product candidate pursuant a global exclusive
channel collaboration that we entered into with the private synthetic biology company Intrexon Corporation (Intrexon)
in November 2011. As part of this collaboration, we have access to Intrexon's UltraVector
®
platform
and RheoSwitch Therapeutic System
®
for this product application. We anticipate that by continuously producing
and delivering prostacyclin directly where it is needed, in the pulmonary arteries of PAH patients, this product candidate
may overcome the dose limiting side effects of systemic prostacyclin treatments for PAH, a mainstay of PAH treatment.
According to GlobalData, the global market for PAH treatments is estimated to exceed $3.6 billion by 2015.
(UltraVector
®
and RheoSwitch Therapeutic System
®
are registered trademarks of Intrexon Corporation)
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Funded/Small Molecule Clinical Programs:
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·
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Trimesta
TM
(oral estriol) is being developed as an oral once-daily treatment for relapsing-remitting MS in women. Patient enrollment of 164 patients is complete in this randomized, double-blind, placebo-controlled Phase II clinical trial being conducted at 15 centers in the U.S. Patients are being dosed and monitored for two years. This clinical trial is supported by grants exceeding $8 million, which should be sufficient to fund the trial through completion. Current sales of injectable disease-modifying therapies for MS are estimated at $8.9 billion annually. According to various reports, sales of oral disease-modifying therapies for MS, of which Trimesta™, if and when approved, would be in such class, are anticipated to grow from $500 million in 2010 to $5 billion annually by 2017.
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·
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Trimesta
TM
(oral estriol)
is also being developed for the treatment of cognitive dysfunction in female MS patients. In January 2012, patient enrollment began
in a randomized, double-blind, placebo-controlled Phase II clinical trial being conducted at University of California, Los Angeles
(UCLA). The majority of the costs of this trial are being funded by grants from foundations and charitable organizations and we
have pledged approximately $500,000 to UCLA to partially fund this trial payable over three years. An estimated 50-65% of MS patients
are expected to develop disabilities due to cognitive dysfunction and there is currently no approved treatment.
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·
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Effirma
TM
(flupirtine) is being developed for the treatment of fibromyalgia. On May 6, 2010, we entered into a sublicense agreement with Meda AB, a multi-billion dollar international pharmaceutical company, covering all of our patents’ rights on the use of flupirtine for fibromyalgia in the U.S., Canada and Japan. According to Meda’s 2010 Annual Report, flupirtine for fibromyalgia is currently in Phase II development. The sublicense agreement provides that all ongoing and future development costs are to borne by Meda and we are entitled to receive certain payments if milestones are achieved and royalties on sales. Based on an estimated annual price of $1,200 per fibromyalgia patient, we estimate that the total market potential in the U.S. is $6 billion.
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·
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AEN-100 (gastroretentive zinc acetate) is being developed
under an investigator-initiated Investigational New Drug (IND) application for the treatment of ALS, also known as Lou
Gehrig’s disease. We intend to sponsor a multi-center, double-blind, placebo-controlled, adaptively designed Phase
II/III clinical trial in ALS patients. It is anticipated that the clinical trial will comprise two phases. The first phase
of the trial is anticipated to enroll at least 65 patients randomized to receive either AEN-100 or placebo for a period
of six months at which time the average change in functional rating between the groups will be compared via an interim
analysis conducted on a blinded basis. Should the interim analysis meet the threshold criteria in favor of the treatment
group, the second phase of the study will be initiated and will seek to enroll approximately 50 additional subjects to
receive treatment for nine months. This study is intended to be conducted by PNA Center for Neurological Research (PNA)
which previously sponsored and completed a successful pilot Phase I/II study of oral zinc therapy
for ALS. Separately, PNA intends to conduct a Phase I study of AEN-100 in normal volunteers prior to initiating the
Phase II/III clinical trial in ALS patients. We have committed to support
approximately $400,000 to PNA for the first phase of the Phase II/III clinical trial, payable based upon study enrollment and milestones. There is only one approved therapy
for ALS, the efficacy of which is considered to be marginal. Based on
an estimated annual price of $10,000 per ALS patient, we estimate that the
total market potential in the U.S. is $300 million.
|
Product Candidates and Medical Indications
Synthetic Biologic Products
We are engaged in the emerging field
of synthetic biology directed for the purpose of developing new human therapeutic products. Synthetic biology in an emerging
field that combines molecular biology and automation to design, optimize and construct new biological systems and functions. These technologies utilize a combination of automated processes including, DNA
sequencing, computer-aided design, DNA synthesis, fabrication of modular transgenes and high throughput testing to create and
optimize biologic products.
Our initial efforts in this area are being
conducted in collaboration with Intrexon, and are directed towards the design, optimization and development of synthetic DNA-based
therapeutic product candidates utilizing Intrexon’s UltraVector
®
platform for the treatment of PAH. Synthetic
DNA-based therapeutics comprise constructs of DNA that can be administered to patients via a single procedure. Once introduced,
they are intended to continuously produce therapeutic proteins
in vivo
in a controllable and localized fashion for up to
a period of years.
An important feature of our product candidates
developed in collaboration with Intrexon may be the incorporation of Intrexon’s RheoSwitch Therapeutic System
®
.
Such system is intended to provide unprecedented control of therapeutic protein expression through the use of a highly specific
orally available activating ligand that can be taken by patients on a daily basis as one or more pills. In this way, the levels
of
in vivo
protein expression may be adjusted from time to time by treating physicians through simple dose adjustment of
the oral activating ligand. Such system also provides an important safety mechanism not previously available in gene therapy clinical
trials since in the absence of taking an oral pill, protein expression would not be expected to occur.
Pulmonary Arterial Hypertension (PAH)
Synthetic DNA-based Therapy
Disease
PAH is a progressive, disabling and life-threatening
disorder characterized by abnormally high blood pressure (hypertension) in the pulmonary artery, the blood vessel that carries
blood from the heart to the lungs. Hypertension occurs when most of the very small arteries throughout the lungs narrow in diameter,
therefore constricting blood flow through the lungs. The constriction of blood flow causes the pressure to increase in the pulmonary
artery and in the right ventricle (the heart chamber that pumps blood into the pulmonary artery). Signs and symptoms of PAH take
place when the increased pressure cannot overcome the constriction and there is insufficient blood flow to the body. Shortness
of breath during exertion and fainting spells are the most common early symptoms of PAH. Despite current treatments, PAH generally
has a very poor outcome and is associated with high rates of mortality within three to five years of diagnosis.
Synthetic DNA-based Therapeutic for
PAH
Our initial synthetic
DNA-based therapeutic product candidate is intended for the treatment of PAH, a serious life-threatening lung disease. This
product candidate is designed to deliver DNA that encodes a therapeutic protein called PGIS locally to the pulmonary
arteries of PAH patients via a single pulmonary catheter procedure and via an oral daily pill, control the long-term local
expression of such therapeutic protein.
We are developing
this initial product candidate in collaboration with Intrexon. Under the collaboration, we intend to utilize Intrexon's
advanced transgene engineering platform for the controlled, precise and continuous
in vivo
cellular production of
PGIS. PGIS is a specific effector enzyme that regulates the production of prostacyclin, a potent mediator of arterial
dilation that also prevents smooth muscle proliferation and arterial wall thickening. PGIS expression is decreased in the lungs of PAH
patients and deficiency in prostacyclin production is strongly implicated in PAH. We anticipate that by continuously
producing and delivering prostacyclin directly where it is needed, in the pulmonary arteries of PAH patients via PGIS, this
product candidate may overcome the dose limiting side effects of systemic prostacyclin-based treatments for PAH. While
systemic prostacyclin-based treatments for PAH are currently a mainstay of PAH therapy, their considerable systemic side
effects limit their dose and ultimate long-term utility.
The global market potential for the treatment
of PAH is estimated to be up to $3.6 billion by 2015, according to GlobalData, Pulmonary Arterial Hypertension (PAH) – Drug
Pipeline Analysis and Market Forecasts for 2016.
Relapsing-Remitting Multiple Sclerosis
(MS) in Women
Trimesta (oral estriol)
Disease
MS is a progressive neurological disease
in which the body loses the ability to transmit messages along central nervous system nerve cells, leading to a loss of muscle
control, paralysis, cognitive impairment and in some cases death. According to the National Multiple Sclerosis Society (NMSS),
currently, more than 2.5 million people worldwide (approximately 400,000 patients in the U.S. of which 70% are estimated to be
women) have been diagnosed with MS. Young adults, ages 20 to 50, and two to three times as many women than men are predominantly
diagnosed with MS. According to the NMSS, approximately 85% of MS patients are initially diagnosed with the relapsing-remitting
form, compared to 10-15% with other progressive forms.
There are currently eight Food &
Drug Administration (FDA) approved therapies for the treatment of relapsing-remitting MS: Betaseron
®
, Rebif
®
,
Avonex
®
, Novantrone
®
, Copaxone
®
, Tysabri
®
, Gilenya
®
and
Extavia
®
. These therapies provide only a modest benefit for patients with relapsing-remitting MS and therefore serve
to only delay progression of the disease. All of these drugs except Gilenya
®
require frequent (daily, weekly &
monthly) injections (or infusions) on an ongoing basis and can be associated with unpleasant side effects (such as flu-like symptoms),
high rates of non-compliance among users, and eventual loss of efficacy due to the appearance of resistance in approximately 30%
of patients. Despite the availability of multiple FDA-approved therapies for the treatment of relapsing-remitting MS, the disease
is highly underserved and exacts a heavy economic toll.
Current sales of injectable disease-modifying
therapies for MS are estimated at $8.9 billion annually. According to various reports, sales of oral disease-modifying therapies
for MS, of which Trimesta™, if and when approved, would be in such class, are anticipated to grow from $500 million in 2010
to in excess of $5 billion annually by 2017.
Background
It has been scientifically documented that
pregnant women with certain autoimmune diseases experience a spontaneous reduction of disease symptoms during pregnancy, particularly
in the third trimester. The PRIMS (Pregnancy In MS) study, a landmark clinical study published in the
New England Journal of
Medicine
followed 254 women with MS during 269 pregnancies and for up to one year after delivery. The PRIMS study demonstrated
that relapse rates were significantly reduced by 71 percent (p < 0.001) through the third trimester of pregnancy compared to
pre-pregnancy-rates, and that relapse rates increased by 120 percent (p < 0.001) during the first three months after birth (post-partum)
before returning to pre-pregnancy rates. It has been hypothesized that the female hormone, estriol, produced by the placenta during
pregnancy, plays a role in “fetal immune privilege”, a process that prevents a mother’s immune system
from attacking and rejecting her fetus. Maternal levels of estriol increase in a linear fashion through the third trimester
of pregnancy until birth, whereupon they abruptly return to low circulating levels. The anti-autoimmune effects of esteriol is
thought to be responsible for the therapeutic effects of pregnancy on MS.
Rhonda Voskuhl, M.D., Director, UCLA MS
program, UCLA Department of Neurology, has found that pregnancy levels of estriol have potent immunomodulatory effects. She further
postulated and tested in pilot clinical studies that oral doses of estriol may have a therapeutic benefit when administered to
non-pregnant female MS patients by, in essence, mimicking the spontaneous reduction in relapse rates seen in MS patients during
pregnancy.
Estriol has been approved and marketed
for over 40 years throughout Europe and Asia for the oral treatment of post-menopausal symptoms. It has never been approved by
the U.S. FDA for any indication.
Clinical Development
Our Trimesta (oral estriol) drug candidate
is for the treatment of relapsing-remitting MS in women. An investigator-initiated, 10-patient, 22-month, single-agent, crossover
clinical trial to study the therapeutic effects of 8 mg of oral Trimesta taken daily in non-pregnant female relapsing-remitting
MS patients was completed in the U.S. The total volume and number of gadolinium-enhancing lesions were measured by brain magnetic
resonance imaging (an established neuroimaging measurement of disease activity in MS). Over the next three months of treatment
with Trimesta, the median total enhancing lesion volumes decreased by 79% (p = 0.02) and the number of lesions decreased by 82%
(p = 0.09). They remained decreased during the next 3 months of treatment, with lesion volumes decreased by 82% (p = 0.01), and
numbers decreased by 82% (p =0.02). Following a six-month drug holiday during which the patients were not on any drug therapies,
median lesion volumes and numbers returned to near baseline pretreatment levels. Trimesta therapy was reinitiated during a four-month
retreatment phase of this clinical trial. The relapsing-remitting MS patients again demonstrated a decrease in enhancing lesion
volumes of 88% (p = 0.008) and a decrease in the number of lesions by 48% (p = 0.04) compared with original baseline scores.
A Phase II randomized, double-blind, placebo-controlled
clinical trial is currently underway at 15 centers in the U.S. The purpose of this clinical trial is to study whether 8 mg of oral
Trimesta taken daily over a two year period will reduce the rate of relapses in a large population of female patients with relapsing-remitting
MS. Investigators are administering either Trimesta or matching placebo, in addition to a standard of care, glatiramer acetate
(Copaxone
®
) injections, an FDA-approved therapy for MS, to women between the ages of 18 to 50 who have been recently
diagnosed with relapsing-remitting MS. The primary endpoint in this clinical trial being run under an investigator-initiated IND
application, is relapse rates at two years. As of January 23, 2012, 164 patients have been enrolled in the clinical trial and the
trial enrollment has been closed. The patients will be dosed and monitored for two years.
With over $8 million in grant funding to
date, the ongoing Trimesta clinical trial should be funded to its completion.
Cognitive Dysfunction in Multiple Sclerosis
Trimesta (oral estriol)
Disease
According to the NMSS and the Multiple
Sclerosis Society of Canada publication,
Hold that Thought! Cognition and MS
, it is fairly common for people with MS to
complain of problems remembering things, finding the right words, concentrating on a task or something they are reading, or following
a conversation. These are all cognitive symptoms of MS. Of those affected by MS, 50-65% have cognitive dysfunction issues. Despite
the fact that most symptoms are mild to moderate, they can have a significant impact on a person’s ability to normally function.
The overall cognitive dysfunction can be described as a reduction in mental “sharpness.”
The major areas of cognition that can be
dysfunctional include what are termed complex attention and executive functions
.
Complex attention involves multitasking,
the speed with which information can be processed, learning and memory, and perceptual skills; executive functions include problem
solving, organizational skills, the ability to plan, and word finding. Just as the nature, frequency, and severity of MS-related
physical problems can widely vary, not all people with MS will display these cognitive issues, and no two people will experience
exactly the same types or severity of problems.
Background
In the investigator-initiated, 10-patient,
22-month, single-agent, crossover clinical trial conducted by Dr. Rhonda Voskuhl, a statistically significant 14% improvement from
baseline in Paced Auditory Serial Addition Test (PASAT) cognitive testing scores (p = 0.04) was observed in relapsing-remitting
MS patients after six months of Trimesta therapy. PASAT is a routine cognitive test performed in patients with a wide variety of
neuropsychological disorders such as MS. The PASAT scores are expressed as a mean percent change from baseline.
Clinical Development
Our Trimesta (oral estriol) drug candidate
is also being developed for the treatment of cognitive dysfunction in female MS patients. This randomized, double-blind, placebo-controlled
Phase II clinical trial to evaluate Trimesta’s potential neuroprotective and therapeutic effect on cognitive dysfunction
in female MS patients is currently enrolling relapsing-remitting or secondary-progressive female MS patients at UCLA. Up to 64
patients between the ages of 18 and 50 will be randomized 1:1 into the treatment and placebo groups. Dr. Voskuhl will administer
either oral Trimesta or a matching placebo, in addition to any FDA-approved MS treatment. Each patient will be dosed and monitored
for one year after being enrolled. The primary endpoint in this clinical trial being run under an investigator-initiated IND application
is expected to be improvement in PASAT cognitive testing scores versus matching placebo. We and a private foundation have pledged
to equally support this new clinical trial, and we will also provide Trimesta drug supply. The trial also received contributions
from several other supporters.
Fibromyalgia
Effirma (flupirtine)
Disease
Fibromyalgia is a chronic and debilitating
condition characterized by widespread pain and stiffness throughout the body, often accompanied by severe fatigue, insomnia and
mood symptoms. Fibromyalgia affects an estimated 3-6% of the population worldwide, including an estimated 10 million people in
the U.S. There are presently three FDA products approved for this indication in the U.S. – Lyrica
®
, Cymbalta
®
and Savella
®
. Flupirtine is differentiated from these products in that it employs a unique mode
of action.
Based on an estimated annual price of $1,200 per fibromyalgia
patient, we estimate that the total market potential in the U.S. is $6 billion.
Clinical Development
Our Effirma (flupirtine) product candidate
is for the treatment of fibromyalgia. Effirma is a selective neuronal potassium channel opener that also has NMDA receptor antagonist
properties. Effirma is a non-opioid, non-NSAID, non-steroidal, analgesic. Preclinical data and clinical experience suggest that
Effirma should also be effective for neuropathic pain since it acts in the central nervous system via a mechanism of action distinguishable
from most marketed analgesics. Effirma is especially attractive because it operates through non-opiate pain pathways, exhibits
no known abuse potential, and lacks withdrawal effects. In addition, no tolerance to its antinocioceptive effects has been observed.
One common link between neuroprotection, nocioception and Effirma may be the N-methyl-D-aspartic acid glutamate system, a major
receptor subtype for the excitotoxic neurotransmitter, glutamate. Effirma has strong inhibitory actions on N-methyl-D-aspartic
acid-mediated neurotransmission. Flupirtine was originally developed by Asta Medica (subsequently acquired by Meda AB) and has
been approved and is marketed by Meda AB in Europe since 1984, as well as other countries, for the treatment of pain. It has never
been approved by the FDA for any indication.
Meda Corporate Partnership
On May 6, 2010, we entered into a sublicense
agreement with Meda AB, a multi-billion dollar international pharmaceutical company, pursuant to which Meda AB assumed all future
development costs and may commercialize flupirtine for fibromyalgia in the U.S. As consideration for such sublicense, we received
an up-front payment of $2.5 million and are entitled to milestone payments of $5 million upon the FDA’s acceptance of the
New Drug Application (NDA) for flupirtine for fibromyalgia and $10 million upon FDA approval of such NDA. Pursuant to the sublicense
agreement, we will also receive a 7% royalty on net sales of flupirtine for fibromyalgia in the U.S., Canada and Japan, with such
royalties being shared equally with our licensor, McLean Hospital, a Harvard teaching hospital.
Flupirtine is approved and marketed by
Meda AB and its distributors in Europe and other countries for indications other than fibromyalgia and has been prescribed to millions
of patients worldwide. We believe that such substantial human experience with flupirtine should greatly assist the FDA in its evaluation
of the safety of flupirtine upon review of an NDA of flupirtine for fibromyalgia. According to Meda’s 2010 Annual Report,
flupirtine for fibromyalgia is currently in Phase II development.
Amyotrophic Lateral Sclerosis (ALS)
AEN-100 (gastroretentive zinc acetate)
Disease
ALS, also known as Lou Gehrig’s Disease,
is a devastating progressive neurodegenerative disease that affects the motor nerve cells in the brain and the spinal cords. It
is estimated that as many as 30,000 Americans may have the disease at any given time. The progressive degeneration of the motor
neurons in ALS eventually leads to the death of the patient. Motor neurons reach from the brain to the spinal cord and from the
spinal cord to the muscles throughout the body. When motor neurons die, the ability of the brain to initiate and control muscle
movement is lost. With voluntary muscle action progressively affected, patients in the later stages of the disease may become totally
paralyzed. While non-invasive ventilation and gastrostomy tubes prolong life by 6-12 months, the average lifespan from time of
symptom onset is 2-5 years. Currently, RILUTEK
®
is the only FDA-approved drug for ALS. RILUTEK is a N-methyl d-aspartate
(NMDA) receptor antagonist and has been shown to prolong life in patients with ALS by 3 months. Presently, there is no cure for
ALS.
Based on an estimated annual price of $10,000 per ALS patient,
we estimate that the total market potential in the U.S. is $300 million.
Background
Clinical investigators at the PNA cite multiple lines of scientific research that suggest a potential benefit of zinc therapy for
ALS patients, including:
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The use of zinc therapy for ALS patients is supported in animal models of ALS. Approximately 2% of ALS diagnoses are associated with a mutation in the copper/zinc superoxide dismutase (SOD1) gene. In ALS mutant SOD1 animal models, zinc supplementation has been shown to delay death.
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Genetic mutations affecting the ability of a protein known as copper/zinc SOD1 to properly bind zinc are associated with the familial form of ALS, which shares many of the same features as the more prevalent sporadic form of ALS.
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Zinc is an important modifier of glutamate toxicity, a neurotransmitter linked to cell death in ALS patients.
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Clinical Development
Preparations are underway to
evaluate the safety and efficacy of our proprietary drug candidate, AEN-100, a gastroretentive, sustained-release zinc-based
tablet, in a multi-center, double-blind, placebo-controlled clinical trial in ALS patients intended to be conducted under
an investigator-initiated IND application. Manufacturing of AEN-100 study material has been completed and stability studies
are ongoing.
We intend to provide the study
material and support a multi-center, double-blind, placebo-controlled, adaptively designed Phase II/III clinical trial in ALS
patients to be conducted by PNA. It is anticipated that the Phase II/III clinical trial will comprise two phases. The first
phase of the trial is anticipated to enroll at least 65 patients randomized to receive either AEN-100 or placebo for a period
of six months at which time the average change in functional rating between the groups will be compared via an
interim analysis conducted on a blinded basis. Should the interim analysis meet the threshold criteria in favor of the
treatment group the second phase of the study will be initiated and seek to enroll up to a total of 114 patients, inclusive
of the 65 subjects from the first phase who continue to meet eligibility criteria at such time, to receive treatment for nine
months.
In November 2011, PNA reported
top-line results from its pilot Phase I/II open label, three month safety study of oral high dose zinc therapy in ALS. The
clinical study met its primary outcome as no safety issues related to zinc therapy were observed. In addition, an average
decrease in the monthly rate of disease progression was observed in the ALS patients on zinc therapy, compared to published
historical controls, as well as compared to the average monthly rate of disease progression of the subjects prior to
enrollment in the study. AEN-100 is not the same zinc formulation untilized by PNA in its previously completed Phase I/II
safety study of zinc for ALS, and PNA intends to conduct a Phase I study of AEN-100 in normal volunteers prior to
initiating the Phase II/III clinical trial in ALS patients.
We have committed to
support approximately $400,000 to PNA for the first phase of the Phase II/III clinical trial, payable based upon study
enrollment and completion milestones.
Intellectual Property
Our goal is to (a) obtain, maintain, and
enforce patent protection for our products, formulations, processes, methods, and other proprietary technologies, (b) preserve
our trade secrets, and (c) operate without infringing on the proprietary rights of other parties, worldwide. We seek, where appropriate,
the broadest intellectual property protection for product candidates, proprietary information, and proprietary technology through
a combination of contractual arrangements and patents. Below is a description of our license and development agreements relating
to our product candidates.
McLean Hospital Exclusive License Agreement and Meda AB Sublicense
Agreement
In 2005, as amended in 2007 and 2010, we
entered into an exclusive license agreement with the McLean Hospital, a Harvard University teaching hospital, relating to U.S.
Patent No. 6,610,324 and its foreign equivalents, entitled “Flupirtine in the treatment of fibromyalgia and related conditions.”
Pursuant to this agreement, we paid an upfront fee and back patent costs of approximately $62,000 and agreed to pay McLean royalties
on net sales of oral flupirtine equal to 3.5% of net sales of oral flupirtine for indications covered by the issued patents, reduced
to 1.75% if we have a license to other intellectual property covering those indications. In addition, we agreed to use our best
efforts to commercialize oral flupirtine for the therapeutic uses embodied in the patent applications. Furthermore, we agreed to
reimburse McLean Hospital all future patent costs and pay the following milestone payments: $150,000 upon the initiation of a pivotal
Phase III clinical trial of oral flupirtine; $300,000 upon the filing of an NDA for oral flupirtine; and $600,000 upon FDA approval
of oral flupirtine. The due diligence requirements of the exclusive license agreement were amended in April of 2010 and further
amended by a Non-Disturbance Agreement that was signed with McLean Hospital, Meda and us. The agreement remains in effect
until the later of (i) the date all issued patents and filed patent applications within the Patent Rights (as defined in the agreement)
expire or are abandoned and (ii) one year after the last Commercial Sale (as defined in the agreement) for which royalty is due
or ten years after expiration or abandonment date set forth in clause (i) above, whichever is earlier. We have the right to
terminate the agreement at any time upon 90 days notice. In addition, McLean may terminate the agreement (i) upon 10 days notice
for nonpayment unless payment is made within such 10 days, (ii) immediately upon written notice if we fail to maintain required
insurance or become insolvent, make an assignment for the benefit of creditors or petition for bankruptcy is filed for or against
us or (ii) if we, our affiliates or our sublicensees default in performance of their obligations under the agreement and such default
is not cured within 60 days.
Effective May 6, 2010, we entered into
a Sublicense Agreement with Meda AB of Sweden. Pursuant to this agreement, Meda has been granted an exclusive sublicense to all
of our patents covering the use of oral flupirtine for fibromyalgia. These patents have been issued in the U.S. and are pending
in Canada and Japan (the “Territory”). This agreement provides that Meda will assume all future development costs for
the commercialization of oral flupirtine for fibromyalgia. As consideration for this sublicense, we received an up-front payment
of $2.5 million upon execution of this agreement and are entitled to milestone payments of $5 million upon filing of an NDA
with the FDA for oral flupirtine for fibromyalgia and $10 million upon marketing approval. This agreement also provides that we
are entitled to receive royalties of 7% of net sales of oral flupirtine approved for the treatment of fibromyalgia covered by issued
patent claims in the Territory. Pursuant to the terms of this agreement with our university licensor, we are obligated to share
half of the royalties we receive with the university licensor, McLean Hospital, and we were obligated to pay them $375,000 upon
receipt of an upfront payment, which we did pay in May 2010 when we received the payment from Meda. The agreement continues in
effect country by country until the earlier of the expiration of the Royalty Period (as defined in the agreement) or the termination
of the McLean license. Meda has the right to terminate the agreement at any time upon 90 days notice. In addition, a party
may terminate the agreement upon 30 days notice if the other party breached material obligations and such breach is not cured within
a period of time set forth in the agreement. The parties also have the right to terminate the agreement upon 60 days notice in
the event of the filing by a party of a bankruptcy petition, the filing of an involuntary petition not dismissed within 60 days,
a party proposes a written agreement of composition or extension of its debt, a party becomes Insolvent (as defined in the agreement),
liquidates, dissolves, ceases to conduct business or makes an assignment for the benefit of creditors. Upon a termination,
all licenses revert to us.
The Regents of University of California License Agreement
In July 2005, we were granted an exclusive
worldwide license agreement with the Regents of the University of California (Regents) relating to issued U.S. Patent No. 6,936,599
and pending patent applications covering the uses of the drug candidate Trimesta (oral esteriol). Pursuant to this agreement, we
paid an upfront license fee and reimbursed patent expenses totaling approximately $61,000 and agreed to pay a license fee of $25,000
during 2006. We also agreed to pay annual maintenance fees, milestone payments totaling $750,000 that are payable on filing
an NDA, and on approval of an NDA with the FDA, as well as royalties on net sales of Trimesta covered by the licensed patents.
We may be permitted to partially pay milestone payments in the form of equity. The duration of this agreement is from the
effective date of July 11, 2005 until the last-to-expire patent in Regent’s Patent Rights, or until the last patent application
licensed under this agreement is abandoned and no patent in Regent’s Patent Rights ever issues. We have the right to
terminate this agreement at any time and termination will be effective 90 days after the effective date of the termination notice. The
Regents may terminate the agreement with a written notice of default if we violate or fail to perform any material term or covenant
of this agreement. However, we have 60 days after the effective date of the notice of default to repair the default.
The Intrexon Collaboration
On November 18, 2011, we entered into
a Channel Agreement with Intrexon (the “Channel Agreement”) that governs an “exclusive channel
collaboration” arrangement in which we intend to use Intrexon’s technology directed towards the production of
PGIS, through the use of
in vivo
conditionally regulated embedded controllable bioreactors for the treatment of PAH.
The Channel Agreement establishes committees comprised of our and Intrexon representatives that will govern activities
related to the PAH program in the areas of project establishment, chemistry, manufacturing and controls, clinical and
regulatory matters, commercialization efforts and intellectual property.
The Channel Agreement grants us a worldwide
license to use specified patents and other intellectual property of Intrexon in connection with the research, development, use,
importing, manufacture, sale, and offer for sale of products involving the production of PGIS through the use of an
in vivo
conditionally regulated embedded controllable bioreactor for the treatment of PAH in humans. Such license is exclusive with respect
to any clinical development, selling, offering for sale or other commercialization of Products, and otherwise is non-exclusive.
We may not sublicense the rights described without Intrexon’s written consent.
Under the Channel Agreement, and subject
to certain exceptions, we are responsible for, among other things, the performance of the PAH program including the development,
commercialization and certain aspects of manufacturing products. Among other things, Intrexon is responsible for the costs of establishing
manufacturing capabilities and facilities for the bulk manufacture of products developed under the PAH program, certain other aspects
of manufacturing, costs of discovery-stage research with respect to platform improvements and costs of filing, prosecution and
maintenance of Intrexon’s patents.
Subject to certain expense allocations
and other offsets provided in the Channel Agreement, we will pay Intrexon 50% of the cumulative net quarterly profits derived from
the sale of products, calculated on a product-by-product basis. We have likewise agreed to pay Intrexon 50% of quarterly revenue
obtained from a sublicensor in the event of a sublicensing arrangement. During the first 18 months, neither we nor Intrexon may
terminate the Channel Agreement, except under limited circumstances. Following the first 18 months, we may voluntarily terminate
the Channel Agreement upon 90 days written notice to Intrexon. Following the first 18 months, Intrexon may also terminate the Channel
Agreement if we elect not to pursue the development of a PAH program identified by Intrexon that is a “Superior Therapy”
as defined in the Channel Agreement.
Upon termination of the Channel Agreement,
we may continue to develop and commercialize any Product that, at the time of termination:
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is being commercialized by us,
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has received regulatory approval,
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is a subject of an application for regulatory approval that is pending before the applicable regulatory authority,
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is the subject of at least an ongoing Phase II clinical trial (in the case of a termination by Intrexon
due to our uncured breach or a voluntary termination by us), or an ongoing Phase I clinical trial in the Field (as defined in the
Channel Agreement) (in the case of a termination by us due to an Intrexon uncured breach or a termination by Intrexon following
an unconsented assignment by us or our election not to pursue development of a Superior Therapy), or
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we have spent at least $4.5 million developing.
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We will be obligated to pay 50% of net
profits or revenue with respect to these “retained” products, which will survive termination of the Channel Agreement.
As partial consideration for execution
of the Channel Agreement, we entered into a Stock Purchase Agreement with Intrexon pursuant to which we issued to Intrexon a number
of shares of our common stock equal to 9.995% of the number of shares of our common stock issued and outstanding following and
giving effect to such issuance (the “First Tranche”) at a purchase price equal to the $0.001 par value of such shares,
which issuance was deemed paid in partial consideration for the execution and delivery of the Channel Agreement. We also agreed
to issue additional shares of our common stock to Intrexon upon dosing of the first patient in a Phase II clinical trial sponsored
by us in the U.S., or similar study as the parties may agree in a country other than the U.S.
Under the Stock Purchase Agreement, Intrexon
is entitled, at its election, to:
(i) participate in our future securities
offerings that constitute “Qualified Financings” and purchase securities equal to 19.99% of the number of shares of
common stock or other securities sold in such offering. For this purpose, a “Qualified Financing” means a sale of our
common stock or equity securities convertible into our common stock in a public or private offering, raising gross proceeds of
at least $5 million, where the sale of shares is either registered under the Securities Act of 1933, as amended (the “Securities
Act”), at the time of issuance or we agree to register the resale of such shares, and
(ii) without restriction, purchase an additional
number of shares of our common stock in the open market, or otherwise, that do not exceed an additional 10% of the number of shares
of common stock then issued and outstanding.
The Stock Purchase Agreement contains a
standstill provision pursuant to which, among other things, Intrexon has agreed that, for a period of three years, subject to certain
exceptions and unless invited in writing by us to do so, neither Intrexon nor its affiliates will, directly or indirectly: (i)
effect or seek, initiate, offer or propose to effect, or cause or participate in any acquisition of our securities or assets; any
tender or exchange offer, merger, consolidation or other business combination involving us; any recapitalization, restructuring,
liquidation, dissolution or other extraordinary transaction with respect to us; or any “solicitation” of “proxies”
or consents to vote any of our voting securities, or in any way advise or, assist any other person in doing so; (ii) form, join
or in any way participate in a “group” with respect to any of our securities; (iii) otherwise act to seek to control
or influence the management, Board of Directors or our policies; (iv) take any action reasonably expected to force us to make a
public announcement regarding any such matters; or (v) enter into any agreements, discussions or arrangements with any third party
with respect to any of the foregoing.
In connection with the transactions contemplated
by the Stock Purchase Agreement, and pursuant to a Registration Rights Agreement that was executed and delivered by the parties
at the First Tranche closing, we agreed to file a “resale” registration statement (the “Registration Statement”)
registering the resale of the First Tranche shares within 120 days of the First Tranche closing.
AEN-100 – Gastroretentive Zinc Acetate
We intend to
file for orphan drug designation in the U.S. and Europe for AEN-100
(gastroretentive, sustained-release zinc-based tablets)
for the treatment of ALS. ALS qualifies as an “orphan disease” in that it affects less than
200,000 people in the U.S. Orphan drug designation provides for seven years of market exclusivity following approval in the
U.S. and ten years of market exclusivity following approval in Europe.
AEN-100, is also the subject of U.S. and international
patent pending applications that may provide exclusivity beyond the expiration of orphan drug exclusivity, such as published U.S.
patent application Ser. No. 11/621,962 and corresponding international applications that claim priority to January 10, 2006, and
additional patent applications. On October 26, 2011, we received a final rejection letter with regard to U.S. patent application
Ser. No. 11/621,962. On February 15, 2012, we filed
a Request for Continued Examination.
Manufacturing
We utilize contract manufacturing firms
to produce our investigational products AEN-100 and Trimesta in accordance with “current good manufacturing processes”
(cGMP) guidelines outlined by the FDA.
Research and Development
During the years ended December 31, 2011
and 2010, we spent $3.3 million and $1.6 million, respectively, on research and development.
Competitive Environment
The pharmaceutical and biotechnology industries
are characterized by rapidly evolving technology and intense competition. Our competitors include major multi-national pharmaceutical
companies and biotechnology companies developing both generic and proprietary therapies to treat serious diseases. Many of these
companies are well-established and possess technical, human, research and development, financial, and sales and marketing resources
significantly greater than ours. In addition, many of our potential competitors have formed strategic collaborations, partnerships
and other types of joint ventures with larger, well established industry competitors that afford these companies potential research
and development and commercialization advantages in the therapeutic areas we are currently pursuing.
Academic research centers, governmental
agencies and other public and private research organizations are also conducting and financing research activities which may produce
products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent
protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before us.
In the general area of
commercial products for the treatment of serious diseases, we potentially compete with a variety of companies, most of whom
are pharmaceutical or biotechnology companies. These include: Actelion Pharmaceuticals, Bayer Health Care, Biogen Idec, Eli
Lilly & Co., Genzyme, GlaxoSmithKline Pharmaceuticals, Merck & Co., Pfizer, Novartis, Teva Pharmaceuticals and United
Therapeutics.
Our History
Our predecessor, Sheffield Pharmaceuticals,
Inc. was incorporated in 1986, and in 2006 engaged in a reverse merger with Pipex Therapeutics, Inc., a Delaware
corporation formed in 2001. After the merger, we changed our name to Pipex Pharmaceuticals, Inc., and in October 2008 we changed
our name to Adeona Pharmaceuticals, Inc. On October 15, 2009, we reincorporated in the State of Nevada. After reprioritizing our
focus on the emerging area of synthetic biologics and entering into a collaboration with Intrexon, on February 15, 2012, we amended
our Articles of Incorporation to change our name to Synthetic Biologics, Inc.
Recent Events
On February 15, 2012, upon stockholder
approval, we amended our Articles of Incorporation to change our name to Synthetic Biologics, Inc. Our common stock continues trade
on the NYSE Amex stock exchange, currently under the symbol “SYN”. Prior to this time and since October 16, 2008, our
name was Adeona Pharmaceuticals, Inc. and we traded on the NYSE Amex stock exchange under the symbol “AEN”. We are
incorporated in the State of Nevada.
On March 8, 2012, we entered into a Membership
Interest Purchase Agreement, and certain related agreements, pursuant to which we sold all of our interest in Adeona Clinical Laboratory,
LLC (the “Lab”) to Hartlab, LLC, an entity controlled by the Lab’s former owner, in consideration for (i) the
immediate assignment of the Lab’s outstanding accounts receivable up through the date of closing, plus (ii) $700,000 payable
pursuant to the terms of a two-year non-recourse promissory note secured by all of the assets of the Lab.
During the period from January 1, 2012
through March 26, 2012, 1,120,121 warrants were exercised for gross proceeds of $1.4 million.
Employees
As of March 26, 2012, we employed
approximately eight individuals, seven of whom are full-time employees. A significant
number of our management and professional employees have had prior experience with pharmaceutical, biotechnology or medical
product companies. None of our employees are covered by collective bargaining agreements, and management considers relations
with our employees to be good.
Properties
Our principal executive offices are located
at 3985 Research Park Drive, Suite 200, Ann Arbor, Michigan 48108 and we also maintain executive offices in Rockville, Maryland.
Available Information
Additional information about Synthetic
Biologics is contained at our website,
www.syntheticbiologics.com
. Information on our website is not incorporated by reference
into this report. We make available on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current
Reports on Form 8-K as soon as reasonably practicable after those reports are filed with the SEC. The following Corporate Governance
documents are also posted on our website: Code of Conduct, Code of Ethics for Financial Management and the Charters for the Audit
Committee, Compensation Committee and Nominations Committee of the Board of Directors. Our phone number is (734) 332-7800 and our
facsimile number is (734) 332-7878.
Item 1A.
Risk
Factors
Investing in our common stock involves
a high degree of risk. In addition to the risks related to our business set forth in this Form 10-K/A and the other information
included and incorporated by reference in this Form 10-K/A, you should carefully consider the risks described below before purchasing
our common stock. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial
may also impair our business operations.
We will need to raise additional
capital to operate our business.
With the exception of the quarter ended
June 30, 2010, we have experienced significant losses since inception and have a significant accumulated deficit. We expect to
incur additional operating losses in the future and therefore our cumulative losses to increase. To date, other than the licensing
fee we received from Meda AB for the development of and commercialization of Effirma (flupirtine) for fibromyalgia in the U.S.,
Canada and Japan and limited laboratory revenues from Adeona Clinical Laboratory, which we have recently sold, we have generated
very minimal revenues. Inasmuch as our sole source of revenue (with the exception of the Meda licensing fee) has been our laboratory
revenue and our laboratory was sold recently, we do not expect to derive revenue from any source in the near future until we or
our partners successfully commercialize our products. As of December 31, 2011, our accumulated deficit totaled approximately $51.9
million on a consolidated basis. Until such time as we receive approval from the FDA and other regulatory authorities for our product
candidates, we will not be permitted to sell our products and therefore will not have product revenues from the sale of products.
For the foreseeable future we will have to fund all of our operations and capital expenditures from equity and debt offerings,
cash on hand, licensing fees and grants. If our current cash, cash equivalents and short-term investments are not sufficient to
sustain our operations, we will need to seek additional sources of financing and such additional financing may not be available
on favorable terms, if at all. If we do not succeed in raising additional funds on acceptable terms, we may be unable to complete
planned preclinical and clinical trials or obtain approval of our product candidates from the FDA and other regulatory authorities.
In addition, we could be forced to discontinue product development, forego sales and marketing efforts, and forego licensing in
attractive business opportunities. Any additional sources of financing will likely involve the issuance of our equity or debt securities,
which will have a dilutive effect on our stockholders.
We have not been able to sustain
profitability.
Other than with respect to the quarter
ended June 30, 2010, we have a history of losses and we have incurred and continue to incur substantial losses and negative
operating cash flow. Even if we succeed in developing and commercializing one or more of our product candidates, we may still incur
substantial losses for the foreseeable future and may not sustain profitability. We also expect to continue to incur significant
operating and capital expenditures and anticipate that our expenses will substantially increase in the foreseeable future as we
do the following:
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continue to undertake preclinical development and clinical trials for our product candidates;
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seek regulatory approvals for our product candidates;
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develop our product candidates for commercialization;
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implement additional internal systems and infrastructure;
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lease additional or alternative office facilities; and
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hire additional personnel, including members of our management team.
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We may experience negative cash flow for
the foreseeable future as we fund our technology development with capital expenditures. As a result, we will need to generate significant
revenues in order to achieve and maintain profitability. We may not be able to generate these revenues or achieve profitability
in the future. Our failure to achieve or maintain profitability could negatively impact the value of our common stock and underlying
securities.
Our research and development efforts
may not succeed in developing commercially successful products and technologies, which may limit our ability to achieve profitability.
We must continue to explore opportunities
that may lead to new products and technologies. To accomplish this, we must commit substantial efforts, funds, and other resources
to research and development. A high rate of failure is inherent in the research and development of new products and technologies.
Any such expenditures that we make will be made without any assurance that our efforts will be successful. Failure can occur at
any point in the process, including after significant funds have been invested.
Regardless of whether our clinical trials
are deemed to be successful, promising new product candidates may fail to reach the market or may only have limited commercial
success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory
approvals or satisfy regulatory criteria, limited scope of approved uses, excessive costs to manufacture, the failure to establish
or maintain intellectual property rights, or infringement of the intellectual property rights of others. Even if we successfully
develop new products or enhancements, they may be quickly rendered obsolete by changing customer preferences, changing industry
standards, or competitors' innovations. Innovations may not be quickly accepted in the marketplace because of, among other things,
entrenched patterns of clinical practice or uncertainty over third-party reimbursement. We cannot state with certainty when or
whether any of our products under development will be launched, whether we will be able to develop, license, or otherwise acquire
drug candidates or products, or whether any products will be commercially successful. Failure to launch successful new products
or new indications for existing products may cause our products to become obsolete, which may limit our ability to achieve profitability.
The recent issue raised by the PCAOB
with our auditor may have a negative impact on our ability to raise additional capital.
On May 1, 2012, we were informed by
Berman & Company that during a regular PCAOB inspection of Berman & Company, the PCAOB issued a comment that the
audit opinion included in our Annual Report on Form 10-K for the year ended December 31, 2011 was issued by a partner at
Berman & Company who was not authorized under the PCAOB rules to issue the opinion or act as our named engagement partner
with respect to the Form 10-K audit (or prior 2011 Form 10-Q interim reviews) after the original engagement
partner rotated off the account under the Securities and Exchange Commission’s independence rules as it pertains to
partner rotation (S-X
Rule 2-01 – Qualifications of Accountants).
We have included with this
Annual Report on Form 10-K/A a reissued audit opinion for the year ended December 31, 2011, from a licensed CPA at Berman
& Company who: (i) was the manager of our December 31, 2011 audit, (ii) was recently made a partner of the firm, (iii)
had performed most of the audit work on the December 31, 2011 audit after the original audit partner rotated off the
account (iv) is serving as our engagement partner on a going forward basis and
has taken full responsibility for the audit as the lead partner of the audit and (v) has performed a review of all audit
procedures related to the audit sufficiency. We have sought guidance from the SEC staff
regarding this matter and intend to file a waiver request to extent it becomes necessary to allow us to use Form S-3, however, no assurance can be given as to the outcome of any such waiver request. If we are
unsuccessful in our attempt to obtain a waiver from the SEC, for a period of time up to one year we may be ineligible to
utilize our Registration Statement on Form S-3 to issue securities which may negatively impact our ability to raise necessary
funds on terms acceptable to us, if at all.
We have a limited operating history
on which investors can base an investment decision.
We have not yet demonstrated our ability
to perform the functions necessary for the successful commercialization of any of our product candidates. We have only recently
entered into the emerging field of synthetic biology, and there can be no assurance that we will be successful in commercializing
any products in such field. The successful commercialization of our product candidates will require us to perform a variety of
functions, including:
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continuing to undertake preclinical development and clinical trials;
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participating in regulatory approval processes;
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formulating and manufacturing products; and
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conducting sales and marketing activities.
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Our operations have been limited to
organizing and staffing our company, acquiring, developing, and securing our proprietary technology, and undertaking
preclinical and clinical trials of our principal product candidates. These operations provide a limited basis for you to
assess our ability to commercialize our product candidates and the advisability of investing in our securities.
The technology on which our channel
partnering arrangement with Intrexon is based on early stage technology in the field of synthetic DNA-based therapy.
Our exclusive channel collaboration arrangement
with Intrexon contemplates the use of Intrexon’s transgene engineering platform technology and regulatory control technology
for the
in vivo
cellular production of PGIS, a specific effector enzyme that regulates the production of prostacyclin. Such
technologies have a limited history of use in the design and development of human therapeutic product candidates and may therefore
involve unanticipated risks or delays.
DNA-based therapy has not yet been
proven to be successful.
The FDA has not yet approved any human
DNA-based therapy product for sale. The field of DNA-based therapy, also referred to as gene therapy or gene transfer, is experimental
and has not yet proven successful in many clinical trials. Clinical trials with DNA-based therapy have encountered a multitude
of significant technical problems in the past, including, unintended integration with host DNA, poor levels of protein expression,
transient protein expression, viral overload, immune reactions to either viral capsids utilized to deliver DNA, DNA itself, proteins
expressed or cells transfected with DNA. There can be no assurance that our preclinical animals studies or human clinical trials
will be successful or that we will receive the regulatory approvals necessary to initiate such studies. To the extent that we utilize
viral constructs or other systems to deliver our DNA-based therapies and same or similar delivery systems demonstrate unanticipated
and/or unacceptable side effects in preclinical or clinical trials conducted by ourselves or others we may be forced to, or elect
to, discontinue development of such product candidates.
We may not generate additional revenue
from our relationships with our corporate collaborators.
On May 6, 2010, we entered into a sublicense
agreement with Meda AB whereby we may receive milestone payments totaling $17.5 million (including an upfront payment of $2.5 million
that has already been received), plus royalties on our flupirtine program. There can be no assurance that Meda AB will successfully
develop flupirtine for fibromyalgia in the U.S., Canada or Japan that would allow us to receive such additional $15 million in
milestone payments and royalties on sales in connection with such agreement. The successful achievement of the various milestones
set forth in the sublicense agreement is not within our control and we will be dependent upon Meda AB for achievement of such milestones.
According to Meda’s 2010 Annual Report, flupirtine for fibromyalgia is currently in Phase II development.
We have experienced several management
changes.
We have had significant changes in management
in the past few years. Jeffrey Riley was appointed Chief Executive Officer and President on February 3, 2012. Effective February 6, 2012, C. Evan Ballantyne was appointed Chief Financial Officer. James S. Kuo, M.D.,
served as Chief Executive Officer and President from February 6, 2010 until February 3, 2012. Max Lyon served as Chief Executive
Officer, President and director from June 26, 2009 until February 6, 2010. Changes in our key positions, as well as additions of
new personnel and departures of existing personnel, can be disruptive, might lead to additional departures of existing personnel
and could have a material adverse effect on our business, operating results, financial results and internal controls over financial
reporting.
We may not be able to retain rights
licensed to us by others to commercialize key products and may not be able to establish or maintain the relationships we need to
develop, manufacture, and market our products.
In addition to our own
patent applications, we also currently rely on licensing agreements with third party patent holders/licensors for our
products. We have an exclusive license agreement with the McLean Hospital relating to the use of flupirtine to treat
fibromyalgia which was sublicensed to Meda AB and an exclusive license agreement with the Regents of the University of
California relating to our Trimesta technology. Each of these agreements requires us or our sublicensee to use our best
efforts to commercialize each of the technologies as well as meet certain diligence requirements and timelines in order to
keep the license agreement in effect. In the event we or our sublicensee are not able to meet our diligence requirements, we
may not be able to retain the rights granted under our agreements or renegotiate our arrangement with these institutions on
reasonable terms, or at all. Furthermore, we currently have very limited product development capabilities, and limited
marketing or sales capabilities. For us to research, develop, and test our product candidates, we would need to contract with
outside researchers, in most cases those parties that did the original research and from whom we have licensed the
technologies. Our exclusive channel collaboration agreement with Intrexon provides that Intrexon may terminate such
agreement if we do not perform certain specified requirements, including developing therapies considered superior.
We can give no assurances that any of our
issued patents licensed to us or any of our other patent applications will provide us with significant proprietary protection or
be of commercial benefit to us. Furthermore, the issuance of a patent is not conclusive as to its validity or enforceability, nor
does the issuance of a patent provide the patent holder with freedom to operate without infringing the patent rights of others.
We will incur additional expenses
in connection with our exclusive channel collaboration arrangement with Intrexon.
Pursuant to our exclusive channel collaboration
with Intrexon, we are responsible for future research and development expenses of product candidates developed under such collaboration,
the effect of which we expect will increase the level of our overall research and development expenses going forward. Although
all manufacturing, preclinical studies and human clinical trials are expensive and difficult to design and implement, costs associated
with the manufacturing, research and development of biologic product candidates are generally greater in comparison to small molecule
product candidates. We have added additional personnel and expect to add additional personnel to support our exclusive channel
collaboration with Intrexon.
Because our collaboration with Intrexon
is relatively new, we have only recently assumed development responsibility and costs associated with such program. In addition,
because development activities are determined pursuant to a joint steering committee comprised of Intrexon and ourselves and we
have limited experience, future development costs associated this program may be difficult to anticipate and exceed our expectations.
Our actual cash requirements may vary materially from our current expectations for a number of other factors that may include,
but are not limited to, unanticipated technical challenges, changes in the focus and direction of our development activities or
adjustments necessitated by changes in the competitive landscape in which we operate. If we are unable to continue to financially
support such collaboration due to our own working capital constraints, we may be forced to delay our activities. If we are unable
to obtain additional financing on terms acceptable to us or at all, we may be forced to seek licensing partners or discontinue
development.
Developments by competitors may render
our products or technologies obsolete or non-competitive.
Companies that currently sell or are developing
both generic and proprietary products to treat serious diseases include: Actelion Pharmaceuticals, Bayer Health Care, Biogen Idec,
Eli Lilly & Co., Genzyme, GlaxoSmithKline Pharmaceuticals, Merck & Co., Pfizer, Novartis, Teva Pharmaceuticals and United
Therapeutics. Many of our competitors have significant financial and human resources. The pulmonary arterial hypertension market
is highly competitive and several different product classes currently compete in this space, including prostacyclin-based therapies,
endothelin receptor antagonists and phosphodiesterase type 5 inhibitors. Prostacyclin-based therapies for PAH are available in
a number of delivery formats, including intravenous, subcutaneous and inhaled routes and an oral prostacyclin-based product candidate
is currently under NDA review in the U.S. In addition, academic research centers may develop technologies that compete with our
Trimesta, sustained-release zinc preparation - AEN-100, and flupirtine technologies. Should clinicians or regulatory authorities
view these therapeutic regiments as more effective than our products, this might delay or prevent us from obtaining regulatory
approval for our products, or it might prevent us from obtaining favorable reimbursement rates from payers, such as Medicare, Medicaid
and private insurers.
We operate in a highly competitive
environment
.
The pharmaceutical and biotechnology industries
are characterized by rapidly evolving technology and intense competition. Our competitors include major multi-national pharmaceutical
companies and biotechnology companies developing both generic and proprietary therapies to treat serious diseases. Many of these
companies are well-established and possess technical, human, research and development, financial, and sales and marketing resources
significantly greater than ours. In addition, many of our potential competitors have formed strategic collaborations, partnerships
and other types of joint ventures with larger, well established industry competitors that afford these companies potential research
and development and commercialization advantages in the therapeutic areas we are currently pursuing.
Academic research centers, governmental
agencies and other public and private research organizations are also conducting and financing research activities which may produce
products directly competitive to those being developed by us. In addition, many of these competitors may be able to obtain patent
protection, obtain FDA and other regulatory approvals and begin commercial sales of their products before us.
Competitors could develop and/or
gain FDA approval of our products for a different indication.
Since we do not have composition of matter
patent claims for flupirtine, estriol or zinc acetate, others may obtain approvals for other uses of these products that are not
covered by our issued or pending patents. For example, the active ingredients in both Effirma (flurpirtine) and Trimesta (estriol)
have been approved for marketing in overseas countries for different uses and an oral immediate release form of zinc is approved
in the U.S. and Europe for the treatment of Wilson’s disease. Other companies, including the original developers or licensees
or affiliates may seek to develop Effirma or Trimesta or their respective active ingredient(s) for other uses in the U.S. or any
country we are seeking approval for. We cannot provide any assurances that any other company may obtain FDA approval for products
that contain flupirtine, estriol or zinc in various formulations or delivery systems that might adversely affect our ability or
the ability of Meda to develop and market these products in the U.S. We are aware that other companies have intellectual property
protection using the active ingredients and have conducted clinical trials of flupirtine, estriol and zinc for different applications
than what we are developing. Many of these companies may have more resources than us. We cannot provide any assurances that our
products will be FDA-approved prior to our competitors.
If a product containing our active ingredients
is already marketed or if the FDA approves other products containing our active ingredients in the future to treat indications,
physicians may elect to prescribe and substitute a competitor’s products to treat the diseases for which we are intending
to commercialize; this is commonly referred to as “off-label” use. While under FDA regulations a competitor is not
allowed to promote off-label uses of its product, the FDA does not regulate the practice of medicine and, as a result, cannot direct
physicians to select certain products for their patients. Consequently, we might be limited in our ability to prevent off-label
use of a competitor’s product to treat the diseases we are intending to commercialize, even if we have issued method of use
patents for that indication. If we are not able to obtain and enforce our patents, if any, or otherwise receive orphan drug protection
in the case of ALS, a competitor could develop and commercialize similar products for the same indications that we are pursuing.
We cannot provide any assurances that a competitor will not obtain FDA approval for a product that contains the same active ingredients
as our products.
We rely on method patents and patent
applications and various regulatory exclusivities to protect some of our product candidates and our ability to compete may be limited
or eliminated if we are not able to protect our products.
Our competitiveness may be adversely affected
if we are unable to protect our proprietary technologies. We do not have composition of matter patents for Trimesta or Effirma,
or their respective active ingredients estriol and flupirtine. We rely on issued patent and pending patent applications for use
of Trimesta to treat MS (issued U.S. Patent No. 6,936,599) and various other therapeutic indications, which have been exclusively
licensed to us. We have exclusively licensed an issued patent for the treatment of fibromyalgia with flupirtine, which we have
sublicensed to Meda AB.
Our AEN-100 drug candidate (gastroretentive
zinc acetate) is the subject of U.S. and international pending patent applications, such as published U.S. patent application Ser.
No. 11/621,962 and corresponding international applications that claim priority to January 10, 2006 as well as additional patent
applications. On October 26, 2011, we received a final rejection letter with regard to U.S. patent application Ser. No. 11/621,962.
On February 15, 2012, we filed
a Request for Continued Examination.
The patent positions of pharmaceutical
companies are uncertain and may involve complex legal and factual questions. We may incur significant expense in protecting our
intellectual property and defending or assessing claims with respect to intellectual property owned by others. Any patent or other
infringement litigation by or against us could cause us to incur significant expense and divert the attention of our management.
Others may file patent applications or
obtain patents on similar technologies or compounds that compete with our products. We cannot predict how broad the claims in any
such patents or applications will be, and whether they will be allowed. Once claims have been issued, we cannot predict how they
will be construed or enforced. We may infringe intellectual property rights of others without being aware of it. If another party
claims we are infringing their technology, we could have to defend an expensive and time consuming lawsuit, pay a large sum if
we are found to be infringing, or be prohibited from selling or licensing our products unless we obtain a license or redesign our
product, which may not be possible.
We also rely on trade secrets and proprietary
know-how to develop and maintain our competitive position. Some of our current or former employees, consultants, scientific advisors,
current or prospective corporate collaborators, may unintentionally or willfully disclose our confidential information to competitors
or use our proprietary technology for their own benefit. Furthermore, enforcing a claim alleging the infringement of our trade
secrets would be expensive and difficult to prove, making the outcome uncertain. Our competitors may also independently develop
similar knowledge, methods, and know-how or gain access to our proprietary information through some other means.
We may fail to retain or recruit
necessary personnel, and we may be unable to secure the services of consultants.
As of March 26, 2012, we had eight
employees. We have also engaged regulatory consultants to advise us on our dealings with the FDA and other foreign regulatory
authorities and have been and will be required to retain additional consultants and employees in order to fulfill our
obligations under our exclusive channel collaboration with Intrexon. Our future performance will depend in part on our ability to
successfully integrate newly hired officers into our management team and our ability to develop an effective
working relationship among senior management.
Certain of our directors Jeffrey Kraws, James S. Kuo, Nelson K. Stacks, Scott L. Tarriff, and Jeffrey Wolf, scientific advisors, and
consultants serve as officers, directors, scientific advisors, or consultants of other biopharmaceutical or biotechnology
companies that might be developing competitive products to ours. Other than corporate opportunities, none of our directors
are obligated under any agreement or understanding with us to make any additional products or technologies available to us.
Similarly, we can give no assurances, and we do not expect and stockholders should not expect, that any biomedical or
pharmaceutical product or technology identified by any of our directors or affiliates in the future would be made available
to us other than corporate opportunities. We can give no assurances that any such other companies will not have interests
that are in conflict with our interests.
Losing key personnel or failing to recruit
necessary additional personnel would impede our ability to attain our development objectives. There is intense competition for
qualified personnel in the drug-development field, and we may not be able to attract and retain the qualified personnel we would
need to develop our business.
We rely on independent organizations, advisors,
and consultants to perform certain services for us, including handling substantially all aspects of regulatory approval, clinical
management, manufacturing, marketing, and sales. We expect that this will continue to be the case. Such services may not always
be available to us on a timely basis when we need them.
If the parties we depend on for supplying
our drug substance raw materials and certain manufacturing-related services do not timely supply these products and services, it
may delay or impair our ability to develop, manufacture and market our products.
We rely on suppliers for our drug
substance raw materials and third parties for certain manufacturing-related services to produce material that meets
appropriate content, quality and stability standards and use in clinical trials of our products and, after approval, for
commercial distribution. Our AEN-100 product candidate has limited stability data to date and is the subject of ongoing
stability studies. To succeed, clinical trials require adequate supplies of drug substance and drug product, which may be
difficult or uneconomical to procure or manufacture. We and our suppliers and vendors may not be able to (i) produce our drug
substance or drug product to appropriate standards for use in clinical studies, (ii) perform under any definitive
manufacturing, supply or service agreements with us or (iii) remain in business for a sufficient time to successfully produce
and market our product candidates. If we do not maintain important manufacturing and service relationships, we may fail to
find a replacement supplier or required vendor or develop our own manufacturing capabilities which could delay or impair our
ability to obtain regulatory approval for our products and substantially increase our costs or deplete profit margins, if
any. If we do find replacement manufacturers and vendors, we may not be able to enter into agreements with them on terms and
conditions favorable to us and, there could be a substantial delay before a new facility could be qualified and registered
with the FDA and foreign regulatory authorities.
If successful large-scale manufacturing
of DNA-based products is not possible, we or our collaborators may be unable to manufacture enough of our product candidates to
achieve regulatory approval or market our DNA-based products.
Few companies to date have demonstrated
successful large-scale manufacturing of DNA-based products, including those that have had significantly more resources than us
and it is anticipated that significant challenges will be faced in the scale-up of our manufacturing process for commercial production.
There are a limited number of contract manufacturers qualified to perform large-scale manufacturing of DNA-based products. We or
our collaborators may be unable to manufacture commercial-scale quantities of DNA-based products or receive appropriate government
approvals on a timely basis or at all. Failure to successfully manufacture or obtain appropriate government approvals on a timely
basis or at all would prevent us from achieving our business objectives.
Clinical trials are very expensive,
time-consuming, and difficult to design and implement.
Human clinical trials are very expensive
and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. The clinical trial
process is also time-consuming. We estimate that clinical trials of our product candidates would take at least several years to
complete. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or
repeat clinical trials. Commencement and completion of clinical trials may be delayed by several factors, including:
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identification of, and acceptable arrangements with, one or more clinical sites;
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obtaining IRB approval to commence clinical trials;
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unforeseen safety issues;
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determination of dosing;
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lack of effectiveness during clinical trials;
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slower than expected rates of patient recruitment;
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inability to monitor patients adequately during or after treatment;
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inability or unwillingness of medical investigators to follow our clinical protocols; and
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unwillingness of the FDA or IRBs to permit the clinical trials to be initiated.
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In addition, we, IRBs or the FDA may suspend
our clinical trials at any time if it appears that we are exposing participants to unacceptable health risks or if IRBs or the
FDA finds deficiencies in our submissions or conduct of our trials.
The results of our clinical trials
may not support our product candidate claims and the results of preclinical studies and completed clinical trials are not necessarily
predictive of future results.
To date, long-term safety and efficacy
have not yet been demonstrated in clinical trials for any of our diagnostic product candidates. Favorable results in our early
studies or trials may not be repeated in later studies or trials. Even if our clinical trials are initiated and completed as planned,
we cannot be certain that the results will support our product candidate claims. Success in preclinical testing and Phase II clinical
trials does not ensure that later Phase II or Phase III clinical trials will be successful. We cannot be sure that the results
of later clinical trials would replicate the results of prior clinical trials and preclinical testing. In particular, the limited
results that we have obtained for our diagnostic tests may not predict results from studies in larger numbers of subjects drawn
from more diverse populations over a longer period of time. Clinical trials may fail to demonstrate that our product candidates
are safe for humans and effective for indicated uses. Any such failure could cause us or our sublicensee to abandon a product candidate
and might delay development of other product candidates. Preclinical and clinical results are frequently susceptible to varying
interpretations that may delay, limit or prevent regulatory approvals or commercialization. Any delay in, or termination of, our
clinical trials would delay our obtaining FDA approval for the affected product candidate and, ultimately, our ability to commercialize
that product candidate.
We depend on third parties, including
researchers and sublicensees, who are not under our control.
Since we have in-licensed some of our product
candidates, have sublicensed a product candidate and have a collaboration agreement for the development of another product candidate,
we depend upon our sublicensee and independent investigators and scientific collaborators, such as universities and medical institutions
or private physician scientists, to conduct our preclinical and clinical trials under agreements with us. These collaborators are
not our employees and we cannot control the amount or timing of resources that they devote to our programs or the timing of their
procurement of clinical-trial data or their compliance with applicable regulatory guidelines. Should any of these scientific inventors/advisors
or those of our sublicensee become disabled or die unexpectedly, or should they fail to comply with applicable regulatory guidelines,
we or our sublicensee may be forced to scale back or terminate development of that program. They may not assign as great a priority
to our programs or pursue them as diligently as we would if we were undertaking those programs ourselves. Failing to devote sufficient
time and resources to our drug-development programs, or substandard performance and failure to comply with regulatory guidelines,
could result in delay of any FDA applications and our commercialization of the drug candidate involved.
These collaborators may also have relationships
with other commercial entities, some of which may compete with us. Our collaborators assisting our competitors at our expense could
harm our competitive position. For example, we are highly dependent on scientific collaborators for our Trimesta development program.
Specifically, all of the clinical trials have been conducted under physician-sponsored IND applications, not corporate-sponsored
INDs. Generally, we have experienced difficulty in collecting data generated from these physician-sponsored clinical trials for
our programs. We cannot provide any assurances that we will not experience any additional delays in the future.
We are also highly dependent on government
and private grants to fund certain of our clinical trials for our product candidates. For example, Trimesta (estriol) has received
grants totaling over $8 million, predominantly from the Southern California Chapter of the NMSS and the National Institutes
of Health which funds a majority of the ongoing clinical trial in relapsing-remitting MS for women. Although we believe that the
grant funding received to date is sufficient to complete the current clinical trial based upon current cost estimates, if we experience
any additional unanticipated costs or require further clinical trials, and our scientific collaborator is unable to maintain or
receive additional grants, we might be forced to scale back or terminate the development of this product candidate. We will also
need to cross reference our IND with the inventor/IND holder for this program should we elect to file our own corporate IND for
our Trimesta (estriol) program. The on-going and future development and commercialization of Effirma (flupirtine) for fibromyalgia
is the responsibility of Meda AB and no assurance can be given that Meda will gain the FDA’s acceptance of the NDA or obtain
NDA approval from the FDA of flupirtine for fibromyalgia.
Our AEN-100 program for ALS
is reliant on the investigator-initiated IND of PNA as well as their clinical trial capabilities. Although the planned
Phase II/III clinical trial that we intend to conduct with PNA has received regulatory approval to proceed, such clinical
trial is still the subject of further protocol development and IRB approval, either of which may alter the anticipated timing
and budget of such clinical trial. In addition, because AEN-100 is not the same zinc formulation utilized by PNA in its
previously completed Phase I/II safety study of zinc for ALS, PNA intends to conduct a Phase I study of AEN-100 in normal
volunteers prior to initiating the Phase II/III clinical trial in ALS patients. The IRB approval process is ongoing for the
planned Phase I study of AEN-100 and the planned Phase II/III clinical trial in ALS patients. Such Phase I study of AEN-100
may produce unanticipated and unacceptable safety, tolerability or bioavailability results that may substantially
delay initiation of the planned Phase II/III clinical trial in ALS patients.
With respect to our synthetic biologic
product candidates, we are dependent upon Intrexon’s synthetic biology facilities and capabilities as we have no such facilities
and capabilities of our own. We are also reliant on their vector engineering platform, gene expression switch technology and know-how.
If any of the foregoing were to become inaccessible or terminated, it would be difficult for us to develop and commercialize our
synthetic biologic product candidates.
We may incur substantial costs as
a result of litigation or other proceedings relating to patent and other intellectual property rights, as well as costs associated
with lawsuits.
If any other person files patent applications,
or is issued patents, claiming technology also claimed by us in pending applications, we may be required to participate in interference
proceedings in the U.S. Patent and Trademark Office to determine priority of invention. We, or our licensors, may also need to
participate in interference proceedings involving our issued patents and pending applications of another entity.
The intellectual property environment in
the area of DNA-based therapeutics is particularly complex, constantly evolving and highly fragmented. Other companies and institutions
have issued patents and have filed or will file patent applications that may issue into patents that cover or attempt to cover
genes, vectors, cell lines, and methods of making and using DNA and DNA-based therapy products used in, or similar to our product
candidate, and technologies. We have not conducted freedom-to-use patent searches on all aspects of our product candidates or potential
product candidates, and we may be unaware of relevant patents and patent applications of third parties. In addition, the freedom-to-use
patent searches that have been conducted may not have identified all relevant issued patents or pending patents. We cannot provide
assurance that our proposed products in this area will not ultimately be held to infringe one or more valid claims owned by third
parties which may exist or come to exist in the future or that in such case we will be able to obtain a license from such parties
on acceptable terms.
We cannot guarantee that the practice of
our technologies will not conflict with the rights of others. In some foreign jurisdictions, we could become involved in opposition
proceedings, either by opposing the validity of another’s foreign patent or by persons opposing the validity of our foreign
patents.
We may also face frivolous litigation or
lawsuits from various competitors or from litigious securities attorneys. The cost to us of any litigation or other proceeding
relating to these areas, even if deemed frivolous or resolved in our favor, could be substantial and could distract management
from our business. Uncertainties resulting from initiation and continuation of any litigation could have a material adverse effect
on our ability to continue our operations.
If we infringe the rights of others
we could be prevented from selling products or forced to pay damages.
If our products, methods, processes, and
other technologies are found to infringe the proprietary rights of other parties, we could be required to pay damages, or we may
be required to cease using the technology or to license rights from the prevailing party. Any prevailing party may be unwilling
to offer us a license on commercially acceptable terms.
RISKS RELATING TO OUR STOCK
We will seek to raise additional
funds in the future, which may be dilutive to stockholders or impose operational restrictions.
We expect to seek to raise additional capital
in the future to help fund development of our proposed products. If we raise additional capital through the issuance of equity or of debt securities, the percentage ownership of our current stockholders will be reduced. We may also
enter into strategic transactions, issue equity as part of license issue fees to our licensors, compensate consultants or settle
outstanding payables using equity that may be dilutive. Our stockholders may experience additional dilution in net book value per
share and any additional equity securities may have rights, preferences and privileges senior to those of the holders of our common
stock. If we cannot raise additional funds, we will have to delay development activities of our products candidates.
We are substantially controlled by
our current officers, directors, and principal stockholders.
Currently, our directors, executive
officers, and principal stockholders beneficially own a substantial number of shares of our common stock. As a result, they
will be able to exert substantial influence over the election of our Board of Directors and the vote on issues submitted to
our stockholders. Our executive officers and directors beneficially owned approximately 8.7 million shares of our common
stock, including stock options and warrants exercisable within 60 days of March 26, 2012. Our executive officers,
directors and principal stockholders together beneficially owned approximately 12.1 million shares of our common stock,
including the stock options and warrants exercisable within 60 days of March 26, 2012. Because our common stock has from time
to time been “thinly traded”, the sale of a substantial number of shares by our executive
officers, directors and principal stockholders would have an adverse effect on the market for our stock and our share
price.
Our shares of common stock are from
time to time thinly traded, so stockholders may be unable to sell at or near ask prices or at all if they need to sell shares to
raise money or otherwise desire to liquidate their shares.
Our common stock has from time to time
been “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near ask prices
at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the
fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others
in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons,
they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase
of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or
more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady
volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give
stockholders any assurance that a broader or more active public trading market for our common shares will develop or be sustained,
or that current trading levels will be sustained.
We cannot assure you that the common stock will be liquid
or that it will remain listed on the NYSE Amex.
We cannot assure you that we will be able
to maintain the continued listing standards of the NYSE Amex (formerly the American Stock Exchange). The NYSE Amex requires companies
to meet certain continued listing criteria including certain minimum stockholders' equity and equity prices per share as
outlined in the NYSE Amex Exchange Company Guide. We may not be able to maintain such minimum stockholders' equity or prices per
share or may be required to effect a reverse stock split to maintain such minimum prices and/or issue additional equity securities
in exchange for cash or other assets, if available, to maintain certain minimum stockholders' equity required by the NYSE Amex. If
we are delisted from the NYSE Amex then our common stock will trade, if at all, only on the over-the-counter market, such as the
OTC Bulletin Board securities market, and then only if one or more registered broker-dealer market makers comply with quotation
requirements. In addition, delisting of our common stock could depress our stock price, substantially limit liquidity of our common
stock and materially adversely affect our ability to raise capital on terms acceptable to us, or at all. Delisting from the NYSE
Amex could also have other negative results, including the potential loss of confidence by suppliers and employees, the loss of
institutional investor interest and fewer business development opportunities. In order to remain listed on NYSE Amex, we are required
to maintain a minimum stockholders’ equity of $6 million.
There may be issuances of shares
of preferred stock in the future.
Although we currently do not have preferred
shares outstanding, the Board of Directors could authorize the issuance of a series of preferred stock that would grant holders
preferred rights to our assets upon liquidation, the right to receive dividends before dividends would be declared to common stockholders,
and the right to the redemption of such shares, possibly together with a premium, prior to the redemption of the common stock.
To the extent that we do issue preferred stock, the rights of holders of common stock could be impaired thereby, including without
limitation, with respect to liquidation.
RISKS RELATED TO OUR INDUSTRY
We are subject to government regulation,
compliance with which can be costly and difficult.
In the U.S., the formulation, manufacturing,
packaging, storing, labeling, promotion, advertising, distribution and sale of our products are subject to regulation by various
governmental agencies, including (1) the FDA, (2) the Federal Trade Commission, or FTC, (3) the Consumer Product Safety Commission,
or CPSC, (4) the U.S. Department of Agriculture, or USDA. Our proposed activities may also be regulated by various agencies of
the states, localities and foreign countries in which our proposed products may be manufactured, distributed and sold. The FDA,
in particular, regulates the formulation, manufacture and labeling of over-the-counter, or OTC drugs, prescription drugs, medical
foods, conventional foods, homeopathic OTC drugs, dietary supplements, and cosmetics such as those that we intend to distribute.
FDA regulations require us and our suppliers to meet relevant cGMP regulations for the preparation, packing, labeling, and storage
of all drugs and foods.
Any products manufactured or distributed
by us pursuant to FDA approvals are subject to pervasive and continuing FDA regulation, including record-keeping requirements,
reporting of adverse experiences, submitting periodic reports, drug sampling and distribution requirements, manufacturing or labeling
changes, record-keeping requirements, and compliance with FDA promotion and advertising requirements. Drug manufacturers and their
subcontractors are required to register their facilities with the FDA and state agencies, and are subject to periodic unannounced
inspections for GMP compliance, imposing procedural and documentation requirements upon us and third-party manufacturers. Failure
to comply with these regulations could result, among other things, in suspension of regulatory approval, recalls, suspension of
production or injunctions, seizures, or civil or criminal sanctions. We cannot be certain that we or our present or future subcontractors
will be able to comply with these regulations.
The FDA regulates prescription drug labeling
and promotion activities. The FDA actively enforces regulations prohibiting the marketing of products for unapproved uses. The
FDA permits the promotion of drugs for unapproved uses in certain circumstances, subject to stringent requirements. We and our
product candidates are subject to a variety of state laws and regulations which may hinder our ability to market our products.
Whether or not FDA approval has been obtained, approval by foreign regulatory authorities must be obtained prior to commencing
clinical trials, and sales and marketing efforts in those countries. These approval procedures vary in complexity from country
to country, and the processes may be longer or shorter than that required for FDA approval. We may incur significant costs to comply
with these laws and regulations now or in the future.
We intend to develop our zinc candidate,
AEN-100, as a drug and intend to file an IND with the FDA in order to conduct necessary clinical trials to support new medical
claims and ultimately file one or more NDA with respect to such products which would subject us to time, expense and uncertainty
associated with achieving approval of such NDA by the FDA.
The FDA, comparable foreign regulators
and state and local pharmacy regulators impose substantial requirements upon clinical development, manufacture and marketing of
pharmaceutical products. These and other entities regulate research and development and the testing, manufacture, quality control,
safety, effectiveness, labeling, storage, record keeping, approval, advertising, and promotion of our products. The drug approval
process required by the FDA under the Food, Drug, and Cosmetic Act generally involves:
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preclinical laboratory and animal tests;
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submission of an IND, prior to commencing human clinical trials;
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adequate and well-controlled human clinical trials to establish safety and efficacy for intended
use;
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·
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submission to the FDA of an NDA or Biologics License Application (BLA); and
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·
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FDA review and approval of an NDA or BLA.
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The testing and approval process requires
substantial time, effort, and financial resources, and we cannot be certain that any approval will be granted on a timely basis,
if at all.
Preclinical tests include laboratory evaluation
of the product candidate, its chemistry, formulation and stability, and animal studies to assess potential safety and efficacy.
Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations
can, in some cases, lead to invalidation of the studies, requiring them to be replicated. In some cases, long-term preclinical
studies are conducted concurrently with clinical studies.
We will submit the preclinical test results,
together with manufacturing information and analytical data, to the FDA as part of an IND, which must become effective before we
begin human clinical trials. The IND automatically becomes effective 30 days after filing, unless the FDA raises questions about
conduct of the trials outlined in the IND and imposes a clinical hold, in which case, the IND sponsor and FDA must resolve the
matters before clinical trials can begin. It is possible that our submission may not result in FDA authorization to commence clinical
trials.
Clinical trials must be supervised by a
qualified investigator in accordance with good clinical practice (GCP) regulations, which include informed consent requirements.
An independent IRB at each medical center reviews and approves and monitors the study, and is periodically informed of the study’s
progress, adverse events and changes in research. Progress reports are submitted annually to the FDA and more frequently if adverse
events occur.
Human clinical trials of drug candidates
typically have three sequential phases that may overlap:
Phase I: The drug is initially tested
in healthy human subjects or patients for safety, dosage tolerance, absorption, metabolism, distribution, and excretion.
Phase II: The drug is studied in a
limited patient population to identify possible adverse effects and safety risks, determine efficacy for specific diseases and
establish dosage tolerance and optimal dosage.
Phase III: When phase II evaluations
demonstrate that a dosage range is effective with an acceptable safety profile,
Phase III trials to further evaluate
dosage, clinical efficacy and safety, are undertaken in an expanded patient population, often at geographically dispersed sites.
We cannot be certain that we
will successfully complete Phase I, Phase II, or Phase III testing of our product candidates within any specific time period,
if at all. Furthermore, the FDA, an IRB or the IND sponsor may suspend clinical trials at any time on various grounds,
including a finding that subjects or patients are exposed to unacceptable health risk. Concurrent with these trials and
studies, we also develop chemistry and physical characteristics data and finalize a manufacturing process in accordance with
good manufacturing practice (GMP) requirements. The manufacturing process must conform to consistency and quality standards,
and we must develop methods for testing the quality, purity, and potency of the final products. Appropriate packaging is
selected and tested, and chemistry stability studies are conducted to demonstrate that the product does not undergo
unacceptable deterioration over its shelf-life. Results of the foregoing are submitted to the FDA as part of a NDA (or BLA in
case of biologic products) for marketing and commercial shipment approval. The FDA reviews each NDA or BLA submitted and may
request additional information.
Once the FDA accepts the NDA or BLA
for filing, it begins its in-depth review. The FDA has substantial discretion in the approval process and may disagree with
our interpretation of the data submitted. The process may be significantly extended by requests for additional information
or clarification regarding information already provided. As part of this review, the FDA may refer the application to
an appropriate advisory committee, typically a panel of clinicians. Manufacturing establishments often are inspected prior
to NDA or BLA approval to assure compliance with GMPs and with manufacturing commitments made in the application.
Submission of an NDA or BLA
with clinical data requires payment of a fee. In return, the FDA assigns a goal of ten months for issuing its “complete
response,” in which the FDA may approve or deny the NDA or BLA, or require additional clinical data. Even if these data
are submitted, the FDA may ultimately decide the NDA or BLA does not satisfy approval criteria. If the FDA approves the NDA
or BLA, the product becomes available for physicians prescription. Product approval may be withdrawn if regulatory compliance
is not maintained or safety problems occur. The FDA may require post-marketing studies, also known as phase IV studies, as a
condition of approval, and requires surveillance programs to monitor approved products that have been commercialized. The
agency has the power to require changes in labeling or prohibit further marketing based on the results of post-marketing
surveillance.
Satisfaction of these and other regulatory
requirements typically takes several years, and the actual time required may vary substantially based upon the type, complexity
and novelty of the product. Government regulation may delay or prevent marketing of potential products for a considerable period
of time and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve
any of our products 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 are not always conclusive and may be susceptible
to varying interpretations that could delay, limit or prevent regulatory approval. Even if a product receives regulatory approval,
the approval may be significantly limited to specific indications or uses.
Even after regulatory approval is obtained,
later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal
of the product from the market. Delays in obtaining, or failures to obtain regulatory approvals would have a material adverse effect
on our business.
The FDA’s policies may change, and
additional government regulations may be enacted which could prevent or delay regulatory approval of our potential products. Increased
attention to the containment of health care costs worldwide could result in new government regulations materially adverse to 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.
We do not have a guarantee of patent restoration and marketing
exclusivity of the ingredients for our drugs even if we are granted FDA approval of our products.
The U.S. Drug Price Competition and Patent
Term Restoration Act of 1984 (Hatch-Waxman) permits the FDA to approve Abbreviated New Drug Applications (ANDAs) for generic versions
of innovator drugs, as well as NDAs with less original clinical data, and provides patent restoration and exclusivity protections
to innovator drug manufacturers. The ANDA process permits competitor companies to obtain marketing approval for drugs with the
same active ingredient and for the same uses as innovator drugs, but does not require the conduct and submission of clinical studies
demonstrating safety and efficacy. As a result, a competitor could copy any of our drugs and only need to submit data demonstrating
that the copy is bioequivalent to gain marketing approval from the FDA. Hatch-Waxman requires a competitor that submits an ANDA,
or otherwise relies on safety and efficacy data for one of our drugs, to notify us and/or our business partners of potential infringement
of our patent rights. We and/or our business partners may sue the company for patent infringement, which would result in a 30-month
stay of approval of the competitor’s application. The discovery, trial and appeals process in such suits can take several
years. If the litigation is resolved in favor of the generic applicant or the challenged patent expires during the 30-month period,
the stay is lifted and the FDA may approve the application. Hatch-Waxman also allows competitors to market copies of innovator
products by submitting significantly less clinical data outside the ANDA context. Such applications, known as “505(b)(2)
NDAs” or “paper NDAs,” may rely on clinical investigations not conducted by or for the applicant and for which
the applicant has not obtained a right of reference or use and are subject to the ANDA notification procedures described above.
The law also permits restoration of a portion
of a product’s patent term that is lost during clinical development and NDA review, and provides statutory protection, known
as exclusivity, against FDA approval or acceptance of certain competitor applications. Restoration can return up to five years
of patent term for a patent covering a new product or its use to compensate for time lost during product development and regulatory
review. The restoration period is generally one-half the time between the effective date of an IND and submission of an NDA, plus
the time between NDA submission and its approval (subject to the five-year limit), and no extension can extend total patent life
beyond 14 years after the drug approval date. Applications for patent term extension are subject to U.S. Patent and Trademark Office
(USPTO) approval, in conjunction with FDA. Approval of these applications takes at least nine months, and there can be no guarantee
that it will be given at all.
Hatch-Waxman also provides for differing
periods of statutory protection for new drugs approved under an NDA. Among the types of exclusivity are those for a “new
molecular entity” and those for a new formulation or indication for a previously-approved drug. If granted, marketing exclusivity
for the types of products that we are developing, which include only drugs with innovative changes to previously-approved products
using the same active ingredient, would prohibit the FDA from approving an ANDA or 505(b)(2) NDA relying on our safety and efficacy
data for three years. This three-year exclusivity, however, covers only the innovation associated with the original NDA. It does
not prohibit the FDA from approving applications for drugs with the same active ingredient but without our new innovative change.
These marketing exclusivity protections do not prohibit the FDA from approving a full NDA, even if it contains the innovative change.
Item 1B.
Unresolved
Staff Comments
Not applicable.
Item 2.
Properties
We currently rent approximately 5,936
square feet of office space in Ann Arbor, Michigan for monthly rent of $2,500, and we rent office space in Rockville, Maryland
for monthly rent of $718. We believe our current offices will be adequate for the foreseeable future.
Item 3.
Legal
Proceedings
Not applicable.
Item 4.
Mine
Safety Disclosures
Not applicable.
PART II
Item 5.
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities
Our common stock has traded on the
NYSE Amex under the symbol “SYN” since February 16, 2012. Prior to this time, our common stock traded under the
symbol “AEN” since October 16, 2008. The following table states the range of the high and low sales prices of our
common stock for each of the calendar quarters during the years ended December 31, 2011 and December 31, 2010. These
quotations represent inter-dealer prices, without retail mark-up, markdown, or commission, and may not represent actual
transactions. The last price of our common stock as reported on the NYSE Amex on
March
26, 2012 was $2.28 per share. As of March 26, 2012, there were approximately 353
stockholders of record of our common
stock. This number does not include beneficial owners from whom shares are held by nominees in street name.
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High
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Low
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YEAR ENDED DECEMBER 31, 2011
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Fourth quarter
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$
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1.42
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$
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0.47
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Third quarter
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$
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0.91
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$
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0.57
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Second quarter
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$
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2.13
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$
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0.80
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First quarter
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$
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1.85
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$
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1.04
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YEAR ENDED DECEMBER 31, 2010
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Fourth quarter
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$
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1.40
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$
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0.70
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Third quarter
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$
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1.19
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$
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0.77
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Second quarter
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$
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2.70
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$
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1.03
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First quarter
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$
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2.58
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$
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0.57
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Dividend Policy
We have never paid any cash dividends on
our common stock to date, and do not anticipate paying such cash dividends in the foreseeable future. Whether we declare and pay
dividends is determined by our Board of Directors at their discretion, subject to certain limitations imposed under Nevada corporate
law. The timing, amount and form of dividends, if any, will depend on, among other things, our results of operations, financial
condition, cash requirements and other factors deemed relevant by our Board of Directors.
Equity Compensation Plan Information
See Item 11 – Executive compensation for equity compensation
plan information.
Recent Sales of Unregistered Securities
In August 2011, we issued 130,000 shares
of our common stock to Chardan Capital Markets, LLC (Chardan) as compensation for the execution and delivery of a Financial Advisory
Agreement that we entered into with Chardan on June 3, 2011. The offer and issuance of the shares of common stock have not been
registered under the Securities Act, and therefore such shares of common stock may not be offered or sold in the U.S. absent registration
or an applicable exemption from registration requirements. For this issuance, we are relying on the exemption from federal registration
under Section 4(2) of the Securities Act, based on our belief that the offer and sale of such shares of stock does not involve
a public offering as Chardan is an “accredited investor” as defined under Section 501 promulgated under the Securities
Act and no general solicitation has been involved in the offering.
On December 7, 2011 a closing was held
for the transaction previously announced on November 21, 2011 between us and Intrexon. We issued 3,123,558 shares of our common
stock at a purchase price equal to the $0.001 par value of such shares, which issuance is also deemed paid in partial consideration
for the execution and delivery of the exclusive channel collaboration agreement, dated November 18, 2011, between us and Intrexon.
The offer and issuance of such shares of common stock have not been registered under the Securities Act, and therefore such shares
of common stock may not be offered or sold in the U.S. absent registration or an applicable exemption from registration requirements.
For this issuance, we are relying on the exemption from federal registration under Section 4(2) of the Securities Act, based on
our belief that the offer and sale of such shares of common stock does not involve a public offering as Intrexon is an “accredited
investor” as defined under Section 501 promulgated under the Securities Act and no general solicitation has been involved
in the offering.
In March 2012, we issued five year warrants
exercisable at the closing price of our common stock on the date of issue for 100,000 shares of our common stock to Griffin Securities,
Inc. (Griffin) as compensation for the execution and delivery of a Financial Advisory Agreement that we entered into with Griffin
on December 20, 2011. The offer and issuance of the shares of common stock have not been registered under the Securities Act, and
therefore such shares of common stock may not be offered or sold in the U.S. absent registration or an applicable exemption from
registration requirements. For this issuance, we are relying on the exemption from federal registration under Section 4(2) of the
Securities Act, based on our belief that the offer and sale of such shares of stock does not involve a public offering as Griffin
is an “accredited investor” as defined under Section 501 promulgated under the Securities Act and no general solicitation
has been involved in the offering.
Item 6.
Selected
Financial Data
Not applicable because we are a smaller reporting company.
Item 7.
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results
of operations should be read in conjunction with the audited financial statements and notes thereto for the year ended December
31, 2011 found in this report. In addition to historical information, the following discussion contains forward-looking statements
that involve risks, uncertainties and assumptions. Where possible, we have tried to identify these forward looking statements by
using words such as “anticipate,” “believe,” “intends,” or similar expressions. Our actual
results could differ materially from those anticipated by the forward-looking statements due to important factors and risks including,
but not limited to, those set forth under “Risk Factors” in Part I, Item 1A of this Report.
Overview
We are a biotechnology company focused
on the development of synthetic DNA-based therapeutics and innovative disease-modifying medicines for serious illnesses. Our initial
synthetic biologic product candidate is intended to treat PAH, a serious life-threatening lung disease, by locally delivering therapeutic
DNA to the lungs of PAH patients and controlling long-term expression of such DNA via an oral daily pill. We also intend to expand
new and existing collaborations in the area of DNA-based therapeutics. In addition, we have several small molecule clinical-stage
programs, the majority of which are being funded, or partially funded, by grants, charitable organizations and corporate partners.
In this area we are developing, or have partnered the development of, product candidates to treat relapsing-remitting MS, cognitive
dysfunction in MS, fibromyalgia and ALS.
Synthetic Biologics:
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Our initial synthetic
biologic product candidate is intended to treat PAH, a serious life-threatening lung disease. This product is
designed to deliver DNA that encodes a therapeutic protein called PGIS locally to the pulmonary arteries of PAH
patients via a single procedure, and, via an oral daily pill, control the long-term local expression of such
therapeutic protein. We are developing this initial product candidate pursuant a global exclusive channel
collaboration that we entered into with the private synthetic biology company Intrexon in November 2011. As part of
this collaboration, we have access to Intrexon's UltraVector
®
platform and RheoSwitch Therapeutic
System
®
for this product application. We anticipate that by continuously producing and delivering prostacyclin
directly where it is needed, in the pulmonary arteries of PAH patients, this product candidate may overcome the dose
limiting side effects of systemic prostacyclin treatments for PAH, a mainstay of PAH treatment. According to
GlobalData, the global market for PAH treatments is estimated to exceed $3.6 billion by 2015.
(UltraVector
®
and RheoSwitch Therapeutic System
®
are registered trademarks of Intrexon Corporation)
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Funded/Small Molecule Clinical Programs:
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Trimesta
TM
(oral estriol) is being developed as an oral once-daily treatment for relapsing-remitting MS in women. Patient enrollment of 164 patients is complete in this randomized, double-blind, placebo-controlled Phase II clinical trial being conducted at 15 centers in the U.S. Patients are being dosed and monitored for two years. This clinical trial is supported by grants exceeding $8 million, which should be sufficient to fund the trial through completion. Current sales of injectable disease-modifying therapies for MS are estimated at $8.9 billion annually. According to various reports, sales of oral disease-modifying therapies for MS, of which Trimesta™, if and when approved, would be in such class, are anticipated to grow from $500 million in 2010 to $5 billion annually by 2017.
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Trimesta
TM
(oral estriol)
is also being developed for the treatment of cognitive dysfunction in female MS patients. In January 2012, patient enrollment began
in a randomized, double-blind, placebo-controlled Phase II clinical trial being conducted at University of California, Los Angeles
(UCLA). The majority of the costs of this trial are being funded by grants from foundations and charitable organizations and we
have pledged approximately $500,000 to UCLA to partially fund this trial payable over three years. An estimated 50-65% of MS patients
are expected to develop disabilities due to cognitive dysfunction and there is currently no approved treatment.
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Effirma
TM
(flupirtine) is being developed for the treatment of fibromyalgia. On May 6, 2010, we entered into a sublicense agreement with Meda AB, a multi-billion dollar international pharmaceutical company, covering all of our patents’ rights on the use of flupirtine for fibromyalgia in the U.S., Canada and Japan. According to Meda’s 2010 Annual Report, flupirtine for fibromyalgia is currently in Phase II development. The sublicense agreement provides that all ongoing and future development costs are to borne by Meda and we are entitled to receive certain payments if milestones are achieved and royalties on sales. Based on an estimated annual price of $1,200 per fibromyalgia patient, we estimate that the total market potential in the U.S. is $6 billion.
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AEN-100 (gastroretentive zinc acetate) is being developed under an investigator-initiated IND application
for the treatment of ALS, also known as Lou Gehrig’s disease. We intend to sponsor a multi-center, double-blind, placebo-controlled,
adaptively designed Phase II/III clinical trial in ALS patients. It is anticipated that the clinical trial will comprise two phases.
The first phase of the trial is anticipated to enroll at least 65 patients randomized to receive either AEN-100 or placebo for
a period of six months at which time the average change in functional rating between the groups will be compared via an interim
analysis conducted on a blinded basis. Should the interim analysis meet the threshold criteria in favor of the treatment group,
the second phase of the study will be initiated and will seek to enroll approximately 50 additional subjects to receive treatment
for nine months. This study is intended to be conducted by PNA which previously sponsored and completed a successful pilot Phase
I/II study of oral zinc therapy for ALS. Separately, PNA intends to conduct a Phase I study of AEN-100 in normal volunteers
prior to initiating the Phase II/III clinical trial in ALS patients. We have committed to support approximately $400,000 to PNA
for the first phase of the Phase II/III clinical trial study, payable based upon study enrollment and milestones. There is only
one approved therapy for ALS, the efficacy of which is considered to be marginal. Based on an estimated annual price of $10,000
per ALS patient, we estimate that the total market potential in the U.S. is $300 million.
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On November 18, 2011, we entered into
a Channel Agreement with Intrexon that governs an “exclusive channel collaboration” arrangement in which we
intend to use Intrexon’s technology directed towards the production of PGIS, through the use of
in vivo
conditionally regulated embedded controllable bioreactors for the treatment of PAH. The Channel Agreement establishes
committees comprised of our and Intrexon representatives that will govern activities related to the PAH program in the areas
of project establishment, chemistry, manufacturing and controls, clinical and regulatory matters, commercialization efforts
and intellectual property.
As partial consideration for execution
of the Channel Agreement, we entered into a Stock Purchase Agreement with Intrexon pursuant to which we issued to Intrexon a number
of shares of our common stock equal to 9.995% of the number of shares of our common stock issued and outstanding following and
giving effect to such issuance (the “First Tranche”) at a purchase price equal to the $0.001 par value of such shares,
which issuance was deemed paid in partial consideration for the execution and delivery of the Channel Agreement. We also agreed
to issue additional shares of our common stock to Intrexon upon dosing of the first patient in a Phase II clinical trial sponsored
by us in the U.S., or similar study as the parties may agree in a country other than the U.S.
On December 21, 2011, we announced
that the Board of Directors had taken several actions to prioritize our focus on our entry into the emerging field of synthetic
biology. In connection with the change in business focus on March 8, 2012, we entered into a Membership Interest Purchase Agreement,
and certain related agreements, pursuant to which we sold all of our interest in the Lab to Hartlab, LLC, an entity controlled
by the Lab’s former owner, in consideration for (i) the immediate assignment of the Lab’s outstanding accounts receivable
up through the date of closing, plus (ii) Seven Hundred Thousand Dollars ($700,000) payable pursuant to the terms of a two-year
non-recourse promissory note secured by all of the assets of the Lab. We also announced that we intend to seek marketing partners
for our zinc-based products
reaZin
™ and
wellZin
™.
On February 15, 2012, upon stockholder
approval, we amended our Articles of Incorporation to change our name to Synthetic Biologics, Inc. Our common stock continues trade
on the NYSE Amex stock exchange, currently under the symbol “SYN”. Prior to this time and since October 16, 2008, our
name was Adeona Pharmaceuticals, Inc. and we traded on the NYSE Amex stock exchange under the symbol “AEN”. We are
incorporated in the State of Nevada. We continue to maintain our principal executive offices in Ann Arbor, MI, and are currently
located at 3985 Research Park Drive, Suite 200, Ann Arbor, MI 48108.
Effective as of June 30, 2010, we emerged
from a “Development-Stage Entity” as defined by Financial Accounting Standards Board Accounting Standards Codification
(FASB ASC) 915-10. On May 6, 2010, we entered into a sublicense agreement with Meda AB of Sweden. This agreement provides
that Meda AB will assume all future development costs for the commercialization of oral flupirtine for fibromyalgia. As consideration
for such sublicense, we received an up-front payment of $2.5 million and are entitled to milestone payments of $5 million upon
filing of an NDA with the FDA of oral flupirtine for fibromyalgia and $10 million upon marketing approval, plus royalties. We
consider the agreement with Meda AB to be an indication that we have commenced our principal operations and therefore are not
required to report as a development-stage entity.
Since our inception in January 2001, our
efforts and resources have been focused primarily on acquiring and developing our product candidates, our clinical trials, raising
capital and recruiting personnel. As of June 30, 2010, we emerged from the development stage after entering into a sublicense agreement
with Meda AB and receiving an up-front payment of $2.5 million. We consider this sublicense agreement to be an indication
that we have commenced our principal operations.
To date, we have financed our operations
primarily through public and private sales of our common stock, and we expect to continue to seek to obtain the required capital
in a similar manner. We have incurred an accumulated deficit of $51.9 million through December 31, 2011. We cannot provide any
assurance that we will be able to achieve profitability on a sustained basis, if at all, obtain the required funding, obtain the
required regulatory approvals, or complete additional corporate partnering or acquisition transactions.
Critical Accounting Policies
The preparation of our consolidated financial
statements in accordance with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, net revenues and expenses, and related disclosures. We believe
our estimates and assumptions are reasonable; however, actual results and the timing of the recognition of such amounts could differ
from these estimates.
There are accounting policies that we believe
are significant to the presentation of our consolidated financial statements. The most significant accounting policies relate to
stock-based compensation, revenue recognition and accounts receivable.
Stock-Based Compensation
Calculating stock-based
compensation expense requires the input of highly subjective assumptions. We apply the Black-Scholes option pricing model to
determine the fair value of our stock options. Inherent in this model are assumptions related to expected stock-price
volatility, option life, risk-free interest rate and dividend yield. We estimate the volatility of our common stock at the
date of grant based on historical volatility. We estimate the expected life of our option using the contractual term of the
option. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a
maturity similar to the expected life of the options. The dividend rate is based on our historical rate, which we anticipate
to remain at zero. The assumptions used in calculating the fair value of stock options represent our best estimates, however
these estimates involve inherent uncertainties and the application of management judgment. As a result, if factors change and
different assumptions are used, the stock-based compensation expense could be materially different in the future. In
addition, we are required to estimate the expected forfeiture rate and only recognize expense for those stock options
expected to vest over the service period.
Revenue Recognition
We record revenue when all of the following
have occurred: (1) persuasive evidence of an arrangement exists, (2) the service is completed without further obligation, (3) the
sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. We recognize milestone
payments or upfront payments that have no contingencies as revenue when payment is received. Our primary streams of
revenue are license revenue and laboratory revenue.
License Revenues
Our licensing agreements may contain multiple
elements, such as non-refundable up-front fees, payments related to the achievement of particular milestones and royalties. Fees
associated with substantive at risk performance-based milestones are recognized as revenue upon completion of the scientific or
regulatory event specified in the agreement. When we have substantive continuing performance obligations under an arrangement,
revenue is recognized over the performance period of the obligations using a time-based proportional performance approach. Under
the time-based method, revenue is recognized over the arrangement’s estimated performance period based on the elapsed time
compared to the total estimated performance period. Revenue recognized at any point in time is limited to the amount of non-contingent
payments received or due. When we have no substantive continuing performance obligations under an arrangement, we recognize revenue
as the related fees become due.
Revenues from royalties on third-party
sales of licensed technologies are generally recognized in accordance with the contract terms when the royalties can be reliably
determined and collectability is reasonably assured.
Laboratory Revenues
We primarily recognize revenue for services
rendered upon completion of the testing process. Billing for services reimbursed by third-party payers, including Medicare and
Medicaid, are recorded as revenues, net of allowances for differences between amounts billed and the estimated receipts from such
payers.
We maintain a sales allowance to compensate
for the difference in our clinical laboratory’s billing practices and insurance company reimbursements. In determining this
allowance, we look at several factors, the most significant of which is the average difference between the amount charged and
the amount reimbursed by insurance carriers over the prior 18 months, otherwise known as the yearly average adjustment amount.
The allowance taken is the averaged yearly average adjustment amount for these prior periods and multiplied by the period’s
actual gross sales to determine the actual sales allowance for each period.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable are reported at realizable
value, net of allowances for doubtful accounts, which is estimated and recorded in the period the related revenue is recorded.
We estimate and review the collectability of our receivables based on a number of factors, including the period they have been
outstanding. Historical collection and payer reimbursement experience is an integral part of the estimation process related to
allowances for doubtful accounts. In addition, we regularly assess the state of our billing operations in order to identify issues,
which may impact the collectability of these receivables or reserve estimates. Revisions to the allowances for doubtful accounts
estimates are recorded as an adjustment to bad debt expense within general and administrative expenses. Receivables deemed uncollectible
are charged against the allowance for doubtful accounts at the time such receivables are written-off. Recoveries of receivables
previously written-off are recorded as credits to the allowance for doubtful accounts.
Results of Operations
Year Ended December 31, 2011 and
2010
Revenues, net
Total net revenues for the year ended
December 31, 2010 were $2.6 million. Total net revenues consisted of $2.1 million from
the oral flupirtine sublicense fee with Meda AB, which is net of the $375,000 payment to McLean Hospital and
$489,000 of grant revenues from the Qualifying Therapeutic Discovery Project (QTDP) Program to support our
clinical programs. There were no net revenues reported for the year ended December 31, 2011; net laboratory
revenues for this year are included in discontinued operations. See Note 3 - Discontinued Operations of Adeona Clinical Laboratory.
General and Administrative Expenses
General and administrative expenses
increased to $2.6 million for the year ended December 31, 2011 from $2.1 million for the year ended December 31, 2010. This
increase of 22% is primarily the result of increased salary expense, consultant fees and stock-based compensation expense.
General and administrative expenses also include a non-cash charge relating to stock-based compensation expense of $919,000
for the year ended December 31, 2011, compared to $310,000 for the year ended December 31, 2010. The stock-based compensation
expense for year ended December 31, 2011 includes a one-time charge of $398,000 relating to the modification of certain stock
options, prior to expiration, held by a member of the Board of Directors.
Research and Development Expenses
Research and development
expenses increased to $3.3 million for the year ended December 31, 2011, from $1.6 million for the year ended December 31,
2010. The increase of 111% is primarily the result of recording the fair value ($1.7 million) of the common stock issued to
Intrexon as consideration for the Exclusive Channel Collaboration Agreement. This is a non-cash charge. Research and
development expenses also include a non-cash charge relating to stock-based compensation expense of $54,000 for the year
ended December 31, 2011, compared to $90,000 for the year ended December 31, 2010.
Other Expense, net
Total net other expense was
$1.7 million compared to $112,000 for the years ended December 31, 2011 and 2010, respectively. Total net other expense for
the year ended December 31, 2011, included $1.7 million relating to the estimated fair value of the warrants associated with
the January 2011 and April 2011 financings, adjusted for the change in their fair value for the year ended December 31,
2011. Other income for the year ended December 31, 2011 included $63,000 relating to the settlement of accounts payable
previously accrued in prior periods offset by other expenses of $41,000 and $14,000 of interest income from our short-term
investments. Total net other expense for the year ended December 31, 2010, included an impairment loss of $121,000.
Net Loss
from Continuing Operations
Our net loss from
continuing operations for the year ended December 31, 2011, was $7.6 million, or $0.27 per common share, compared to
$1.2 million, or $0.06 per common share for the year ended December 31, 2010.
Net Loss from Discontinued Operations
Our net loss from
discontinued operations for the year ended December 31, 2011, was $523,000, or $0.02 per common share compared to a $516,000,
or $0.02 per common share for the year ended December 31, 2010. On March 8, 2012, we entered into a Membership Interest
Purchase Agreement, and certain related agreements, pursuant to which we sold all of our interest in Adeona Clinical
Laboratory, LLC (the “Lab”) to Hartlab, LLC. This resulted in the classification of the Lab as discontinued
operations. See Note 3 – Discontinued Operations of Adeona Clinical Laboratory for summarized statement of operations
data for the years ended December 31, 2011 and 2010.
Liquidity and Capital Resources
We have financed our operations since inception
primarily through proceeds from equity financings and various private financings, primarily involving private sales of our common
stock and other equity securities, corporate partnering license fees and from the proceeds from the sale of our common stock
under our registration statement on Form S-3, laboratory revenues, miscellaneous equipment sales.
On January 28, 2011, we entered into a
Securities Purchase Agreement with institutional investors, relating to the offering and sale of 2,857,144 shares of common stock,
par value $0.001 per share, and warrants to purchase 1,428,572 shares of common stock. We raised gross proceeds of $4 million,
before estimated offering expenses of approximately $296,000, which includes placement agent fees.
On April 6, 2011, we entered into a Securities
Purchase Agreement with an institutional investor, relating to the offering and sale of 1,688,782 shares of common stock, par value
$0.001 per share and a warrant to purchase 844,391 shares of common stock. We raised gross proceeds of $3.5 million,
before estimated offering expenses of approximately $243,000, which includes placement agent fees.
Both of these offerings were made pursuant
to our shelf registration statement on Form S-3 (File No. 333-166750), which was declared effective by the SEC on June 14, 2010.
Our cash totaled $6.7 million
at December 31, 2011, an increase of $4 million from December 31, 2010. During the year ended December 31, 2011, the
primary sources of cash were net proceeds from the issuances of common stock to institutional investors of $7 million
and stock option and warrant exercises of $15,000. The primary use of cash during the year ended December 31, 2011 was
for working capital requirements.
Our cash totaled $2.6 million at
December 31, 2010 the primary sources of cash were $2.1 million from the sublicense fee relating to the Meda Agreement and
proceeds from the issuance of common stock to a single investor of $885,000 (net of offering costs of $115,000) and
stock option exercises of $129,000. The primary uses of cash for the year ended December 31, 2010, included working
capital requirements and $12,000 in capital equipment additions.
During the period from January 1, 2012
through March 26, 2012, 1,120,121 warrants were exercised for gross proceeds of $1.4 million.
As of March 26, 2012, our cash
balance was approximately $6.9 million.
Our continued operations will primarily
depend on whether we are able to generate revenues and profits through partnerships, joint ventures and/or raise additional
funds through various potential sources, such as license fees from a potential corporate partner, equity and debt financing. Such
additional funds may not become available on acceptable terms and there can be no assurance that any additional funding that we
do obtain will be sufficient to meet our needs in the long term. We will continue to fund operations from cash on hand and through
the similar sources of capital previously described. We can give no assurances that any additional capital that we are able to
obtain will be sufficient to meet our needs.
Current and Future Financing Needs
We have incurred an accumulated deficit
of $51.9 million through December 31, 2011. With the exception of the quarter ended June 30, 2010, we have incurred
negative cash flow from operations since we started our business. We have spent, and expect to continue to spend, substantial amounts
in connection with implementing our business strategy, including our planned product development efforts, our clinical trials,
and our research and discovery efforts.
Based on our current plans, we believe
that our cash will be sufficient to enable us to meet our planned operating needs for at least the next 12 months.
However, the actual amount of funds we
will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:
|
·
|
the progress of our research activities;
|
|
·
|
the number and scope of our research programs;
|
|
·
|
the progress of our preclinical and clinical development activities;
|
|
·
|
the progress of the development efforts of parties with whom we have entered into research and development agreements;
|
|
·
|
our ability to maintain current research and development licensing arrangements and to establish new research and
development and licensing arrangements;
|
|
·
|
our ability to achieve our milestones under licensing arrangements;
|
|
·
|
the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;
|
|
·
|
the costs and timing of regulatory approvals; and
|
|
·
|
profitability of our clinical laboratory diagnostic and microbiology services business.
|
We have based our estimate on assumptions
that may prove to be wrong. We may need to obtain additional funds sooner or in greater amounts than we currently anticipate. Potential
sources of financing include strategic relationships, public or private sales of our shares or debt and other sources. We may seek
to access the public or private equity markets when conditions are favorable due to our long-term capital requirements. We do not
have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we
need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of common stock or other
securities convertible into common stock, the ownership interest of our existing stockholders will be diluted. If we are not able
to obtain financing when needed, we may be unable to carry out our business plan. As a result, we may have to significantly limit
our operations and our business, financial condition and results of operations would be materially harmed.
License and Contractual Agreement Obligations
Below is a table of our contractual obligations
for the years 2012 through 2016 as of December 31, 2011
(in thousands)
.
|
|
Year ended December 31,
|
|
|
|
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
Total
|
|
License Agreements
|
|
$
|
37
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
57
|
|
Lease Agreements
|
|
|
22
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22
|
|
Total
|
|
$
|
59
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
79
|
|
Additional In-Licensed Programs
We may enter into additional license agreements relating to
new product candidates.
Item 7A.
Quantitative
and Qualitative Disclosures About Market Risk
Not applicable because we are a smaller reporting company.
Item 8.
Financial
Statements and Supplemental Data
|
Page
|
Report of Independent Registered Public Accounting Firm
|
38
|
Consolidated Balance Sheets
|
39
|
Consolidated Statements of Operations
|
40
|
Consolidated Statements of Changes in Stockholders’ Equity
|
41
|
Consolidated Statements of Cash Flows
|
42
|
Notes to Consolidated Financial Statements
|
43
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Board of Directors and Stockholders
of:
Synthetic Biologics, Inc.
We have audited the accompanying consolidated balance sheets of Synthetic Biologics, Inc. and Subsidiaries as of December 31, 2011
and 2010 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years ended December
31, 2011 and 2010. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audits 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 audits included the consideration of internal control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial
statements referred to above present fairly in all material respects, the consolidated financial position of Synthetic Biologics,
Inc. and Subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of operations, stockholders’
equity and cash flows for the years ended December 31, 2011 and 2010, in conformity with accounting principles generally accepted
in the United States of America.
Berman & Company, P.A.
|
|
|
|
Boca Raton, Florida
|
|
May 11, 2012
|
|
Synthetic Biologics, Inc. and Subsidiaries
(formerly Adeona Pharmaceuticals,
Inc.)
Consolidated Balance Sheets
(In thousands except share
amounts)
|
|
December 31, 2011
|
|
|
December 31, 2010
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
6,678
|
|
|
$
|
2,649
|
|
Accounts receivable – net
|
|
|
405
|
|
|
|
339
|
|
Other
|
|
|
16
|
|
|
|
343
|
|
Assets of discontinued operations
|
|
|
23
|
|
|
|
214
|
|
Total Current Assets
|
|
|
7,122
|
|
|
|
3,545
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
323
|
|
|
|
475
|
|
|
|
|
|
|
|
|
|
|
Deposits and other assets
|
|
|
31
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
7,476
|
|
|
$
|
4,111
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
388
|
|
|
$
|
266
|
|
Accrued liabilities
|
|
|
29
|
|
|
|
210
|
|
Liabilities of discontinued operations
|
|
|
-
|
|
|
|
24
|
|
Total Current Liabilities
|
|
|
417
|
|
|
|
500
|
|
|
|
|
|
|
|
|
|
|
Long Term Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
-
|
|
|
|
32
|
|
Total Liabilities
|
|
|
417
|
|
|
|
532
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value; 10,000,000 shares authorized, none issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value; 100,000,000 shares authorized, 31,374,002 issued and 31,292,520 outstanding and 23,420,189 issued and 23,338,707 outstanding
|
|
|
31
|
|
|
|
23
|
|
Additional paid-in capital
|
|
|
58,901
|
|
|
|
47,280
|
|
Accumulated deficit
|
|
|
(51,873
|
)
|
|
|
(43,724
|
)
|
Total Stockholders' Equity
|
|
|
7,059
|
|
|
|
3,579
|
|
Total Liabilities and Stockholders' Equity
|
|
$
|
7,476
|
|
|
$
|
4,111
|
|
See accompanying notes to consolidated financial
statements
Synthetic Biologics, Inc. and Subsidiaries
(formerly Adeona Pharmaceuticals,
Inc.)
Consolidated Statements of Operations
(In thousands, except share and per share
amounts)
|
|
For the years ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Revenues:
|
|
|
|
|
|
|
|
|
License revenue, net
|
|
$
|
-
|
|
|
$
|
2,125
|
|
Grant revenue
|
|
|
-
|
|
|
|
489
|
|
Total Revenues
|
|
|
-
|
|
|
|
2,614
|
|
|
|
|
|
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,588
|
|
|
|
2,117
|
|
Research and development
|
|
|
3,340
|
|
|
|
1,580
|
|
Total Operating Costs and Expenses
|
|
|
5,928
|
|
|
|
3,697
|
|
|
|
|
|
|
|
|
|
|
Loss from Continuing Operations
|
|
|
(5,928
|
)
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
Warrant expense
|
|
|
(1,492
|
)
|
|
|
-
|
|
Change in fair value of warrant liability
|
|
|
(242
|
)
|
|
|
-
|
|
Impairment loss on equipment
|
|
|
-
|
|
|
|
(121
|
)
|
Interest income
|
|
|
14
|
|
|
|
-
|
|
Other income (expense)
|
|
|
22
|
|
|
|
9
|
|
Total Other Expense, net
|
|
|
(1,698
|
)
|
|
|
(112
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss from Continuing Operations
|
|
|
(7,626
|
)
|
|
|
(1,195
|
)
|
Net Loss from Discontinued Operations
|
|
|
(523
|
)
|
|
|
(516
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(8,149
|
)
|
|
$
|
(1,711
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share – Basic and Dilutive:
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
$
|
(0.27
|
)
|
|
$
|
(0.06
|
)
|
Discontinued Operations
|
|
|
(0.02
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share
|
|
$
|
(0.29
|
)
|
|
$
|
(0.08
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding during the year – Basic and Dilutive
|
|
|
27,710,428
|
|
|
|
22,393,568
|
|
See accompanying notes to consolidated financial
statements
Synthetic Biologics, Inc. and Subsidiaries
(formerly Adeona Pharmaceuticals,
Inc.)
Consolidated Statements of Changes in
Stockholders' Equity
(In thousands, except share amounts)
|
|
Common Stock $0.001 Par
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Value
|
|
|
Additional Paid-
|
|
|
Accumulated
|
|
|
Subscription
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
in Capital
|
|
|
Deficit
|
|
|
Receivable
|
|
|
Equity
|
|
Balance, December 31, 2009
|
|
|
21,449,352
|
|
|
$
|
22
|
|
|
$
|
45,553
|
|
|
$
|
(42,013
|
)
|
|
$
|
(17
|
)
|
|
$
|
3,545
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
|
|
-
|
|
|
|
-
|
|
|
|
400
|
|
Issuance of common stock for employee compensation
|
|
|
60,521
|
|
|
|
-
|
|
|
|
47
|
|
|
|
-
|
|
|
|
-
|
|
|
|
47
|
|
Issuance of common stock for license fees
|
|
|
81,035
|
|
|
|
-
|
|
|
|
70
|
|
|
|
-
|
|
|
|
-
|
|
|
|
70
|
|
Issuance of common stock for consulting fees
|
|
|
279,724
|
|
|
|
-
|
|
|
|
213
|
|
|
|
-
|
|
|
|
-
|
|
|
|
213
|
|
Issuance of common stock for options exercised
|
|
|
255,954
|
|
|
|
-
|
|
|
|
113
|
|
|
|
-
|
|
|
|
17
|
|
|
|
130
|
|
Issuance of common stock, net of issuance costs of $115
|
|
|
1,212,121
|
|
|
|
1
|
|
|
|
884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
885
|
|
Net loss for the year ended December 31, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,711
|
)
|
|
|
-
|
|
|
|
(1,711
|
)
|
Balance, December 31, 2010
|
|
|
23,338,707
|
|
|
|
23
|
|
|
|
47,280
|
|
|
|
(43,724
|
)
|
|
|
-
|
|
|
|
3,579
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
973
|
|
|
|
-
|
|
|
|
-
|
|
|
|
973
|
|
Issuance of common stock for employee compensation
|
|
|
73,585
|
|
|
|
-
|
|
|
|
94
|
|
|
|
-
|
|
|
|
-
|
|
|
|
94
|
|
Issuance of common stock for exclusive channel collaboration agreement
|
|
|
3,123,558
|
|
|
|
3
|
|
|
|
1,684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,687
|
|
Issuance of common stock for consulting fees
|
|
|
171,796
|
|
|
|
-
|
|
|
|
165
|
|
|
|
-
|
|
|
|
-
|
|
|
|
165
|
|
Issuance of common stock for options and warrants exercised
|
|
|
38,948
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
Issuance of common stock, net of issuance costs of $539
|
|
|
4,545,926
|
|
|
|
5
|
|
|
|
6,956
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,961
|
|
Warrant liability reclassified to stockholders’ equity
|
|
|
-
|
|
|
|
-
|
|
|
|
1,734
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,734
|
|
Net loss for the year ended December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,149
|
)
|
|
|
|
|
|
|
(8,149
|
)
|
Balance, December 31, 2011
|
|
|
31,292,520
|
|
|
$
|
31
|
|
|
$
|
58,901
|
|
|
$
|
(51,873
|
)
|
|
$
|
-
|
|
|
$
|
7,059
|
|
See accompanying notes to consolidated financial
statements
Synthetic Biologics, Inc. and Subsidiaries
(formerly Adeona Pharmaceuticals,
Inc.)
Consolidated Statements of Cash Flows
(In thousands)
|
|
For the years ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(7,626
|
)
|
|
$
|
(1,195
|
)
|
Loss from discontinued operations
|
|
|
(523
|
)
|
|
|
(516
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
973
|
|
|
|
400
|
|
Stock issued as employee compensation
|
|
|
94
|
|
|
|
47
|
|
Stock issued for license fee
|
|
|
-
|
|
|
|
70
|
|
Stock issued for exclusive channel collaboration agreement
|
|
|
1,684
|
|
|
|
-
|
|
Stock issued for consulting fees
|
|
|
165
|
|
|
|
214
|
|
Warrant expense
|
|
|
1,492
|
|
|
|
-
|
|
Change in fair value of warrant liability
|
|
|
242
|
|
|
|
-
|
|
Depreciation
|
|
|
144
|
|
|
|
346
|
|
Provision for uncollectible accounts receivable
|
|
|
414
|
|
|
|
130
|
|
Amortization of premium on investments
|
|
|
57
|
|
|
|
-
|
|
Loss on sale of short-term investment
|
|
|
20
|
|
|
|
-
|
|
(Gain) loss on sale of equipment
|
|
|
6
|
|
|
|
(3
|
)
|
Impairment loss on equipment
|
|
|
-
|
|
|
|
121
|
|
Gain on the settlement of accounts payable
|
|
|
(63
|
)
|
|
|
-
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(480
|
)
|
|
|
(438
|
)
|
Other current assets
|
|
|
327
|
|
|
|
(335
|
)
|
Deposits and other assets
|
|
|
60
|
|
|
|
-
|
|
Assets of discontinued operations
|
|
|
191
|
|
|
|
13
|
|
Accounts payable
|
|
|
153
|
|
|
|
(196
|
)
|
Accrued liabilities
|
|
|
(181
|
)
|
|
|
202
|
|
Liabilities of discontinued operations
|
|
|
(24
|
)
|
|
|
(5
|
)
|
Net Cash Used In Operating Activities
|
|
|
(2,875
|
)
|
|
|
(1,145
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Purchase of short-term investments
|
|
|
(4,370
|
)
|
|
|
-
|
|
Proceeds from short-term investments
|
|
|
4,293
|
|
|
|
-
|
|
Purchases of property and equipment
|
|
|
-
|
|
|
|
(12
|
)
|
Proceeds from the sale of equipment
|
|
|
2
|
|
|
|
77
|
|
Net Cash Provided By (Used In) Investing Activities
|
|
|
(75
|
)
|
|
|
65
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock for stock option and warrant exercises
|
|
|
15
|
|
|
|
129
|
|
Proceeds from issuance of common stock for exclusive channel collaboration agreement
|
|
|
3
|
|
|
|
-
|
|
Proceeds from the issuance of common stock
|
|
|
7,500
|
|
|
|
1,000
|
|
Cash paid as direct offering costs
|
|
|
(539
|
)
|
|
|
(115
|
)
|
Net Cash Provided By Financing Activities
|
|
|
6,979
|
|
|
|
1,014
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash
|
|
|
4,029
|
|
|
|
(66
|
)
|
|
|
|
|
|
|
|
|
|
Cash at beginning of year
|
|
|
2,649
|
|
|
|
2,715
|
|
|
|
|
|
|
|
|
|
|
Cash at end of year
|
|
$
|
6,678
|
|
|
$
|
2,649
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
10
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Exchange of equipment
|
|
$
|
-
|
|
|
$
|
64
|
|
Reclassification of warrant liability to additional paid-in capital
|
|
$
|
1,734
|
|
|
$
|
-
|
|
See accompanying notes to consolidated financial
statements
Synthetic Biologics, Inc. and Subsidiaries
(formerly Adeona Pharmaceuticals,
Inc.)
Notes to Consolidated Financial Statements
December 31, 2011 and 2010
|
1.
|
Organization and Nature of Operations and Basis of Presentation
|
Description of Business
Synthetic Biologics, Inc. (the “Company”
or “Synthetic Biologics”), formerly Adeona Pharmaceuticals, Inc., is a biotechnology company focused on the development
of synthetic DNA-based therapeutics and innovative disease-modifying medicines for serious illnesses. In the area of synthetic
biology, the Company is initially developing a product candidate to treat PAH. The Company also
intends to expand new and existing collaborations in the synthetic biology area. In addition, Synthetic Biologics has several clinical-stage
programs that are being funded, or partially funded, by grants, charitable organizations and corporate partners. In this area we
are developing, or have partnered the development of, product candidates to treat relapsing-remitting MS,
cognitive dysfunction in MS, fibromyalgia and ALS.
Medical Indication
|
|
Product Candidate
|
|
Status
|
PAH
|
|
Synthetic DNA-based therapy
|
|
Preclinical
|
|
|
|
|
|
Relapsing-remitting MS
|
|
Trimesta
(estriol)
|
|
All patients enrolled in Phase II clinical trial;
dosing and monitoring underway
|
|
|
|
|
|
Cognitive dysfunction in
MS
|
|
Trimesta
(estriol)
|
|
Patient enrollment underway in Phase II
clinical trial
|
|
|
|
|
|
Fibromyalgia
|
|
Effirma
|
|
Partnered with Meda AB
|
|
|
(oral flupirtine)
|
|
|
|
|
|
|
|
ALS
|
|
AEN-100
|
|
Clinical trial preparation underway
|
|
|
(gastroretentive zinc acetate)
|
|
|
On December 21, 2011, Synthetic Biologics
announced that the Board of Directors had taken several actions to prioritize its focus on our entry into the emerging field of
synthetic biology. The Company also announced that it intends to seek marketing partners for its zinc-based products
reaZin
™
and
wellZin
™.
Basis of Presentation and Corporate
Structure
As of December 31, 2011, the Company had
eight active subsidiaries, Pipex Therapeutics, Inc. (“Pipex Therapeutics”), Adeona Clinical Laboratory (formerly Hart
Lab, LLC), Effective Pharmaceuticals, Inc. (“EPI”), Solovax, Inc. (“Solovax”), CD4 Biosciences, Inc. (“CD4”),
Epitope Pharmaceuticals, Inc. (“Epitope”), Healthmine, Inc. (“Healthmine”) and Putney Drug Corp. (“Putney”).
As of December 31, 2011, EPI, Adeona Clinical Laboratory, Healthmine and Putney are wholly owned and Pipex Therapeutics, Solovax,
CD4 and Epitope are majority-owned.
For financial reporting purposes, the outstanding
common stock of the Company is that of Synthetic Biologics, Inc. All statements of operations, stockholders’ equity and cash
flows for each of the entities are presented as consolidated. All subsidiaries were formed under the laws of the State of Delaware
on January 8, 2001, except for EPI, which was incorporated in Delaware on December 12, 2000, Epitope which was incorporated in
Delaware in January of 2002, Putney which was incorporated in Delaware in November of 2006, Healthmine which was formed in Delaware
in December of 2007 and Adeona Clinical Laboratory which was incorporated in Illinois as a limited liability company on August
8, 2005.
On March 8, 2012, the Company sold
all of its interest in Adeona Clinical Laboratory, LLC (the “Lab”) to Hartlab, LLC, an entity controlled by the
Lab’s former owner, in consideration for (i) the immediate assignment of the Lab’s outstanding accounts
receivable up through the date of closing, plus (ii) $700,000 payable pursuant to the terms
of a two-year non-recourse promissory note secured by all the assets of the Lab. Accordingly, this business has been
presented in the consolidated financial statements as discontinued operations. This transaction is described in more detail
in Note 3 – Discontinued Operations of Adeona Clinical Laboratory.
|
2.
|
Summary of Significant Accounting Policies
|
Principles of Consolidation
All inter-company transactions and accounts
have been eliminated in consolidation.
Emerging from the Development Stage
During the second quarter of 2010, the
Company emerged from the development stage. A development-stage enterprise is one in which planned principle operations
have not commenced or if its operations have commenced, there has been no significant revenue. The Company’s
strategy is to license product candidates that have demonstrated a certain level of clinical efficacy and develop them to a stage
that results in a significant commercial collaboration. On May 6, 2010, the Company entered into a Sublicense Agreement
(the “Meda Agreement”) with Meda AB of Sweden (“Meda”) and received an up-front payment of $2.5 million.
The execution of the Meda Agreement combined with revenues from Adeona Clinical Laboratory were an indication of the commencement
of principal operations, and therefore development-stage reporting was no longer required.
Use of Estimates
The preparation of consolidated financial
statements in conformity with accounting principles generally accepted in the U.S.A. requires management to make estimates
and assumptions that affect the reported amounts reported in the consolidated financial statements and accompanying notes. Such
estimates and assumptions impact, among others, the following: the amount allocated to goodwill, the estimated useful lives for
property and equipment, fair value of warrants and stock options granted for services or compensation, respectively, estimates
of the probability and potential magnitude of contingent liabilities, and the valuation allowance for deferred tax assets due to
continuing and expected future operating losses.
Making estimates requires management to
exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future confirming events. Accordingly, actual results could differ
from those estimates.
Accounts Receivable and Allowance
for Doubtful Accounts
Accounts receivable were reported at
realizable value, net of allowances for doubtful accounts, which were estimated and recorded in the period the related
revenue was recorded. The Company estimated and reviewed the collectability of its receivables based on a number of factors,
including the period they were outstanding. Historical collection and payer reimbursement experience was an integral part of
the estimation process related to allowances for doubtful accounts associated with Adeona Clinical Laboratory. In addition,
the Company regularly assessed the state of its billing operations in order to identify issues, which impacted the
collectability of these receivables or reserve estimates. Revisions to the allowances for doubtful accounts estimates were
recorded as an adjustment to bad debt expense. Receivables deemed uncollectible were charged against the allowance for
doubtful accounts. Recoveries of receivables previously written-off are recorded as credits to the allowance for doubtful
accounts.
Revenue Recognition
The Company records revenue when all of
the following have occurred: (1) persuasive evidence of an arrangement exists, (2) the service is completed without further obligation,
(3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. The Company
recognizes milestone payments or upfront payments that have no contingencies as revenue when payment is received. For
the year ended December 31, 2011, the Company’s only stream of revenue was laboratory revenue. During the year ended December
31, 2010, the Company’s streams of revenue were license revenue, laboratory revenue and grant revenue. Laboratory
revenues are a component of discontinued operations for the years ended December 31, 2011 and 2010. See Note 3 – Discontinued
Operations of Adeona Clinical Laboratory.
License Revenues
The Company’s licensing agreements
may contain multiple elements, such as non-refundable up-front fees, payments related to the achievement of particular milestones
and royalties. Fees associated with substantive at risk performance-based milestones are recognized as revenue upon completion
of the scientific or regulatory event specified in the agreement. When the Company has substantive continuing performance obligations
under an arrangement, revenue is recognized over the performance period of the obligations using a time-based proportional performance
approach. Under the time-based method, revenue is recognized over the arrangement’s estimated performance period based on
the elapsed time compared to the total estimated performance period. Revenue recognized at any point in time is limited to the
amount of non-contingent payments received or due. When the Company has no substantive continuing performance obligations under
an arrangement, it recognizes revenue as the related fees become due.
Revenues from royalties on third-party
sales of licensed technologies are generally recognized in accordance with the contract terms when the royalties can be reliably
determined and collectibility is reasonably assured. To date, the Company has not received any royalty revenues.
On May 6, 2010, the Company entered
into the Meda Agreement for the development and
commercialization of Effirma (oral flupirtine) for fibromyalgia. As consideration for the sublicense, the Company
received an up-front payment of $2.5 million upon execution of the Meda Agreement. This payment was recorded as license
revenue in 2010. Pursuant to the Company’s license agreement with McLean Hospital, the Company paid 15% of the $2.5
million payment ($375,000), that was netted against the revenues received from Meda AB. The Company is also entitled to
additional milestone payments of $5 million upon filing of an NDA with the U.S. FDA for oral flupirtine for fibromyalgia and
$10 million upon marketing approval. The Meda Agreement also provides that the Company is entitled to receive net royalties
of 7% of net sales of oral flupirtine approved for the treatment of fibromyalgia covered by issued patent claims in the U.S.
and Japan. The Meda Agreement provides that Meda AB will assume all future development costs for the commercialization
of oral flupirtine for fibromyalgia. Pursuant to the terms of the Company’s agreement with McLean Hospital, the Company
is obligated to pay half of all future royalties the Company receives. Future milestone payments will be recorded
as revenue when payment is received as there are no future deliverables, and it is non-refundable.
Laboratory Revenues
The Company primarily recognized revenue
for services rendered upon completion of the testing process. Billing for services reimbursed by third-party payers, including
Medicare and Medicaid, were recorded as revenues, net of allowances for differences between amounts billed and the estimated receipts
from such payers.
The Company maintained a sales allowance
to compensate for the difference in its billing practices and insurance company reimbursements. In determining this allowance,
the Company looked at several factors, the most significant of which is the average difference between the amount charged and the
amount reimbursed by insurance carriers over the prior 12 months, otherwise known as the yearly average adjustment amount. The
allowance taken was the averaged yearly average adjustment amount for these prior periods and multiplied by the period’s actual
gross sales to determine the actual sales allowance for each period.
The Company generated reimbursement from three
significant insurance providers in 2011 and 2010.
Customer
|
|
2011
|
|
|
2010
|
|
A
|
|
|
70%
|
|
|
|
65%
|
|
B
|
|
|
4%
|
|
|
|
11%
|
|
C
|
|
|
19%
|
|
|
|
14%
|
|
Grant Revenues
On November 4, 2010, the Company was awarded
two grants totaling $489,000 under the Qualifying Therapeutic Discovery Project (QTDP) Program to support the Company’s clinical
programs. The QTDP Grants Program was included in the healthcare reform legislation and established a one-time pool of $1 billion
for grants to small biotechnology companies developing novel therapeutics which show potential to: (a) result in new therapies
that either treat areas of unmet medical need, or prevent, detect, or treat chronic or acute diseases and conditions; (b) reduce
long-term health care costs in the U.S.; or (c) significantly advance the goal of curing cancer within a 30-year period. All
grant income was recognized in 2010 and there are no future obligations associated with these grants.
During 2010 and March 2011, all amounts awarded under these grants had been received. See Note 9 regarding the taxability of grant
revenues.
Revenues, net (in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
License revenue
|
|
$
|
-
|
|
|
$
|
2,500
|
|
License fees
|
|
|
-
|
|
|
|
(375
|
)
|
License revenue, net
|
|
|
-
|
|
|
|
2,125
|
|
Grant revenue
|
|
|
-
|
|
|
|
489
|
|
Total revenues, net
|
|
$
|
-
|
|
|
$
|
2,614
|
|
Risks and Uncertainties
The Company's operations could be subject
to significant risks and uncertainties including financial, operational and regulatory risks and the potential risk of business
failure. The global economic crisis has caused a general tightening in the credit markets, lower levels of liquidity, increases
in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. These conditions may
not only limit our access to capital, but also make it difficult for our customers, our vendors and us to accurately forecast and
plan future business activities.
Cash and Cash Equivalents
Cash and cash equivalents include cash
and highly liquid short-term investments with original maturities of three months or less. At December 31, 2011 and
2010, respectively, the Company had no cash equivalents.
Classification of Marketable Securities
as Held to Maturity, Trading, and Available for Sale
The Company determines the appropriate
classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at
each balance sheet date. Debt securities are classified as held to maturity when the Company has the positive intent and ability
to hold the securities to maturity. Debt securities for which the Company does not have the intent or ability to hold to maturity
are classified as available for sale. Held to maturity securities are recorded as either short-term or long-term on the balance
sheet, based on contractual maturity date and are stated at amortized cost. Marketable securities that are bought and held principally
for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized
gains and losses recognized in earnings. Debt and marketable equity securities not classified as held to maturity or as trading,
are classified as available for sale, and are carried at fair market value, with the unrealized gains and losses, net of tax, included
in the determination of comprehensive income and reported in shareholders’ equity. At December 31, 2011 and 2010, respectively,
the Company had no marketable securities.
During the year ended December 31, 2011,
the Company held investments in marketable securities that were classified as held to maturity and consisted of corporate bonds
and certificates of deposits as follows
(in thousands)
:
|
|
December 31, 2011
|
|
Purchase of short-term investments
|
|
$
|
(4,370
|
)
|
Amortization of premium on investments
|
|
|
57
|
|
Proceeds from short-term investments
|
|
|
4,293
|
|
Loss on sale of short-term investments
|
|
|
20
|
|
Fair value
|
|
$
|
-
|
|
Property and Equipment
Property and equipment is recorded at cost
and depreciated or amortized using the straight-line method over the estimated useful life of the asset or the underlying lease
term for leasehold improvements, whichever is shorter. The estimated useful life by asset description is noted in the following
table.
Asset Description
|
|
Estimated Useful Life
|
Office equipment and furniture
|
|
5 years
|
Laboratory equipment
|
|
7-10 years
|
Manufacturing equipment
|
|
10 years
|
Leasehold improvements and fixtures
|
|
Lesser of estimated useful or life of lease
|
Depreciation expense was
approximately $144,000 and $346,000 for the years ended December 31, 2011 and 2010, respectively. When assets are disposed
of, the cost and accumulated depreciation are removed from the accounts. Repairs and maintenance are charged to expense as
incurred.
During 2010, the Company reviewed property
and equipment for impairment and determined that certain items had been impaired due to obsolescence. As a result of this review,
the Company recorded an impairment loss of approximately $121,000. For the year ended December 31, 2011, there were no significant
events or changes in circumstances identified by the Company that would indicate that the carrying value of an asset was not recoverable.
Long-Lived Assets
The Company reviews its long-lived assets
for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
If such an event or change in circumstances occurs and potential impairment is indicated because the carrying values exceed the
estimated future undiscounted cash flows of the asset, the Company will measure the impairment loss as the amount by which the
carrying value of the asset exceeds its fair value.
Goodwill
Goodwill was not amortized, and was
tested for impairment at the reporting unit level annually and in interim periods if certain events occur indicating that the
carrying value of goodwill was impaired. A reporting unit was an operating segment for which discrete financial information
was available and was regularly reviewed by management. The Company had one reporting unit, Adeona Clinical Laboratory, to
which goodwill was assigned.
ASC
No. 350 requires a two-step approach to test goodwill for impairment for each reporting unit. The first step tests for impairment
by applying fair value-based tests to a reporting unit. The second step, if deemed necessary, measures the impairment by applying
fair value-based tests to specific assets and liabilities within the reporting unit. Application of the goodwill impairment tests
require judgment, including identification of reporting units, assignment of assets and liabilities to each reporting unit, assignment
of goodwill to each reporting unit, and determination of the fair value of each reporting unit. The determination of fair value
for a reporting unit could be materially affected by changes in these estimates and assumptions.
At December 31, 2011, in connection with
the Company classifying Adeona Clinical Laboratory as discontinued operations, previously recorded goodwill was considered impaired.
See Note 3 – Discontinued Operations of Adeona Clinical Laboratory.
Beneficial Conversion Feature
For conventional convertible debt where
the rate of conversion is below market value, the Company records a "beneficial conversion feature" (BCF) and related
debt discount.
When the Company records a BCF, the relative
fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount
would be amortized to interest expense over the life of the debt.
Derivative Liabilities
Fair value accounting requires
bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and
measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the
Black-Scholes option pricing model. In assessing the convertible debt instruments, management determines if the
convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature
requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its
evaluation process of these instruments as derivative financial instruments.
Once determined, derivative liabilities
are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded
in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative
instruments such as warrants, are also valued using the Black-Scholes option pricing model.
Debt Issue Costs and Debt Discount
The Company may pay debt issue costs, and
record debt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized
over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the
unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the
Company may provide the debt holder with an original issue discount. The original issue discount was recorded
to debt discount reducing the face amount of the note and is being amortized to interest expense over the life of the debt.
Net Earnings (Loss) per Share
Net earnings (loss) per share is computed
by dividing net earnings (loss) less preferred dividends for the period by the weighted average number of common shares outstanding.
Diluted earnings (loss) per share is computed by dividing net income (loss) less preferred dividends by the weighted average number
of common shares outstanding including the effect of common share equivalents. Since the Company reported a net loss for the
years ended December 31, 2011 and 2010, all common equivalent shares would be anti-dilutive; as such there is no separate computation
for diluted loss per share. The number of options and warrants for the purchase of common stock, that were excluded from the computations
of net loss per common share for the year ended December 31, 2011 were 2,979,010 and 3,259,186, respectively, and for the year
ended December 31, 2010 were 1,990,444 and 1,070,472, respectively.
Research and Development Costs
The Company expenses research and development
costs as incurred. Research and development expenses consist primarily of license fees, manufacturing costs, salaries, stock-based
compensation and related personnel costs, fees paid to consultants and outside service providers for laboratory development, legal
expenses resulting from intellectual property prosecution and other expenses relating to the design, development, testing and enhancement
of the Company’s product candidates.
Fair Value of Financial Instruments
The fair value accounting standards define
fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is determined based upon assumptions that market participants would use in pricing an
asset or liability. Fair value measurements are rated on a three-tier hierarchy as follows:
|
·
|
Level 1 inputs: Quoted prices (unadjusted) for identical assets or liabilities in active markets;
|
|
·
|
Level 2 inputs: Inputs, other than quoted prices included in Level 1 that are observable either
directly or indirectly; and
|
|
·
|
Level 3 inputs: Unobservable inputs for which there is little or no market data, which require
the reporting entity to develop its own assumptions.
|
In many cases, a valuation technique used
to measure fair value includes inputs from multiple levels of the fair value hierarchy described above. The lowest level of significant
input determines the placement of the entire fair value measurement in the hierarchy.
The carrying amounts of the Company’s
short-term financial instruments, including accounts receivable, other current assets, accounts payable and accrued liabilities,
approximate fair value due to the relatively short period to maturity for these instruments.
Stock-Based Payment Arrangements
Generally, all forms of stock-based payments,
including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date typically using a Black-Scholes pricing model, based on the estimated number of awards that are
ultimately expected to vest. Stock-based compensation awards issued to non-employees for services rendered are recorded at either
the fair value of the services rendered or the fair value of the stock-based payment, whichever is more readily determinable. The
expense resulting from stock-based payments are recorded in research and development expense or general and administrative expense
in the consolidated statement of operations, depending on the nature of the services provided.
Income Taxes
The Company accounts for income taxes in
accordance with accounting guidance now codified as FASB ASC Topic 740, “
Income Taxes
,” which requires that
the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts
and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse.
Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation
allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
Accounting guidance now codified as
FASB ASC Topic 740-20,
“Income Taxes – Intraperiod Tax Allocation,”
clarifies the accounting for
uncertainties in income taxes recognized in accordance with FASB ASC Topic 740-20 by prescribing guidance for the
recognition, de-recognition and measurement in financial statements of income tax positions taken in previously filed tax
returns or tax positions expected to be taken in tax returns, including a decision whether to file or not to file in a
particular jurisdiction. FASB ASC Topic 740-20 requires that any liability created for unrecognized tax benefits is
disclosed. The application of FASB ASC Topic 740-20 may also affect the tax bases of assets and liabilities and therefore may
change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to
unrecognized tax benefits in income tax expense. At December 31, 2011 and 2010, respectively, the Company did not record any
liabilities for uncertain tax positions.
Recent Accounting Pronouncements
In May 2011, the FASB issued guidance in
regard to fair value measurement. The new guidance results in a consistent definition of fair value and common requirements for
measurement of and disclosure about fair value between GAAP and International Financial Reporting Standards (IFRS). This guidance
is effective for interim and annual periods beginning after December 15, 2011. The adoption of this guidance is not expected to
have a material impact on the Company’s financial position or results of operations.
In September 2011, the FASB issued guidance
in regard to goodwill impairment. The new guidance is intended to reduce the cost and complexity of the annual goodwill impairment
test by providing entities with the option of performing a "qualitative" assessment to determine whether further impairment
testing is necessary. An entity can choose to perform the qualitative assessment on none, some, or all of its reporting units.
Moreover, an entity can bypass the qualitative assessment for any reporting unit in any period and proceed directly to step one
of the impairment test, and then perform the qualitative assessment in any subsequent period. The new guidance is effective for
annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption
permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or
results of operations.
Reclassifications
To conform prior period amounts to current year
classifications, the Company has reclassified assets, liabilities, revenues and expenses associated with the sale of Adeona
Clinical Laboratory to discontinued operations. These reclassifications had no impact on the Company’s previously
reported financial condition, results of operations or cash flows.
|
3.
|
Discontinued Operations of Adeona Clinical Laboratory
|
On March 8, 2012, the Company sold all
of its interest in Adeona Clinical Laboratory, LLC (the “Lab”) to Hartlab, LLC, an entity controlled by the Lab’s
former owner. In connection with the sale of the Lab, the consideration received was (i) the immediate assignment
of the Lab’s outstanding accounts receivable up through the date of closing, plus (ii) $700,000
payable pursuant to the terms of a two-year non-recourse promissory note secured by all of the assets of the Lab.
In accordance with ASC Topic 205-20 “
Presentation
of Financial Statements—Discontinued Operations
” (ASC 205-20), the Company determined that the sale of the Lab
should be classified as “held for sale” at December 31, 2011. In accordance with ACS 205-20 all of the following criteria
must be met for an entity to be classified as “held for sale”:
|
·
|
Management, having the authority to approve the action,
commits to a plan to sell the asset.
|
|
·
|
The asset is available for immediate sale in its present
condition subject only to terms that are usual and customary for sales of such assets.
|
|
·
|
An active program to locate a buyer and other actions
required to complete the plan to sell the asset have been initiated.
|
|
·
|
The sale of the asset is probable, and transfer of the
asset is expected to qualify for recognition as a complete sale within one year.
|
|
·
|
The asset is being actively marketed for sale at a price
that is reasonable in relation to its current fair value.
|
The Company
determined that all the criteria had been met and has classified the Lab as discontinued operations and its
results of operations, financial position and cash flows
are separately reported for all periods
presented. The assets and liabilities of the discontinued operations are presented separately under the captions “Assets
of
discontinued operations” and “Liabilities of discontinued operations,” respectively,
in the accompanying Consolidated Balance Sheets at December 31, 2011,
and December 31, 2010,
and consist of the following
(in thousands
):
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Assets of discontinued operations:
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
23
|
|
|
$
|
36
|
|
Goodwill
|
|
|
-
|
|
|
|
178
|
|
Total assets
|
|
$
|
23
|
|
|
$
|
214
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations:
|
|
|
|
|
|
|
|
|
Current portion of capital lease
|
|
$
|
-
|
|
|
$
|
24
|
|
Total liabilities
|
|
$
|
-
|
|
|
$
|
24
|
|
The summarized statement of operations data for Adeona Clinical
Laboratory for the years ended December 31, 2011 and December 31, 2010 are as follows
(in thousands):
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Laboratory fees, net
|
|
$
|
1,169
|
|
|
$
|
551
|
|
|
|
|
|
|
|
|
|
|
Operating Costs and Expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
539
|
|
|
|
599
|
|
Cost of laboratory services
|
|
|
975
|
|
|
|
468
|
|
Impairment loss on goodwill
|
|
|
178
|
|
|
|
-
|
|
Total operating costs and expenses
|
|
|
1,692
|
|
|
|
1,067
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
$
|
(523
|
)
|
|
$
|
(516
|
)
|
|
4.
|
Selected Balance Sheet Information
|
Accounts receivable (in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Accounts receivable
|
|
$
|
692
|
|
|
$
|
472
|
|
Bad debt allowance - customer
|
|
|
(287
|
)
|
|
|
(133
|
)
|
Total
|
|
$
|
405
|
|
|
$
|
339
|
|
Other current assets (in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Grant receivable
|
|
$
|
-
|
|
|
$
|
320
|
|
Prepaid expenses
|
|
|
16
|
|
|
|
23
|
|
Total
|
|
$
|
16
|
|
|
$
|
343
|
|
Property and equipment (in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Leasehold improvements
|
|
$
|
-
|
|
|
$
|
863
|
|
Manufacturing equipment
|
|
|
400
|
|
|
|
333
|
|
Computer and office equipment
|
|
|
159
|
|
|
|
160
|
|
Laboratory equipment
|
|
|
136
|
|
|
|
214
|
|
|
|
|
695
|
|
|
|
1,570
|
|
Less accumulated depreciation
|
|
|
(372
|
)
|
|
|
(1,095
|
)
|
Total
|
|
$
|
323
|
|
|
$
|
475
|
|
Accrued expenses (in thousands)
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Accrued vendor payments
|
|
$
|
1
|
|
|
$
|
105
|
|
Bonus
|
|
|
-
|
|
|
|
100
|
|
Compensation
|
|
|
28
|
|
|
|
5
|
|
Total
|
|
$
|
29
|
|
|
$
|
210
|
|
|
5.
|
Stock-Based Compensation
|
Stock Incentive Plan
During 2001, the Company’s Board
of Directors and stockholders adopted the 2001 Stock Incentive Plan (the “2001 Stock Plan”). As of the date of the
merger, there were 1,489,353 options issued and outstanding under the 2001 plan. The total number of shares of stock with respect
to which stock options and stock appreciation rights may be granted to any one employee of the Company or a subsidiary during any
one-year period under the 2001 Stock Plan shall not exceed 250,000. All awards pursuant to the 2001 Stock Plan shall terminate
upon the termination of the grantee’s employment for any reason. Awards include options, restricted shares, stock appreciation
rights, performance shares and cash-based awards (the “Awards”). The 2001 Stock Plan contains certain anti-dilution
provisions in the event of a stock split, stock dividend or other capital adjustment, as defined in the plan. The 2001 Stock Plan
provides for a Committee of the Board to grant awards and to determine the exercise price, vesting term, expiration date and all
other terms and conditions of the awards, including acceleration of the vesting of an award at any time. As of December 31, 2011,
there were 1,320,354 options issued and outstanding under the 2001 Stock Plan.
On March 20, 2007, the Company’s
Board of Directors approved the 2007 Stock Incentive Plan (the “2007 Stock Plan”) for the issuance of up to 2,500,000
shares of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors
and consultants of the Company and its subsidiaries. This plan was approved by stockholders on November 2, 2007. The exercise price
of stock options under the 2007 Stock Plan is determined by the compensation committee of the Board of Directors, and may be equal
to or greater than the fair market value of the Company’s common stock on the date the option is granted. The total number
of shares of stock with respect to which stock options and stock appreciation rights may be granted to any one employee of the
Company or a subsidiary during any one-year period under the 2001 plan shall not exceed 250,000. Options become exercisable over
various periods from the date of grant, and generally expire ten years after the grant date. As of December 31, 2011, there are
1,201,156 options issued and outstanding under the 2007 Stock Plan.
On November 2, 2010, the Board of Directors
and stockholders adopted the 2010 Stock Incentive Plan (“2010 Stock Plan”) for the issuance of up to 3,000,000 shares
of common stock to be granted through incentive stock options, nonqualified stock options, stock appreciation rights, dividend
equivalent rights, restricted stock, restricted stock units and other stock-based awards to officers, other employees, directors
and consultants of the Company and its subsidiaries. The exercise price of stock options under the 2010 Stock Plan is determined
by the compensation committee of the Board of Directors, and may be equal to or greater than the fair market value of the Company’s
common stock on the date the option is granted. Options become exercisable over various period from the date of grant, and generally
expire ten years after the grant date. As of December 31, 2011, there are 457,500 options issued and outstanding under the 2010
Stock Plan.
In the event of an employee’s termination,
the Company will cease to recognize compensation expense for that employee. There is no deferred compensation recorded upon initial
grant date, instead, the fair value of the stock-based payment is recognized ratably over the stated vesting period.
The Company has applied fair value
accounting for all share based payment awards since inception. The fair value of each option or warrant granted is estimated
on the date of grant using the Black-Scholes option pricing model. The Black-Scholes assumptions used in the years ended
December 31, 2011 and 2010 are as follows:
|
|
Year ended December 31,
|
|
|
|
2011
|
|
|
2010
|
|
Exercise price
|
|
|
$0.49 - $2.22
|
|
|
|
$0.56 - $0.87
|
|
Expected dividends
|
|
|
0%
|
|
|
|
0%
|
|
Expected volatility
|
|
|
175% - 188%
|
|
|
|
187% - 207%
|
|
Risk fee interest rate
|
|
|
1.30% - 3.58%
|
|
|
|
2.54% - 3.63%
|
|
Expected life of option
|
|
|
5 - 7 years
|
|
|
|
10 years
|
|
Expected forfeitures
|
|
|
0%
|
|
|
|
0%
|
|
The Company records stock-based compensation
based upon the stated vested provisions in the related agreements, with recognition of expense recorded on the straight line basis
over the term of the related agreement. The vesting provisions for these agreements have various terms as follows:
|
·
|
half vesting immediately and the remainder over three years,
|
|
·
|
quarterly over three years,
|
|
·
|
annually over three years,
|
|
·
|
one-third immediate vesting and remaining annually over two years,
|
|
·
|
one half immediate vesting with remaining vesting over nine months,
|
|
·
|
one quarter immediate vesting with the remaining over three years
|
|
·
|
one quarter immediate vesting with the remaining over 33 months; and
|
|
·
|
monthly over three years.
|
During 2011, the Company granted 557,002
options to employees and consultants having an approximate fair value of $609,000 based upon the Black-Scholes option pricing model.
During 2010, the Company granted 743,332 options to employees and consultants having an approximate fair value of $597,000 based
upon the Black-Scholes option pricing model.
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Remaining
|
|
Aggregate
|
|
|
|
|
|
|
Average Exercise
|
|
|
Contractual
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Price
|
|
|
Life
|
|
Value
|
|
Balance – December 31, 2009
|
|
|
2,561,332
|
|
|
$
|
1.26
|
|
|
7.16 years
|
|
$
|
304,000
|
|
Granted
|
|
|
743,332
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
Exercised
|
|
|
(255,954
|
)
|
|
$
|
0.44
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(509,619
|
)
|
|
$
|
0.69
|
|
|
|
|
|
|
|
Balance – December 31, 2010
|
|
|
2,539,091
|
|
|
$
|
1.32
|
|
|
6.97 years
|
|
$
|
1,028,000
|
|
Granted
|
|
|
557,002
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
Exercised
|
|
|
(23,333
|
)
|
|
$
|
0.57
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(93,750
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
Balance – December 31, 2011 – outstanding
|
|
|
2,979,010
|
|
|
$
|
1.34
|
|
|
6.01 years
|
|
$
|
-
|
|
Balance – December 31, 2011 – exercisable
|
|
|
2,454,607
|
|
|
$
|
1.46
|
|
|
5.62 years
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant date fair value of options granted – 2011
|
|
|
|
|
|
$
|
609,000
|
|
|
|
|
|
|
|
Weighted average grant date fair value – 2011
|
|
|
|
|
|
$
|
1.09
|
|
|
|
|
|
|
|
Grant date fair value of options granted – 2010
|
|
|
|
|
|
$
|
597,000
|
|
|
|
|
|
|
|
Weighted average grant date fair value – 2010
|
|
|
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
Outstanding options held by related parties – 2011
|
|
|
|
|
|
|
1,283,160
|
|
|
|
|
|
|
|
Exercisable options held by related parties – 2011
|
|
|
|
|
|
|
1,070,660
|
|
|
|
|
|
|
|
Outstanding options held by related parties – 2010
|
|
|
|
|
|
|
1,083,160
|
|
|
|
|
|
|
|
Exercisable options held by related parties – 2010
|
|
|
|
|
|
|
858,160
|
|
|
|
|
|
|
|
The options outstanding and exercisable at December 31, 2011
are as follows:
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
Range of
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
Average
|
|
|
Remaining
|
Exercise Price
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
$0.09 - $4.57
|
|
|
2,889,011
|
|
|
$
|
1.20
|
|
|
6.11 years
|
|
|
2,364,608
|
|
|
$
|
1.29
|
|
|
5.72 years
|
$4.58 - $9.05
|
|
|
89,999
|
|
|
$
|
5.93
|
|
|
2.76 years
|
|
|
89,999
|
|
|
$
|
5.93
|
|
|
2.76 years
|
$0.09 - $9.05
|
|
|
2,979,010
|
|
|
$
|
1.34
|
|
|
6.01 years
|
|
|
2,454,607
|
|
|
$
|
1.46
|
|
|
5.62 years
|
The options outstanding and exercisable at December 31, 2010
are as follows:
Options Outstanding
|
|
Options Exercisable
|
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
|
|
|
|
Weighted
|
|
|
Weighted Average
|
Range of
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
|
|
Average
|
|
|
Remaining
|
Exercise Price
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
|
Options
|
|
|
Exercise Price
|
|
|
Contractual Life
|
$0.09 - $4.57
|
|
|
2,449,092
|
|
|
$
|
1.16
|
|
|
7.09 years
|
|
|
1,900,445
|
|
|
$
|
1.28
|
|
|
6.47 years
|
$4.58 - $9.05
|
|
|
89,999
|
|
|
$
|
5.93
|
|
|
3.76 years
|
|
|
89,999
|
|
|
$
|
5.93
|
|
|
3.76 years
|
$0.09 - $9.05
|
|
|
2,539,091
|
|
|
$
|
1.32
|
|
|
6.97 years
|
|
|
1,990,444
|
|
|
$
|
1.48
|
|
|
6.35 years
|
The following is a summary of the Company’s non-vested
stock options at December 31, 2011:
|
|
|
|
|
Weighted Average
|
|
|
|
Unvested
|
|
|
Grant
|
|
|
|
Stock Options
|
|
|
Date Fair Value
|
|
Non-vested – December 31, 2010
|
|
|
548,647
|
|
|
$
|
0.77
|
|
Granted
|
|
|
557,002
|
|
|
|
1.09
|
|
Vested/Exercised
|
|
|
(528,017
|
)
|
|
|
1.07
|
|
Forfeited/Cancelled
|
|
|
(53,229
|
)
|
|
|
0.57
|
|
Non-vested – December 31, 2011
|
|
|
524,403
|
|
|
$
|
0.82
|
|
Weighted average remaining period for vesting
|
|
|
1.67 years
|
|
|
|
|
|
Stock Warrants and Derivative Liabilities
On July 2, 2010, the Company entered into
a Common Stock Purchase Agreement with a single investor. As part of this agreement, the Company issued warrants to purchase 60,606
shares of common stock to the placement agent, or its permitted assigns. The warrants have an exercise price of $1.32 and a life
of 5 years. The warrants vested on January 1, 2011 and expire December 31, 2015. Since these warrants were granted as part of an
equity raise, the Company has treated them as a direct offering cost. The result of the transaction has no affect to equity. As
of December 31, 2011, 30,303 of these warrants remained outstanding.
On January 28, 2011, the Company entered
into a Common Stock Purchase Agreement with three institutional investors. As part of this agreement, the Company issued warrants
to purchase 1,428,572 shares of common stock. Each warrant was exercisable for thirteen months at $2.00 per share and
subsequently exchanged for new warrants with substantially the same terms as the original warrants except that the expiration
date was extended for two months. The original warrants had an anti-dilution price protection feature; if the Company issues securities
at a price per share that is less than $2.00 per share, the warrant holders will be ratcheted down to the lower offering price.
However, the Company had instituted a floor price of $1.40 per share in connection with the price protection.
On April 6, 2011, the Company entered into
another Common Stock Purchase Agreement that triggered the ratchet provision and re-set the price of these warrants to $1.40 per
share. Due to the re-set to the floor price, the warrant liability was marked-to-market and reclassified to additional paid-in
capital since it ceased to contain the provisions of a derivative liability. As of December 31, 2011, all of these warrants remained
outstanding.
The warrants were initially recorded as
liabilities at their estimated fair value on the commitment date, which was $716,000 with subsequent changes in estimated fair
value recorded as a warrant expense in the Company’s statement of operations at each subsequent reporting period. On
April 6, 2011, the fair value of the warrant liability was $1.5 million, which represented an increase in fair value of $765,000.
The fair value was measured using the Black-Scholes valuation model. The assumptions used by the Company are summarized in the
following table:
|
|
|
|
|
Remeasurement
|
|
|
|
Commitment
|
|
|
Date
|
|
|
|
Date
|
|
|
April 6, 2011
|
|
Closing stock price
|
|
$
|
1.39
|
|
|
$
|
2.08
|
|
Expected dividend rate
|
|
|
0%
|
|
|
|
0%
|
|
Expected stock price volatility
|
|
|
117.1%
|
|
|
|
104.6%
|
|
Risk free interest rate
|
|
|
0.28%
|
|
|
|
0.29%
|
|
Expected life (years)
|
|
|
1.08
|
|
|
|
0.85
|
|
On August 10, 2011, the Company entered
into an agreement to exchange the warrants issued in connection with the January 28, 2011 financing for new warrants with substantially
the same terms as the original warrants except that in the new warrants the expiration date was extended by two months.
On April 6, 2011, the Company entered into
a Common Stock Purchase Agreement with an institutional investor. As part of this agreement, the Company issued a warrant to purchase
844,391 shares of common stock. The warrant was initially exercisable for thirteen months at $2.0725 per share. The warrant
had an anti-dilution price protection feature; that provided if the Company issues securities at a price per share that is less
than $2.0725 per share, the exercise price of the warrant will be ratcheted down to the lower offering price. On
July 28, 2011, the warrant was exchanged for a new warrant with substantially similar terms except that in the new warrant (i)
the anti-dilution price protection was eliminated, (ii) the exercise price was lowered to $1.00, (iii) the expiration date was
extended for an additional three months to August 12, 2012, and (iv) the warrant’s initial exercise date was changed
to January 2012. Due to this warrant exchange, the warrant liability was marked-to-market and reclassified to additional paid-in
capital since it ceased to contain the provisions of a derivative liability. As of December 31, 2011, all of these warrants remained
outstanding.
The warrant is initially recorded
as a liability at its estimated fair value on the commitment date, which was $776,000 with subsequent changes in estimated
fair value recorded as a warrant expense in the Company’s statement of operations at each subsequent period. On July
28, 2011, the fair value of the warrant liability was $253,000, which represented a decrease in fair value of $523,000. The fair
value is measured using the Black-Scholes valuation model. The assumptions used by the Company are summarized
in the following table:
|
|
|
|
|
Remeasurement
|
|
|
|
Commitment
|
|
|
Date
|
|
|
|
Date
|
|
|
July 28, 2011
|
|
Closing stock price
|
|
|
$2.08
|
|
|
|
$0.84
|
|
Expected dividend rate
|
|
|
0%
|
|
|
|
0%
|
|
Expected stock price volatility
|
|
|
112.1%
|
|
|
|
105.6%
|
|
Risk free interest rate
|
|
|
0.29%
|
|
|
|
0.21%
|
|
Expected life (years)
|
|
|
1.08
|
|
|
|
1.04
|
|
The following table summarizes the estimated fair value of the
warrant liabilities
(in thousands):
Balance at December 31, 2010
|
|
$
|
-
|
|
Warrant liability
|
|
|
1,492
|
|
Change in fair value of warrant liability
|
|
|
242
|
|
Reclassification to additional paid-in capital
|
|
|
(1,734
|
)
|
Balance at December 31, 2011
|
|
$
|
-
|
|
A summary of warrant activity for the Company
for the year ended December 31, 2010 and for the year ended December 31, 2011 is as follows:
|
|
|
|
|
Weighted Average
|
|
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
Balance at December 31, 2009
|
|
|
1,070,472
|
|
|
$
|
3.27
|
|
Granted
|
|
|
60,606
|
|
|
|
1.32
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
Balance as December 31, 2010
|
|
|
1,131,078
|
|
|
|
3.49
|
|
Granted
|
|
|
2,272,963
|
|
|
|
1.25
|
|
Exercised
|
|
|
(15,615
|
)
|
|
|
1.03
|
|
Forfeited
|
|
|
(129,240
|
)
|
|
|
2.08
|
|
Balance as December 31, 2011
|
|
|
3,259,186
|
|
|
$
|
1.95
|
|
A summary of all outstanding and exercisable warrants as of
December 31, 2011 is as follows:
Exercise
Price
|
|
|
Warrants
Outstanding
|
|
|
Warrants
Exercisable
|
|
|
Weighted Average
Remaining
Contractual Life
|
|
|
Aggregate Intrinsic Value
|
|
$
|
1.00
|
|
|
|
844,391
|
|
|
|
844,391
|
|
|
|
0.61 years
|
|
|
$
|
219,000
|
|
$
|
1.32
|
|
|
|
30,303
|
|
|
|
30,303
|
|
|
|
4.00 years
|
|
|
|
-
|
|
$
|
1.40
|
|
|
|
1,428,572
|
|
|
|
1,428,572
|
|
|
|
0.33 years
|
|
|
|
-
|
|
$
|
2.22
|
|
|
|
517,257
|
|
|
|
517,257
|
|
|
|
4.91 years
|
|
|
|
-
|
|
$
|
3.30
|
|
|
|
61,207
|
|
|
|
61,207
|
|
|
|
3.41 years
|
|
|
|
-
|
|
$
|
3.75
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
4.13 years
|
|
|
|
-
|
|
$
|
6.36
|
|
|
|
327,456
|
|
|
|
327,456
|
|
|
|
0.86 years
|
|
|
|
-
|
|
$
|
1.95
|
|
|
|
3,259,186
|
|
|
|
3,259,186
|
|
|
|
1.33 years
|
|
|
$
|
219,000
|
|
Options of Subsidiaries
As of December 31, 2011, CD4 Biosciences,
Inc., a majority-owned subsidiary of Synthetic Biologics, has a total of 20,000 stock options outstanding and exercisable. These
stock options have an exercise price of $0.20 and a remaining contractual life of 0.37 years.
As of December 31, 2011, Epitope, a majority-owned
subsidiary of Synthetic Biologics, has 50,000 stock options outstanding and 20,000 stock options exercisable. These stock options
have an exercise price of $0.001 and a remaining contractual life of 6.50 years.
Year Ended December 31, 2010
On July 2, 2010, the Company sold 1,212,121
shares of the Company’s common stock at a closing price of $0.825 for gross proceeds of $1 million. The Company
paid direct offering costs of $115,000. See Note 5 regarding warrants granted with this offering.
During the year ended December 31, 2010,
the Company issued 255,954 shares of common stock, in connection with the exercise of stock options, for proceeds of $130,000.
The Company also issued 279,724 shares of common stock for consulting services, having a fair value of $214,000 ($0.76 per share),
81,035 shares of common stock for license fees, having a fair value of $70,000 ($0.87 per share), and 60,521 shares of common stock
for employment service, having a fair value of $47,000 ($0.77 per share). The fair value of these issuances were based upon the
quoted closing trading prices.
Year Ended December 31, 2011
During the year ended December
31, 2011, the Company issued 28,333 shares of common stock in connection with the exercise of stock options and warrants for proceeds
of $15,000 and 10,615 shares of common stock related to a cashless exercise of warrants. The Company issued 73,585 shares of common
stock for employment service, having a fair value of $94,000 ($1.29 average per share) and 171,796 shares of common stock for consulting
services, having a fair value of $165,000 ($0.96 average per share), based on the quoted closing trading prices. The Company also
issued 3,123,558 shares of common stock as consideration for the Channel Agreement with Intrexon, having
a fair value of $1.7 million ($0.54 average per share), based on the quoted closing trading price.
On January 28, 2011, the Company sold 2,857,144
shares of common stock and warrants exercisable for 1,428,572 shares of common stock for $4 million. Direct offering
costs were approximately $296,000.
On April 6, 2011, the Company sold 1,688,782
shares of common stock and a warrant exercisable for 844,391 shares of common stock for $3.5 million. Direct offering costs
were approximately $243,000.
|
7.
|
License, Collaborative and Employment Agreements and Commitments
|
License Agreements
The Company has entered into various option
and license agreements for the use of patents and their corresponding applications. These agreements have been entered into with
various educational institutions and hospitals. These agreements contain payment schedules or stated amounts due for (a) option
and license fees, (b) expense reimbursements, and (c) achievement of success milestones. All expenses related to these agreements
have been recorded as research and development.
Research Agreement
In September of 2005, the Company
entered into a three-year research agreement with the University of Michigan. Pursuant to that agreement, the Company sponsored
research of approximately $460,000 per year. On March 20, 2008, the Company terminated the agreement. On
March 24, 2009, the Company entered into a payment plan with the University of Michigan to pay the outstanding balance of $197,000. The
Company agreed to pay $5,000 per month, until the balance is paid in full. At December 31, 2011, the balance is approximately $32,000
and is recorded as a short-term accounts payable
Employment Agreements
On February 6, 2010, the Company executed
a three-year employment agreement with James S. Kuo, M.D., Chairman, Chief Executive Officer and President. The agreement
provided for an annual base salary of $199,000, discretionary performance and transactional bonus payments, and 400,000 stock options
with an exercise price equal to the market price on the date of grant. Of these stock options, 100,000 vested immediately
upon grant and the remainder will vest pro rata, on a monthly basis, over the following thirty-six months. The fair value of the
options totaled $328,000 and was determined using the Black-Scholes model with the following assumptions: expected dividend yield
of 0%, expected volatility of 204.5%; risk free interest rate of 3.59% and an expected life of 10 years.
Effective February 3, 2012, Dr. Kuo
resigned from his positions as President and Chief Executive Officer. In connection with his resignation, Dr. Kuo entered
into a nine-month consulting agreement with the Company (the “Consulting Agreement”). Pursuant to the Consulting
Agreement, Dr. Kuo will be entitled to a consulting fee of $17,000 per month and retain the right to exercise the stock
options held by him that have vested (324,999) as of the effective date of the Consulting Agreement for a period expiring on
the date that is one year from the effective date of the Consulting Agreement.
Effective February 3, 2012, Jeffrey Riley
was appointed to serve as the Company’s Chief Executive Officer and President. In connection with his appointment, Mr. Riley
entered into a three-year employment agreement with the Company (the “Riley Employment Agreement”). Pursuant to the
Riley Employment Agreement, Mr. Riley will be entitled to an annual base salary of $348,000 and will be eligible for discretionary
performance and transactional bonus payments. Additionally, Mr. Riley was granted options to purchase 750,000 shares of the Company’s
common stock with an exercise price equal to the per share market price on the date of issue. These options will vest pro rata,
on a monthly basis, over thirty-six months. The Company measured the fair value of the stock options at approximately $1.7 million
using a Black-Scholes valuation model; these warrants were indexed to the Company’s own stock.
Effective February 6, 2012, C. Evan
Ballantyne was appointed the Company’s Chief Financial Officer. In connection with his appointment, Mr. Ballantyne
entered into a three-year employment agreement with the Company (the “Ballantyne Employment Agreement”). Pursuant
to the Ballantyne Employment Agreement, Mr. Ballantyne will be entitled to an annual base salary of $298,000 and will be
eligible for discretionary performance and transactional bonus payments. Additionally, Mr. Ballantyne was granted options to
purchase 425,000 shares of our common stock with an exercise price equal to our per share market price on the date of issue.
These options will vest pro rata, on a monthly basis, over thirty-six months. The Company measured the fair value of the
stock options at approximately $1 million using a Black-Scholes valuation model; these warrants were indexed to the
Company’s own stock.
The Black-Scholes assumptions used in calculating
the fair value of the stock options are as follows:
Exercise price
|
|
$2.30 - $2.47
|
|
Expected dividends
|
|
0%
|
|
Expected volatility
|
|
174%
|
|
Risk free interest rate
|
|
1.93% - 1.97%
|
|
Expected life of options
|
|
10 years
|
|
Expected forfeitures
|
|
0%
|
|
Other Commitments
As of December 31, 2011, amounts due for
license agreements are as follows
(in thousands)
:
Year Ending December 31,
|
|
|
|
|
|
2012
|
|
|
$
|
37
|
|
2013
|
|
|
|
5
|
|
2014
|
|
|
|
5
|
|
2015
|
|
|
|
5
|
|
2016
|
|
|
|
5
|
|
Total
|
|
|
$
|
57
|
|
Operating Lease
During 2007, the Company entered into a
non-cancelable operating lease for office, laboratory and production space in Ann Arbor, Michigan. This lease expired on February
28, 2011. In March 2011, the Company entered into a month-to-month lease, at a different location,
in Ann Arbor, Michigan.
During the years ended December 31, 2011
and 2010 the Company recognized rent expense of $64,000 and $214,000, respectively.
Capital Lease
In June 2006, the Company acquired $65,000
of equipment under a non-cancelable capital lease. The Company agreed to guarantee and to release the
seller from the seller’s personal guarantee of the remaining balance and the amount was placed in escrow. The
effective interest rate of the lease was 8.51%. Related monthly payments of principal and interest were $1,400 over a period
of sixty months. In September 2008, the lessor extended the term for repayment by eight months, with a final maturity date
of January 2012. The remaining balance of this capital lease at December 31, 2010 was $24,000. In January 2011, this
capital lease was paid in full and the funds were released from escrow. See Note 3 – Discontinued Operations of Adeona Clinical
Laboratory.
|
8.
|
Stock Repurchase Program
|
On April 3, 2009, the Company’s Board
of Directors approved a Stock Repurchase Program authorizing the Company to repurchase, from time-to-time and through December
31, 2009, up to $1 million of its common stock, up to a maximum of four million shares at prices of up to $5 per share. As of December
31, 2011, the Company had repurchased 81,482 shares for approximately $50,000 ($0.61 per share), based upon the quoted closing
trading price. These treasury shares are not included in the computation of earnings (loss) per share and are deemed
to be canceled and retired.
There was no income tax expense for the
years ended December 31, 2011 and 2010 due to the Company’s net losses.
The Company’s tax expense differs
from the “expected” tax expense for the years ended December 31, 2011 and 2010, (computed by applying the Federal Corporate
tax rate of 34% to loss before taxes and 5.5% for Michigan State Corporate taxes, the blended rate used was 37.63%), as follows
(in thousands):
|
|
2011
|
|
|
2010
|
|
Computed “expected” tax benefit - Federal
|
|
$
|
(2,618
|
)
|
|
$
|
(550
|
)
|
Computed “expected” tax benefit - State
|
|
|
(448
|
)
|
|
|
(94
|
)
|
Non-taxable federal grant
|
|
|
-
|
|
|
|
(184
|
)
|
Meals, entertainment and other
|
|
|
5
|
|
|
|
5
|
|
Non-deductible stock-based compensation
|
|
|
366
|
|
|
|
150
|
|
Warrant expense
|
|
|
56
|
|
|
|
-
|
|
Change in fair value of warrant expense
|
|
|
91
|
|
|
|
-
|
|
Realized loss on debt securities
|
|
|
7
|
|
|
|
-
|
|
Change in valuation allowance
|
|
|
2,035
|
|
|
|
673
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
The effects of temporary differences that
gave rise to significant portions of deferred tax assets at December 31, 2011 and 2010 are as follows
(in thousands):
Deferred tax assets:
|
|
2011
|
|
|
2010
|
|
Stock issued for services
|
|
$
|
(321
|
)
|
|
$
|
(223
|
)
|
Bad debt – change in allowance
|
|
|
(205
|
)
|
|
|
(49
|
)
|
Net operating loss carry-forward
|
|
|
(10,425
|
)
|
|
|
(8,644
|
)
|
Total gross deferred tax assets
|
|
|
(10,951
|
)
|
|
|
(8,916
|
)
|
Less valuation allowance
|
|
|
10,951
|
|
|
|
8,916
|
|
Net deferred tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2011, the Company
has a net operating loss carry-forward of approximately $27.7 million available to offset future taxable income expiring
through 2031. Utilization of these net operating losses may be limited due to potential ownership changes under Section 382
of the Internal Revenue Code.
The valuation allowance at
December 31, 2010 was approximately $8.9 million. The net change in valuation allowance during the year ended December 31,
2011 was an increase of approximately $2 million. In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The
ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred
income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on
consideration of these items, Management has determined that enough uncertainty exists relative to the realization of the
deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2011.
During 2010, the Company received grant
revenue of $489,000. Under the terms of the grant, this revenue is not taxable.
10. Subsequent Event
On December 20, 2011, the
Company entered into a consulting agreement for financial advisory services, for a period of twelve months. As compensation
for such services, the consultant will be paid a monthly fee of $10,000 and was issued a warrant exercisable for 100,000
shares of the Company’s common stock. The warrant is exercisable upon issuance for a period of five years from the
date of issue at an exercise price equal to the price of the Company’s common stock on the date of issue. The issue
date of the warrant is February 2, 2012.
The fair value of the warrant approximated
$200,000 and was measured using the Black-Scholes valuation model. The assumptions used by the Company are summarized in the following
table:
Exercise price
|
|
$1.14
|
|
Expected dividends
|
|
0%
|
|
Expected volatility
|
|
174%
|
|
Risk free interest rate
|
|
0.71%
|
|
Expected life of warrant
|
|
5 years
|
|
Expected forfeitures
|
|
0%
|
|
On May 1, 2012, the Company was informed
by Berman & Company, P.A. (“Berman & Company”), the Company’s independent registered accounting firm,
that during a regular Public Company Accounting Oversight Board (“PCAOB”) inspection of Berman & Company, the
PCAOB issued a comment that the audit opinion included in the Company’s Annual Report on Form 10-K for the year ended December
31, 2011 was issued by a partner at Berman & Company who was not authorized under the PCAOB rules to issue the opinion or
act as our named engagement partner with respect to the Form 10-K audit (or prior 2011 Form 10-Q interim reviews) after the original
engagement partner rotated off the account under the Securities and Exchange Commission’s independence rules as it pertains
to partner rotation (S-X Rule 2-01 - Qualifications of Accountants).
The Company believes that the
previously filed financial statements for the year ended December 31, 2011 are accurate. In addition, the Company has not
been informed by Berman & Company or the PCAOB, that the previously filed financial statements for the year ended
December 31, 2011 are not accurate or otherwise invalid. As a matter of precaution the new engagement partner at Berman &
Company has since: (i) taken full responsibility for the audit as the lead engagement partner on the audit, (ii) performed a
detailed review of all audit procedures related to the original audit for sufficiency and (iii) reissued the audit opinion.
The review performed by the new audit partner did not result in any changes to the Company’s financial statements or
notes to the financial statements for the year ended December 31, 2011, other than the addition of the May 1, 2012 and May
10, 2012 disclosures in this subsequent event note to the financial statements.
On May 10, 2012, Jeffrey J. Kraws was appointed as the
independent, non-executive Chairman of the Board. For his service as independent, non-executive Chairman of the Board, Mr.
Kraws will be issued options exercisable for 100,000 shares of the Company’s common stock and will receive annual
compensation of $150,000. The fair value of these options will be measured using the Black-Scholes valuation model.
Item 9.
Changes
In and Discussions with Accountants on Accounting and Financial Disclosures
None.
Item 9A.
Controls and
Procedures
Disclosure Controls and Procedures
The Company has adopted and maintains
disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed
in the reports filed under the Exchange Act, such as this Form 10-K/A, is collected, recorded, processed, summarized and reported
within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed
to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure.
As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer and Chief Financial
Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered
by this Annual Report on Form 10-K/A. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required
to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial
Officer, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal
Control Over Financial Reporting
The Company’s management is responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15. The
Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management
and Board of Directors regarding the preparation and fair presentation of published financial statements. Management
conducted an assessment of the Company’s internal control over financial reporting based on the framework and criteria established
by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework. Based
on the assessment, management concluded that, as of December 31, 2011, the Company’s internal control over financial reporting
is effective based on those criteria.
The Company’s management, including
its Chief Executive Officer and Chief Financial Officer, does not expect that the Company’s disclosure controls and procedures
and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of
a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error
or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people,
or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance
with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Changes in Internal Control
There has been no change in our internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our fiscal
quarter ended December 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
This Annual Report on Form 10-K/A does
not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this Annual Report
on Form 10-K/A.
Item 9B.
Other
Information
None.
PART III
Item 10.
Directors,
Executive Officers and Corporate Governance
Below is certain information regarding our directors and executive
officers.
Name
|
|
Age
|
|
Position
|
Jeffrey Riley
|
|
49
|
|
Chief Executive Officer, President and Director
|
C. Evan Ballantyne
|
|
52
|
|
Chief Financial Officer
|
Jeffrey J. Kraws
|
|
47
|
|
Chairman
|
Steve H. Kanzer, C.P.A, J.D.
|
|
48
|
|
Director
|
James S. Kuo, M.D.
|
|
47
|
|
Director
|
Nelson K. Stacks
|
|
41
|
|
Director
|
Scott L. Tarriff
|
|
52
|
|
Director
|
Jeffrey Wolf, J.D.
|
|
49
|
|
Director
|
Jeffrey Riley.
Mr. Riley, a member of the Synthetic Biologics’ Board of Directors since March 2010 and Chairman of the Board from
November 2011 to May 2012, was appointed as the Company’s President and Chief Executive Officer in February 2012. Since
November 2009 until January 2012, Mr. Riley served as the Managing Director of 526 Ventures, a life science-focused
consulting firm with a commercial and transactional focus, and from April 2009 until February 2012 he was the business
officer of Ruga Corporation, a Stanford University spin-out oncology drug discovery company focused on targeting tumor
adaptive responses. From January 2005 until January 2010, Mr. Riley was a member of the advisory board and a venture partner
of Queensland Biocapital Fund, an Australia-based venture fund. Mr. Riley has held senior corporate and commercial
development positions with multiple venture-backed biotech companies. In these positions, he was responsible for raising
equity and negotiating alliances including in-licensing, out-licensing, distribution agreements, technology acquisitions and
research agreements with large pharmaceutical companies and government agencies. Mr. Riley's pharmaceutical experience
includes commercial management and mergers and acquisition roles for Pfizer and SmithKline Beecham. Additionally, Mr. Riley
served as CFO and VP Corporate Development for Nichols Institute Diagnostics, later acquired by Corning and spun out as Quest
Diagnostics. Mr. Riley’s education includes: a B.S. degree from Boise State University, coursework at UCSF/Berkeley in
drug discovery/development and participation in a dual-degree graduate program, an M.B.A./M.I.M. sponsored by Arizona State
University and the Thunderbird School of Global Management.
Mr. Riley brings to the Board extensive
knowledge of the pharmaceutical industry. Having served in senior corporate positions in biotech and pharmaceutical companies he
has a vast knowledge of the industry. His business experience provides him with a broad understanding of the operational,
financial and strategic issues facing public companies.
C. Evan Ballantyne.
Mr. Ballantyne
joined Synthetic Biologics as its Chief Financial Officer in February 2012. From 2006 until its acquisition in April 2011, Mr.
Ballantyne served as Executive Vice President and Chief Financial Officer of Clinical Data, Inc., a publicly-traded biopharmaceutical
company which was acquired by Forest Laboratories, Inc. for $1.3 billion. While at Clinical Data, he was instrumental in leading
corporate financings totaling approximately $220 million as well as a number of acquisition and divestitures totaling $116 million.
Mr. Ballantyne has also served as Chief Financial Officer of a number of private medical technology companies, including Avedro
and ZymeQuest. Earlier in his career, he served as Vice President and Chief Operating Officer for ACNielsen Europe Middle East
& Africa and held the Chief Financial Officer position as well for two years. There, Mr. Ballantyne was responsible for all
aspects of operations, strategic planning and finance in more than 45 countries for a corporation with 9,700 employees. He also
helped lead the company's successful ISO certification process. He began his career at the Dun & Bradstreet Corporation where
he held several senior financial positions. Mr. Ballantyne earned a BA from the University of Western Ontario, and took a post-graduate
degree in Business Administration with Honors from the University of Windsor.
Jeffrey J. Kraws.
Mr. Kraws
has been a director since January of 2006, and was appointed independent, non-executive Chairman of the Board in May 2012. Since
2003, Mr. Kraws has served Chief Executive Officer and co-founder of Crystal Research Associates. Well known and respected
on Wall Street, Mr. Kraws has received some of the most prestigious awards in the industry. Among other awards, he was given a
“5-Star Rating” in 2001 by Zacks and was ranked the number one analyst among all pharmaceutical analysts for stock
performance in 2001 by Starmine.com. Prior to founding Crystal Research Associates, Mr. Kraws served as co-president of The Investor
Relations Group (IRG), a firm representing primarily under-followed, small-capitalization companies. Previously, Mr. Kraws served
as a managing director of healthcare research for Ryan Beck & Co. and as director of research/senior pharmaceutical analyst
and managing director at Gruntal & Co., LLC (prior to its merger with Ryan Beck & Company). Mr. Kraws served as managing
director of the healthcare research group and senior pharmaceutical analyst at First Union Securities (formerly EVEREN Securities);
as senior U.S. pharmaceutical analyst for the Swedish-Swiss conglomerate Asea Brown Boveri; and as managing director and president
of the Brokerage/Investment Banking operation of ABB Aros Securities, Inc. He also served as senior pharmaceutical analyst at
Nationsbanc Montgomery Securities, BT Alex Brown & Sons, and Buckingham Research. Mr. Kraws also has industry experience,
having been responsible for competitive analysis within the treasury group at Bristol-Myers-Squibb Company. He holds an M.B.A.
from Cornell University and a B.S. degree from State University of New York-Buffalo. During 2006 through February of 2007, Mr.
Kraws served as our Vice President of Business Development, on a part-time basis.
Mr. Kraws brings a strong business
background to Synthetic Biologics, having worked as a pharmaceutical analyst for over 22 years. Mr. Kraws brings to the Board
significant strategic, business and financial experience related to the business and financial issues facing pharmaceutical companies.
Mr. Kraws has a broad understanding of the operational, financial and strategic issues facing pharmaceutical companies.
Through his services as the Company’s Vice President of Business Development during 2006 and a part of 2007, he developed
extensive knowledge of Synthetic Biologics’ business.
Steve H. Kanzer, C.P.A,
J.D.
Mr. Kanzer is a co-founder and served as our President from our inception in February of 2001 until May of
2006. Since January 2, 2012, Mr. Kanzer has served as our Interim Director of our Biologics Division. Mr.
Kanzer previously served as our Chief Executive Officer from September of 2004 until November of 2008, Chairman of the Board
until February 6, 2010 and currently serves as a director. Mr. Kanzer has also been a director and officer of our
subsidiaries, including Solovax, Inc., Effective Pharmaceuticals, Inc., Putney Drug Corp., Epitope Pharmaceuticals, Inc. and
CD4 Biosciences, Inc. Since December 2000, he has served as co-founder and Chairman of Accredited Ventures Inc. and
Accredited Equities Inc., a venture capital firm and investment bank, respectively, which both specialize in the
biotechnology industry. Prior to founding Accredited Ventures and Accredited Equities in December 2000, Mr. Kanzer served as
Senior Managing Director-Head of Venture Capital at Paramount Capital from 1991 until December of 2000. While at Paramount
Capital, Mr. Kanzer was involved in the formation and financing of a number of biotechnology companies and held various
positions in these companies. Prior to joining Paramount Capital in 1992, Mr. Kanzer was an attorney at the law firm
of Skadden, Arps, Slate, Meagher & Flom in New York where he specialized in mergers and acquisitions. Mr. Kanzer received
a J.D. from New York University School of Law in 1988 and a B.B.A. in Accounting from Baruch College in 1985, where he was a
Baruch Scholar. Mr. Kanzer is active in university-based pharmaceutical technology licensing and has served as Co-Chair of
the New York Chapter of the Licensing Executives Society.
Mr. Kanzer has been
associated with the Company since inception, initiated and negotiated our syntnetic biology collaboration with Intrexon and
brings to the Board extensive knowledge about our business operations and in particular our licenses and
products. Mr. Kanzer also brings to the Board significant executive leadership and operational
experience. Mr. Kanzer’s legal background provides him with a broad understanding of the legal issues facing
Synthetic Biologics, the financial markets and the financing opportunities available to Synthetic Biologics.
James S. Kuo, M.D.
Dr. Kuo
has been a director since February of 2007 and since February 3, 2012 has been a consultant to the Company. From February 6, 2010
until February 3, 2012, Dr. Kuo served as our Chief Executive Officer, Chief Financial Officer and President. He also served as
our Chairman of the Board from February 6, 2010 until November 2011. Dr Kuo was the Chairman and Chief Executive Officer of Cordex
Pharma, Inc., a public biopharmaceutical company, from September of 2007 until February 1, 2010 and remained as a director until
March 13, 2010. From 2003 to 2006, he served as founder, Chairman and Chief Executive Officer of BioMicro Systems, Inc,. a private
venture-backed, microfluidics company. Prior to that time, Dr. Kuo was a founder, President and Chief Executive Officer
of Discovery Laboratories, Inc. where he raised over $22 million in initial private funding and was instrumental in the company
going public. Dr. Kuo was also a founder and board member of Monarch Labs, LLC, a private medical device company. Dr. Kuo is the
former Managing Director of Venture Analysis for Healthcare Ventures, LLC, which managed $378 million in venture funds. He has
also been a senior licensing and business development executive at Pfizer, Inc., where he was directly responsible for cardiovascular
licensing and development. After studying molecular biology and receiving his B.A. at Haverford College, Dr. Kuo simultaneously
earned an M.D. from the University of Pennsylvania School of Medicine and an M.B.A. from the Wharton School of Business. He
holds a B.A. in molecular biology from Haverford College. From 2004 until October of 2009 Dr. Kuo also served as a director of
Soligenix, Inc.
Dr. Kuo brings to the Board significant
executive leadership and operational experience. Dr. Kuo’s prior business experience and board service, along
with his tenure at the Company, gives him a broad and extensive understanding of our operations and the proper role and function
of the Board. His prior service on the board of other public companies has provided him with a strong corporate governance
expertise. In addition, his medical background allows him to bring to the Board extensive knowledge about our industry. Due to
his business background, he has a broad understanding of the operational, financial and strategic issues facing public companies.
Nelson K. Stacks.
Mr.
Stacks has been a director since February 3, 2012. Mr. Stacks currently serves as CEO and Director of WaveGuide
Corporation, a technology spin out from Harvard University. From July 2009 to August 2011, Mr. Stacks has served as the
President, CEO and Director of Vascular Pathways Incorporated, a venture capital funded medical device company and as a
venture partner with QBF/QIC, a life science venture fund. Prior thereto, Mr. Stacks has held several positions in several
biotech companies. From April 2006 until December 2010 he served as the Chairman of Xbio Systems Pty Ltd, an Australian
software company with a financial and integrated drug development program. From May 2007 until July 2009, Mr. Stacks served
as the Chairman and CEO of Telesso Technologies Limited, a publicly listed Australian healthcare company. From March
2006 until August 2008 he also served as CEO and Executive Director of Xenome Limited, an Australian biotech company as well
as director of Columna an Australian medical device company. In 2011, he was appointed a Director of Molecular Insight
Pharmaceuticals, Inc., a company focused on cancer diagnostics and therapeutic treatments. In addition, Over his career, Mr.
Stacks has been a venture capitalist, most recently as the General Partner at 3i Ventures and earlier at Oak Investment
Partners. Mr. Stacks is a member of the fourth class of Kauffman Fellows and has invested in all areas of healthcare and
information technology. Mr. Stacks received an M.B.A. from the F.W. Olin Graduate School of Business at Babson College and a
BA from The University of Rochester.
Mr. Stacks brings to our Board extensive
executive and senior management experience in the biotech industry and is an “audit committee financial expert” as
such term is defined under applicable SEC rules. He is further qualified for service on our Board because of his relevant business
expertise and leadership experience acquired through his experience serving on several boards of directors of other healthcare-related
companies.
Scott L. Tarriff.
Mr.
Tarriff has been a director since February 3, 2012. Since January 2007 he has served as a director and Chief Executive Officer
of Eagle Pharmaceuticals, Inc., a hospital specialty company. Eagle is focused on developing branded parenteral products through
the application of various in-licensed drug delivery technologies. Prior to forming Eagle, Mr. Tarriff was president and chief
executive officer of Par Pharmaceutical Companies, Inc. Mr. Tarriff joined Par Pharmaceutical Companies, Inc., in 1998 as executive
vice president. Mr. Tarriff was named president and Chief Executive Officer of Par Pharmaceutical, Inc., the company’s principal
operating subsidiary, in 2001, and was elected to the company’s Board of Directors in 2002. In September 2003, he was appointed
President and Chief Executive Officer of Par Pharmaceutical Companies, Inc. Mr. Tarriff joined Par following a 12-year career at
Bristol-Meyers Squibb. He received his M.B.A. from Rider College and his undergraduate degree from Pennsylvania State University.
Mr. Tarriff brings to our Board of Directors
significant knowledge of and experience in the pharmaceutical and medical industries. He has extensive business, managerial, executive
and leadership experience that further qualify him to serve as a member of the Board and a valuable understanding of the role played
by the Board of Directors acquired through service on the boards of many companies. He has had a
long
and successful career in top executive leadership positions with leading, publicly traded pharmaceutical companies including Par
Pharmaceuticals and Bristol-Myers Squibb.
Jeffrey Wolf,
J.D.
Mr. Wolf has substantial experience in creating, financing, nurturing and growing new ventures based upon
breakthrough research and technology. In August 2008, Mr. Wolf founded Heat Biologics, Inc., a company engaged in research
and development of drugs focused on combating cancer and other diseases. Since April 2010, Mr. Wolf has served as the Chief
Executive Officer of Heat Biologics, Inc. From 2006 until April 2010, Mr. Wolf served as the Chairman and Chief Executive
Officer of GenerationOne, a company that was focused on mobile-based collaborative care. Mr. Wolf is the founding partner of
Seed-One Ventures, LLC, a venture capital group formed in 1997 and focused on seed-stage technology-based investments. Mr.
Wolf has been a founder of Elusys Therapeutics, Inc., an antibody-based therapeutic company, Tyrx Pharma, Inc., a
biopolymer-based company, Sensatex, Inc., a medical device company and Generation Mobile, Inc. a telecommunications company.
Prior to founding Seed-One Ventures, Mr. Wolf served as the Managing Director of The Castle Group, Ltd., a biomedical venture
capital firm. At both organizations, Mr. Wolf was responsible for supervising the formation and funding of new technology,
biomedical, and service oriented ventures. Mr. Wolf currently sits on the board of Elusys Therapeutics and Netli, Inc. Mr.
Wolf received an M.B.A. from Stanford Business School, a J.D. from New York University School of Law and a B.A. with honors
in Economics from the University of Chicago.
Mr. Wolf has extensive knowledge of
the industry and in particular research and development. His legal and business background provide him with a broad
understanding of the legal, operational, financial and strategic issues facing Synthetic Biologics. Having served as
a board member on other public company boards, Mr. Wolf has an extensive understanding of the operational, financial and strategic
issues facing public companies.
Directors’ Term of Office
Directors will hold office until the next
annual meeting of stockholders and the election and qualification of their successors. Officers are elected annually by our Board
of Directors and serve at the discretion of the Board of Directors.
Audit Committee
The Audit Committee is comprised of Mr.
Wolf and Mr. Stacks. The Audit Committee is responsible for recommending our independent public accounting firm and reviewing management’s
actions in matters relating to audit functions. The Committee reviews with our independent public accountants the scope and results
of the audit engagement and the system of internal controls and procedures. The Committee also reviews the effectiveness of procedures
intended to prevent violations of laws. The Committee also reviews, prior to publication, our reports on Form 10-K and Form 10-Q.
Our Board has determined that all audit committee members are independent under applicable SEC regulations. Our Board of Directors
has determined that Mr. Stacks qualifies as an “audit committee financial expert” as that term is used in Section 407
of Regulation S-K. Our Audit Committee charter is located on our website www.syntheticbiologics.com.
Compensation Committee
Our Compensation Committee consists of
Mr. Wolf and Mr. Kraws. This committee performs several functions, including reviewing all forms of compensation provided to our
executive officers, directors, consultants and employees, including stock compensation. Our Compensation Committee charter is located
on our website www.syntheticbiologics.com.
Nominations Committee
Our Nominations Committee consists of Mr.
Wolf and Mr. Kraws. This committee performs several functions, including identifying qualified individuals to become members of
the Board and recommending appointments to the Board and appointment of executive officers. The committee seeks individuals who
have an inquisitive and objective perspective, practical wisdom and mature judgment, and the talent and expertise to understand,
and provide sound and prudent guidance with respect to, our activities, operations and interests. Candidates must also
be individuals who have the highest personal and professional integrity, who have demonstrated exceptional ability and judgment,
and who are likely to be the most effective, in conjunction with the other members of the Board, in collectively serving the long-term
interests of stockholders. Our Nominations Committee charter is located on our website www.syntheticbiologics.com.
Section 16(a) Beneficial Ownership Reporting
Compliance
Section 16(a) of the Securities Exchange
Act of 1934 requires our executive officers, directors and persons who beneficially own more than 10 percent of a registered class
of the Synthetic Biologics’ equity securities, to file with the SEC initial reports of ownership and reports of changes in
ownership of our common stock. Such officers, directors and persons are required by SEC regulation to furnish us with
copies of all Section 16(a) forms that they file with the SEC.
Based solely on a review of the copies
of such forms that were received by us, or written representations from certain reporting persons that no Form 5s were required
for those persons, we are not aware of any failures to file reports or report transactions in a timely manner during the year ended
December 31, 2011.
Code of Ethics
We have long maintained a Code of Conduct
which is applicable to all of our directors, officers and employees. In addition, we have adopted a Code of Ethics for
Financial Management which applies to our Chief Executive Officer, Chief Financial Officer, Treasurer and Controller. Each
of these codes is posted on our website at www.syntheticbiologics.com.
Item 11.
Executive
Compensation
Summary Compensation Table
The following table summarizes all compensation
awarded to, earned by or paid to Max Lyon and James S. Kuo, M.D., during the fiscal year ended December 31, 2011 or 2010.
Name and Principal Position
|
|
Year
|
|
|
Salary ($)
|
|
|
Bonus ($)
|
|
|
Options
Awards($) (1)
|
|
|
All Other
Compensation
($) (2)
|
|
|
Total ($)
|
|
James S. Kuo, M.D., President,
|
|
|
2011
|
|
|
$
|
199,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
12,000
|
|
|
$
|
211,000
|
|
CEO and CFO
|
|
|
2010
|
|
|
$
|
179,000
|
(3)
|
|
$
|
20,000
|
|
|
$
|
328,000
|
|
|
$
|
10,000
|
|
|
$
|
527,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Max Lyon, Former President,
|
|
|
2010
|
|
|
$
|
43,000
|
(4)
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
43,000
|
|
Former CEO and Former CFO
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amount reflects the grant date fair value of the named executive officer’s stock options, calculated in accordance with
FASB ASC Topic 718. For a discussion of the assumptions used in calculating these values, see Note 6 to our consolidated
financial statements
|
|
(2)
|
The all other compensation column is comprised of the portion of medical, dental and vision
premiums paid by us on behalf of our named executive officer.
These benefits are offered to all full-time Synthetic Biologics
employees.
|
|
(3)
|
Dr. Kuo resigned as our President, Chief Executive Officer and Chief Financial Officer on February 3, 2012. Dr. Kuo remains
as a consultant to the Company.
|
|
(4)
|
Mr. Lyon resigned as our President, Chief Executive Officer and Chief Financial Officer effective as of February 10, 2010.
This amount represents the amount earned by Mr. Lyon prior to his resignation and severance in the amount of $23,000 paid in shares
of our common stock.
|
Outstanding Equity Awards at Fiscal Year End
The table below reflects all outstanding
equity awards made to each of the named executive officers that are outstanding at December 31, 2011. We currently grant
stock-based awards pursuant to our 2010 Stock Incentive Plan (the “2010 Stock Plan”) and have outstanding awards under
our 2001 Stock Incentive Plan (the “2001 Stock Plan”) and 2007 Stock Incentive Plan (the “2007 Stock Plan”).
Name
|
|
|
Grant
Date (1)
|
|
Number of Securities
Underlying
Unexercised Options
Exercisable
|
|
|
Number of Securities
Underlying
Unexercised Options
Unexercisable
|
|
|
Option
Exercise
Price ($)
|
|
|
Option
Expiration
Date
|
|
James S. Kuo
|
|
|
02/06/10
|
(2)
|
|
275,000
|
|
|
|
125,000
|
|
|
$
|
0.82
|
|
|
02/06/20
|
|
|
|
|
12/22/09
|
|
|
-
|
|
|
|
8,333
|
|
|
$
|
0.53
|
|
|
12/22/19
|
|
|
|
|
10/02/08
|
|
|
-
|
|
|
|
8,333
|
|
|
$
|
0.53
|
|
|
10/02/18
|
|
|
|
|
11/02/07
|
|
|
-
|
|
|
|
8,333
|
|
|
$
|
5.85
|
|
|
11/02/17
|
|
|
|
|
02/07/07
|
|
|
-
|
|
|
|
25,000
|
|
|
$
|
3.87
|
|
|
02/07/17
|
|
(1)
|
Unless otherwise noted, options vest immediately on the date of grant.
|
|
(2)
|
These options vest 100,000
shares immediately and the remainder in equal monthly installments over a three-year period beginning on the date of grant.
|
Employment Agreements
On February 3, 2012, Jeffrey Riley was
appointed to serve as our Chief Executive Officer and President, and on February 6, 2012, C. Evan Ballantyne was appointed to serve
as our Chief Financial Officer. On February 3, 2012, James S. Kuo, M.D., resigned as our Chief Executive Officer, President and
Chief Financial Officer. Dr. Kuo remains as a consultant to the Company. On February 6, 2010, Max Lyon resigned as President, Chief
Executive Officer and Chief Financial Officer, and James S. Kuo, M.D., was thereby appointed Chairman, Chief Executive Officer,
Chief Financial Officer and President. The following are summaries of the agreements that were executed in connection with these
changes.
Jeffrey Riley Employment Agreement
In connection with his appointment, Mr.
Riley entered into a three-year employment agreement with us (the “Riley Employment Agreement”). Pursuant to the Riley
Employment Agreement, Mr. Riley will be entitled to an annual base salary of $348,000 and will be eligible for discretionary performance
and transactional bonus payments. Additionally, Mr. Riley was granted options to purchase 750,000 shares of our common stock with
an exercise price equal to our per share market price on the date of issue. These options will vest pro rata, on a monthly basis,
over thirty-six months. The Riley Employment Agreement also includes confidentiality obligations and inventions assignments by
Mr. Riley.
If Mr. Riley’s employment is terminated
for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay, expense
reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);
provided
,
however
, that if his employment is terminated (1) by us without Just Cause (as defined in the Riley Employment
Agreement) or by Mr. Riley for Good Reason (as defined in the Riley Employment Agreement) then in addition to paying the Accrued
Obligations, (x) we shall continue to pay his then current base salary and continue to provide benefits at least equal to those
which were provided at the time of termination for a period of six months and (y) he shall have the right to exercise any vested
options until the earlier of the expiration of the severance or the expiration of the term of the option, or (2) by reason of his
death or Disability (as defined in the Riley Employment Agreement), then in addition to paying the Accrued Obligations, he would
have the right to exercise any vested options until the expiration of the term of the option. In such event, if Mr. Riley commenced
employment with another employer and becomes eligible to receive medical or other welfare benefits under another employer-provider
plan, the medical and other welfare benefits to be provided by us as described herein will terminate.
C. Evan Ballantyne Employment Agreement
Effective February 6, 2012, C. Evan Ballantyne
was appointed our Chief Financial Officer. In connection with his appointment, Mr. Ballantyne entered into a three-year employment
agreement with us (the “Ballantyne Employment Agreement”). Pursuant to the Ballantyne Employment Agreement, Mr. Ballantyne
will be entitled to an annual base salary of $298,000 and will be eligible for discretionary performance and transactional bonus
payments. Additionally, Mr. Ballantyne was granted options to purchase 425,000 shares of our common stock with an exercise price
equal to our per share market price on the date of issue. These options will vest pro rata, on a monthly basis, over thirty-six
months. The Ballantyne Employment Agreement also includes confidentiality obligations and inventions assignments by Mr. Ballantyne.
If Mr. Ballantyne’s employment is
terminated for any reason, he or his estate as the case may be, will be entitled to receive the accrued base salary, vacation pay,
expense reimbursement and any other entitlements accrued by him to the extent not previously paid (the “Accrued Obligations”);
provided
,
however
, that if his employment is terminated (1) by us without Just Cause (as defined in the Ballantyne
Employment Agreement) or by Mr. Ballantyne for Good Reason (as defined in the Ballantyne Employment Agreement) then in addition
to paying the Accrued Obligations, (i) we shall continue to pay his then current base salary and continue to provide benefits at
least equal to those which were provided at the time of termination for a period of six months and (ii) he shall have the right
to exercise any vested options until the earlier of the expiration of the severance or the expiration of the term of the option,
or (2) by reason of his death or Disability (as defined in the Ballantyne Employment Agreement), then in addition to paying the
Accrued Obligations, he would have the right to exercise any vested options until the expiration of the term of the option. In
such event, if Mr. Ballantyne, commenced employment with another employer and becomes eligible to receive medical or other welfare
benefits under another employer-provider plan, the medical and other welfare benefits to be provided by us as described herein
will terminate.
Dr. Kuo’s Agreements
Effective February 3, 2012, James S. Kuo,
M.D., resigned from his positions as our President and Chief Executive Officer. In connection with his resignation, Dr. Kuo entered
into a nine-month consulting agreement with us (the “Consulting Agreement”). Pursuant to the Consulting Agreement,
Dr. Kuo will be entitled to a consulting fee of $16,666 per month during the term of the Consulting Agreement, receive health and
dental benefits for one year and retain the right to exercise the stock options held by him that have vested as of the effective
date of the Consulting Agreement for a period expiring on the date that is one (1) year from the effective date of the Consulting
Agreement. The Consulting Agreement also includes confidentiality obligations and inventions assignments by Dr. Kuo.
In February 2010, Dr. Kuo had entered into
a three-year employment agreement with us (the “Kuo Employment Agreement”). Pursuant to the Kuo Employment
Agreement, Dr. Kuo was entitled to an annual base salary of $199,000 and was eligible for discretionary performance and transactional
bonus payments. Additionally, Dr. Kuo was granted an initial stock option to purchase 400,000 shares of our common stock
(with an exercise price of $0.82, the fair market value on February 6, 2010, which is the date of grant). Of this stock
option grant, 300,000 shares vested prior to his resignation
Mr. Lyon’s Agreement
In connection with his resignation, Mr. Lyon received $23,000
paid in shares of our common stock, as a severance payment. This payment was made pursuant to a Separation Agreement,
dated February 6, 2010, between Mr. Lyon and us.
Compensation of Directors
The following table sets forth information for the fiscal year
ended December 31, 2011 regarding the compensation of our directors who at December 31, 2011 were not also named executive officers.
Name
|
|
Fees Earned or
Paid in Cash
|
|
|
Option
Awards(1)
|
|
|
Other
Compensation
|
|
|
Total
|
|
Steve H. Kanzer
|
|
$
|
13,000
|
|
|
$
|
37,000
|
|
|
$
|
-
|
|
|
$
|
50,000
|
|
Jeffrey J. Kraws
|
|
$
|
12,000
|
|
|
$
|
37,000
|
|
|
$
|
-
|
|
|
$
|
49,000
|
|
Jeffrey Riley(2)
|
|
$
|
14,000
|
|
|
$
|
85,000
|
|
|
$
|
-
|
|
|
$
|
99,000
|
|
Jeffrey Wolf
|
|
$
|
17,000
|
|
|
$
|
37,000
|
|
|
|
-
|
|
|
$
|
54,000
|
|
|
(1)
|
The amounts in the “Option awards” column reflect the dollar amounts recognized as compensation expense for the
financial statement reporting purposes for stock options for the fiscal year ended December 31, 2011 in accordance with SFAS 123(R).
The fair value of the options was determined using the Black-Scholes model.
|
|
(2)
|
In consideration of Jeffrey Riley serving as our independent, non-executive Chairman, in
November 2011 we issued Jeffrey Riley options exercisable for an additional 100,000 shares of our common stock.
|
During 2007, director compensation for
independent members was approved at $2,000 per board meeting that they attend in person, $1,000 per telephonic board meeting and
$500 per committee meeting. In addition, we grant independent members of the Board of Directors upon appointment 25,000
stock options to purchase shares of our common stock at an exercise price equal to the fair market value of the our common stock
on the date of grant, and an additional 8,333 stock options each year. We also reimburse directors for travel and other
out-of-pocket expenses incurred in attending Board of Director and committee meetings.
Equity Compensation Plan Information
The following table sets forth information
about the securities authorized for issuance under our equity compensation plans for the fiscal year ended December 31, 2011.
Plan Category
|
|
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options
|
|
|
Weighted-
Average
Exercise Price of
Outstanding
Options
|
|
|
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans
|
|
Equity compensation plans approved by stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
2001 Stock Incentive Plan
|
|
|
1,320,354
|
|
|
$
|
1.15
|
|
|
|
22,690
|
|
2007 Stock Incentive Plan
|
|
|
1,201,156
|
|
|
$
|
1.67
|
|
|
|
1,033,932
|
|
2010 Stock Incentive Plan
|
|
|
457,400
|
|
|
$
|
1.05
|
|
|
|
2,542,500
|
|
Equity compensation plans not approved by stockholder
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Total
|
|
|
2,979,010
|
|
|
$
|
1.46
|
|
|
|
3,599,122
|
|
Item 12.
Security
Ownership of Certain Beneficial Owners
The following table sets forth information,
as of March 26, 2012, or as otherwise set forth below, with respect to the beneficial ownership of our common stock (i) all persons
know to us to be the beneficial owners of more than 5% of the outstanding shares of our common stock, (ii) each of our directors
and our executive officer named in the Summary Compensation Table, and (iii) all of our directors and our executive officer as
a group.
Principal Stockholders Table
|
|
Shares Owned (1)
|
|
Name and Address of Beneficial Ownership (2)
|
|
Number of Shares
|
|
|
Percentage of
Shares (3)
|
|
Accredited Venture Capital, LLC (4)
|
|
|
7,086,380
|
|
|
|
21.67
|
%
|
Intrexon Corporation (5)
|
|
|
3,123,558
|
|
|
|
9.55
|
%
|
C. Evan Ballantyne (6)
|
|
|
35,417
|
|
|
|
*
|
|
Steve H. Kanzer (7)
|
|
|
7,766,017
|
|
|
|
23.53
|
%
|
Jeffrey J. Kraws (8)
|
|
|
287,105
|
|
|
|
*
|
|
James S. Kuo (9)
|
|
|
329,499
|
|
|
|
1.00
|
%
|
Jeffrey Riley (10)
|
|
|
158,333
|
|
|
|
*
|
|
Nelson K. Stacks (11)
|
|
|
25,000
|
|
|
|
*
|
|
Scott L. Tarriff (12)
|
|
|
25,000
|
|
|
|
*
|
|
Jeffrey Wolf (13)
|
|
|
83,332
|
|
|
|
*
|
|
Randall J. Kirk(14)
|
|
|
3,123,558
|
|
|
|
9.55
|
%
|
All officers and directors as a group (8 persons)
|
|
|
8,709,703
|
|
|
|
25.66
|
%
|
* represents less than 1% of our common stock
|
(1)
|
The address for each beneficial owner except Intrexon Corporation and Randall J. Kirk is 3985 Research Park Drive, Suite 200,
Ann Arbor, Michigan 48108.The address for Intrexon Corporation is 20358 Seneca Meadows Pkwy, Germantown, Maryland 20876 and the
address for Mr. Kirk is The Governor Tyler, 1881 Grove Avenue, Radford, Maryland 24141.
|
|
(2)
|
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect
to securities. Except as indicated in the footnotes to the table, to the knowledge of the Company, the persons named in the table
have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to
community property laws, where applicable. Pursuant to the rules of the SEC, the number of shares of our common stock deemed outstanding
includes shares issuable pursuant to options held by the respective person or group that are currently exercisable or may be exercised
within 60 days of March 26, 2012.
|
|
(3)
|
As of March 26, 2012, we had 32,701,984 shares of common stock outstanding.
|
|
(4)
|
Consists of 7,086,380 shares of common stock issued to Accredited Venture Capital, LLC. Pharmainvestors, LLC is the managing
member of Accredited Venture Capital, LLC, and Mr. Kanzer is the managing member of Pharmainvestors, LLC. As such, Mr. Kanzer may
be considered to have control over the voting and disposition of the shares registered in the name of Accredited Venture Capital,
LLC, and therefore, such shares are also included in the shares listed as held by Mr. Kanzer. Mr. Kanzer disclaims beneficial ownership
of those shares, except to the extent of his pecuniary interest.
|
|
(5)
|
Does not include additional shares that have not yet been earned but may in the future be earned under the terms of agreements
with Intrexon Corporation.
|
|
(6)
|
Includes 35,417 shares issuable upon exercise of options held by Mr. Ballantyne that are exercisable within the 60-day period
following March 26, 2012. Does not include an additional 389,583 shares issuable upon exercise of options held by Mr. Ballantyne
that are not exercisable within the 60-day period following March 26, 2012.
|
|
(7)
|
Includes 7,086,380 shares of common stock issued to Accredited Venture Capital, LLC and 304,391 shares issuable upon exercise
of options held by Mr. Kanzer that are exercisable within the 60-day period following March 26, 2012.
|
|
(8)
|
Includes 287,105 shares issuable upon exercise of options held by Mr. Kraws that are exercisable within the 60-day period following
March 26, 2012.
|
|
(9)
|
Includes 324,999 shares issuable upon exercise of options held by Dr. Kuo that are currently exercisable.
|
|
(10)
|
Includes 158,333 shares issuable upon exercise of options held by Mr. Riley that are exercisable within the 60-day period following
March 26, 2012. Does not include an additional 750,000 shares issuable upon exercise of options held by Mr. Riley that are not
exercisable within the 60-day period following March 26, 2012.
|
|
(11)
|
Includes 25,000 shares issuable upon exercise of options held by Mr. Stacks that are exercisable within the 60-day period following
March 26, 2012.
|
|
(12)
|
Includes 25,000 shares issuable upon exercise of options held by Mr. Tarriff that are
exercisable within the 60-day period following March 26, 2012.
|
|
(13)
|
Includes 83,332 shares issuable upon exercise of options held by Mr. Wolf that are exercisable within the 60-day period following
March 26, 2012.
|
|
(14)
|
All such shares are held by Intrexon Corporation. Mr. Kirk, directly and through certain affiliates, has voting and disposition
power over a majority of the outstanding capital of Intrexon Corporation. Mr. Kirk disclaims beneficial ownership of the shares
held by Intrexon Corporation, except to the extent of any pecuniary interest therein.
|
Item 13.
Certain
Relationships and Related Transactions, and Director Independence
Pursuant to our charter, our Audit Committee
shall review on an on-going basis for potential conflicts of interest, and approve if appropriate, all our “Related Party
Transactions” as required by Section 120 of the NYSE Amex Company Guide. For purposes of the Audit Committee Charter,
“Related Party Transactions” shall mean those transactions required to be disclosed pursuant to SEC Regulation S-K,
Item 404. On January 2, 2012, Steve H. Kanzer was engaged as our Interim Director of our Biologics Division. In connection
with his appointment, Mr. Kanzer entered into a six month employment agreement with us on a full time basis (the “Kanzer
Employment Agreement”), which may be extended for an additional three (3) months upon consent of the parties. Pursuant
to the Kanzer Employment Agreement, Mr. Kanzer will be entitled to a base salary of $90,000 for the term, healthcare coverage pursuant
to our healthcare insurance plan, reimbursement for certain relocation expenses and rent expense. The Kanzer Employment Agreement
also includes confidentiality obligations and inventions assignments by Mr. Kanzer. Mr. Kanzer is not entitled to severance
pay upon termination of his employment.
Item 14.
Principal
Accountant Fees and Services
Berman & Company, P.A. serves as our independent registered
public accounting firm.
Independent Registered Public Accounting Firm Fees and Services
The following table sets forth the aggregate
fees including expenses billed to us for the years ended December 31, 2011 and 2010 by Berman & Company, P.A.
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
Audit Fees and Expenses(1)
|
|
$
|
88,000
|
|
|
$
|
86,000
|
|
Audit Related Fees(2)
|
|
|
1,000
|
|
|
|
2,000
|
|
|
|
$
|
89,000
|
|
|
$
|
88,000
|
|
|
(1)
|
Audit fees and expenses were for professional services rendered for the audit and reviews of the consolidated financial statements
of the Company, professional services rendered for issuance of consents and assistance with review of documents filed with the
SEC.
|
|
(2)
|
The audit related fees were for professional services rendered for additional filing and consents for registration statements
and forms in connection with equity offerings filed with the SEC.
|
The Audit Committee has adopted procedures
for pre-approving all audit and non-audit services provided by the independent registered public accounting firm, including the
fees and terms of such services. These procedures include reviewing detailed back-up documentation for audit and permitted non-audit
services. The documentation includes a description of, and a budgeted amount for, particular categories of non-audit services that
are recurring in nature and therefore anticipated at the time that the budget is submitted. Audit Committee approval is required
to exceed the pre-approved amount for a particular category of non-audit services and to engage the independent registered public
accounting firm for any non-audit services not included in those pre-approved amounts. For both types of pre-approval, the Audit
Committee considers whether such services are consistent with the rules on auditor independence promulgated by the SEC and the
PCAOB. The Audit Committee also considers whether the independent registered public accounting firm is best positioned to provide
the most effective and efficient service, based on such reasons as the auditor’s familiarity with our business, people, culture,
accounting systems, risk profile, and whether the services enhance our ability to manage or control risks and improve audit quality.
The Audit Committee may form and delegate pre-approval authority to subcommittees consisting of one or more members of the Audit
Committee, and such subcommittees must report any pre-approval decisions to the Audit Committee at its next scheduled meeting.
All of the services provided by the independent registered public accounting firm were pre-approved by your Audit Committee.
PART IV
Item 15.
Exhibits
and Financial Statement Schedules and Reports on Form 8-K
|
(a)(1)
|
The following financial statements are included in this Annual Report on Form 10-K/A for the fiscal year ended December 31, 2011.
|
|
1.
|
Independent Auditor’s Report
|
|
2.
|
Consolidated Balance Sheets as of December 31, 2011 and 2010
|
|
3.
|
Consolidated Statements of Operations for the years ended December 31, 2011 and 2010
|
|
4.
|
Consolidated Statements of changes in Stockholders’ Equity for the years ended December 31, 2011 and 2010
|
|
5.
|
Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010
|
|
6.
|
Notes to Consolidated Financial Statements
|
|
(a)(2)
|
All financial statement schedules have been omitted as the required information is either inapplicable or included in the Consolidated
Financial Statements or related notes.
|
|
(a)(3)
|
The following exhibits are either filed as part of this report or are incorporated herein by reference:
|
|
3.1
|
Certificate of Incorporation, as amended (Incorporated by reference to (i) Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K filed October 16, 2008, (ii) Exhibit 3.1 of the Registrant’s Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2001 filed August 14, 2001 and (iii) Exhibits 3.1, 4.1 and 4.2 of the Registrant’s
Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998 filed August 14, 1998)
|
|
3.2
|
Articles of Merger (Incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed October
19, 2009.)
|
|
3.3
|
Certificate of Merger filed with the Secretary of State of Delaware (Incorporated by reference to Exhibit 3.2 of the Registrant’s
Current Report on Form 8-K filed October 19, 2009.)
|
|
3.4
|
Articles of Incorporation filed with the Nevada Secretary of State (Incorporated by reference to Exhibit 3.3 of the Registrant’s
Current Report on Form 8-K filed October 19, 2009.)
|
|
3.5
|
By-Laws (Incorporated by reference to (i) Exhibit 3.4 of the Registrant’s Current Report on Form 8-K filed October 19,
2009 and (ii) Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 3, 2010. )
|
|
3.6
|
Amended and Restated Bylaws Adopted and Effective October 31, 2011 (Incorporated by reference to Exhibit 3.1 of the Registrant’s
Current Report on Form 8-K filed October 2, 2011.)
|
|
3.7
|
Certificate of Amendment to Articles of Incorporation (Incorporated by reference to Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K filed February 16, 2012.)
|
|
4.1
|
Form of Warrant Certificate (Incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K
filed December 1, 2006.)
|
|
*4.2
|
2001 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form
S-8 filed January 18, 2008.)
|
|
*4.3
|
2007 Stock Incentive Plan (Incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form
S-8 filed January 18, 2008.)
|
|
*4.4
|
2010 Stock Incentive Plan (Incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form
S-8 filed November 29, 2010.)
|
|
4.5
|
Form of Warrant Certificate issued to Enclave Capital LLC (Incorporated by reference to Exhibit 4.1 of the Registrant's Current Report on Form 8-K filed July 6, 2010.)
|
|
4.6
|
Form of Warrant to Purchase Common Stock issued January 2011(Incorporated by reference to Exhibit 10.3 of the Registrant’s
Current Report on Form 8-K filed February 2, 2011.)
|
|
4.7
|
Form of Warrant to Purchase Common Stock issued April 2011(Incorporated by reference to Exhibit 10.3 of the Registrant’s
Current Report on Form 8-K filed April 6, 2011.)
|
|
4.8
|
Form of Exchange Warrant to Purchase Common Stock issued in exchange of the Warrant issued April 2011(Incorporated by reference
to Exhibit 4.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed August 15, 2011.)
|
|
4.9
|
Form of Exchange Warrant to Purchase Common Stock issued in exchange of the Warrant issued February 2011(Incorporated by reference
to Exhibit 4.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed August 15, 2011.)
|
|
4.10
|
Form of Warrant to Purchase Common Stock issued February 2012 (Incorporated by reference to Exhibit 4.10
of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed March 30, 2012.)
|
|
10.1
|
Unit Purchase Agreement (Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed
December 1, 2006.)
|
|
10.2
|
License Agreement between The Regents of the University of California and Epitope Pharmaceuticals, Inc. (Incorporated by reference
to the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2008 filed November 14, 2008.)
|
|
*10.3
|
Form of Director/Officer Indemnification Agreement
(Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed January 6, 2009.)
|
|
10.4
|
Warrant Cancellation and Registration Rights Agreement between Accredited Adventures Capital LLC and Adeona (Incorporated by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed January 20, 2009.)*
|
|
10.5
|
Stock Purchase Agreement with Neil O. Colwell and Connie Colwell (Incorporated by reference to Exhibit 10.1 of the
Registrant’s Current Report on Form 8-K filed April 16, 2009.)
|
|
10.6
|
Escrow Agreement Nayaran Torke (Incorporated by reference to Exhibit 10.5 of the Registrant’s Current Report on Form
8-K filed July 16, 2009.)
|
|
10.7
|
Consulting Agreement with Nayaran Torke (Incorporated by reference to Exhibit 10.4 of the Registrant’s Current Report
on Form 8-K filed July 16, 2009.)
|
|
10.8
|
Purchase Agreement 1st Amendment HartLab LLC (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report
on Form 8-K filed July 16, 2009.)
|
|
10.9
|
Purchase Agreement 2nd Amendment Hartlab LLC (Incorporated by reference to Exhibit 10.3 of the Registrant’s Current Report
on Form 8-K filed July 16, 2009.)
|
|
10.10
|
Agreement and Plan of Reincorporation Merger (Incorporated by reference to Exhibit 1.1 of the Registrant’s Current Report
on Form 8-K filed October 19, 2009.)
|
|
*10.11
|
Employment Agreement with James S. Kuo, M.D., (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current
Report on Form 8-K filed February 9, 2010.)
|
|
*10.12
|
Separation Agreement with Max Lyons (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report on
Form 8-K filed February 9, 2010.)
|
|
10.13
|
Sublicense Agreement between Meda AB, Adeona Pharamaceuticals, Inc. and Pipex Therapeutics, Inc. (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed May 11, 2010.)
|
|
10.14
|
Non-Disturbance Agreement among Pipex Therapeutics, Inc., Mclean Hospital Corp and Meda AB (Incorporated by reference to Exhibit
10.2 of the Registrant’s Current Report on Form 8-K filed May 11, 2010.)
|
|
10.15
|
Placement Agent Agreement with Enclave Capital LLC (Incorporated
by reference to Exhibit 1.1 of the Registrant’s Current Report on Form 8-K filed July 6, 2010.)
|
|
10.16
|
Common Stock Purchase Agreement with Seaside 88,LP (Incorporated
by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed July 6, 2010.)
|
|
10.17
|
Agreement with Chardan Capital Markets, LLC (Incorporated
by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed February 2, 2011.)
|
|
10.18
|
Securities Purchase Agreement with investors (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report
on Form 8-K filed February 2, 2011.)
|
|
10.19
|
McLean Hospital Corporation Exclusive License Agreement (Incorporated by reference to Exhibit 10.21 of the Registrant’s
Annual Report on Form 10-K filed March 31, 2011)
|
|
10.20
|
Agreement with Chardan Capital Markets, LLC (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report
on Form 8-K filed April 6, 2011.)
|
|
10.21
|
Securities Purchase Agreement with investors (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report
on Form 8-K filed April 6, 2011.)
|
|
10.22
|
Exchange Agreement with respect to Warrant issued April 2011(Incorporated by reference to Exhibit 10.1 of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed August 15, 2011.)
|
|
10.23
|
Exchange Agreement with respect to Warrant issued February 2011(Incorporated by reference to Exhibit 10.2 of the Registrant’s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 filed August 15, 2011.)
|
|
|
10.24
|
Exclusive Cannel Collaboration Agreement with Intrexon Corporation (Incorporated by reference to Exhibit 10.1 of the Registrant’s
Current Report on Form 8-K filed November 21, 2011.)
|
|
10.25
|
Stock Purchase Agreement with Intrexon Corporation (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current
Report on Form 8-K filed November 21, 2011.)
|
|
10.26
|
Registration Rights Agreement with Intrexon Corporation (Incorporated by reference to Exhibit 10.3 of the Registrant’s
Current Report on Form 8-K filed November 21, 2011.)
|
|
*10.27
|
Employment Agreement with Jeffrey Riley (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report
on Form 8-K filed February 6, 2012.)
|
|
10.28
|
Consulting Agreement with Dr. James Kuo (Incorporated by reference to Exhibit 10.2 of the Registrant’s Current Report
on Form 8-K filed February 6, 2012.)
|
|
*10.29
|
Employment Agreement with C. Evan Ballantyne (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report
on Form 8-K filed February 7, 2012.)
|
|
*10.30
|
Employment Agreement with Steve H. Kanzer (1)Incorporated by reference to Exhibit 10.304 of the Registrant's Annual Current ReReport on Form 10-K for the year ended December 31, 2011 filed March 30, 2012.)
|
|
10.31
|
Membership Interest Purchase Agreement by and among Synthetic Biologics, Inc., Hartlab LLC, and Adeona Clinical Laboratory,
LLC, dated as of March 7, 2012 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K
filed March 12, 2012.)
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|
10.32
|
Pledge and Security Agreement between Synthetic Biologics, Inc. and Hartlab, LLC dated as of March 7, 2012 (Incorporated by
reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed March 12, 2012.)
|
10.33
|
Non-Recourse Promissory Note between Synthetic Biologics, Inc. and Hartlab, LLC dated as of March 7, 2012 (Incorporated by reference to Exhibit 10.1 of the Registrant's Current Report on Form 8-K filed March 12, 2012.)
|
|
|
10.34
|
Financial Advisory Agreement with Griffin Securities, Inc. (Incorporated by reference to Exhibit 10.34
of the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2011 filed March 30, 2012.)
|
|
|
|
21
|
List of Subsidiaries (Incorporated by reference to Exhibit 10.34 of the Registrant’s Annual Report
on Form 10-K filed March 30, 2012.)
|
|
23.1
|
Consent of Independent Registered Accounting Firm (1)
|
|
31.1
|
Certification of Jeffrey Riley, Chief Executive Officer, pursuant to Rule 13a-14(a)/15d-14(a) (1)
|
|
31.2
|
Certification of C. Evan Ballantyne, Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) (1)
|
|
32.1
|
Certification of Jeffrey Riley, Chief Executive Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1)
|
|
32.2
|
Certification C. Evan Ballantyne, Chief Financial Officer pursuant to Section 1350 of the Sarbanes-Oxley Act of 2002(1)
|
**+101.INS XBRL Instance Document
**+101.SCH XBRL Taxonomy Extension
Schema Document
**+101.CAL XBRL Taxonomy Extension
Calculation Linkbase Document
**+101.DEF XBRL Taxonomy Extension
Definition Linkbase Document
**+101.LAB XBRL Taxonomy Extension
Label Linkbase Document
**+101.PRE XBRL Taxonomy Extension
Presentation Linkbase Document
(1) Filed herewith.
* Management contract or compensatory plan or arrangement
required to be identified pursuant to Item 15(a)(3) of this report
** As provided in Rule 406T of Regulation S-T, this
information is deemed furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933, as amended,
and Section 18 of the Securities Exchange Act of 1934, as amended.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned.
|
SYNTHETIC BIOLOGICS, INC.
|
|
By:
|
/s/ Jeffrey Riley
|
|
|
Jeffrey Riley
|
|
Chief Executive Officer and Director
|
|
(Principal Executive Officer)
|
|
Date: May 11, 2012
|
|
By:
|
/s/ C. Evan Ballantyne
|
|
|
C. Evan Ballantyne
|
|
Chief Financial Officer
|
|
(Principal Financial and Principal Accounting Officer)
|
|
Date: May 11, 2012
|
Pursuant to the requirements of the Securities Act of 1934,
this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
By:
|
/s/ Jeffrey Riley
|
|
Date: May 11, 2012
|
|
Jeffrey Riley
|
|
|
Chief Executive Officer and Director
|
|
|
(Principal Executive Officer)
|
|
|
|
Date: May 11, 2012
|
|
By:
|
/s/ Jeffrey J. Kraws
|
|
|
|
Jeffrey J. Kraws
|
|
|
Chairman
|
|
|
|
Date: May 11, 2012
|
|
By:
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/s/ Steve H. Kanzer
|
|
|
|
Steve H. Kanzer
|
|
|
Director
|
|
|
|
Date: May 11, 2012
|
|
By:
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/s/ James S. Kuo
|
|
|
|
James S. Kuo
|
|
|
Director
|
|
|
|
Date: May 11, 2012
|
|
By:
|
/s/ Nelson K. Stacks
|
|
|
|
Nelson K. Stacks
|
|
|
Director
|
|
|
|
Date: May 11, 2012
|
|
By:
|
/s/ Scott L. Tarriff
|
|
|
|
Scott L. Tarriff
|
|
|
Director
|
|
|
|
Date: May 11, 2012
|
|
By:
|
/s/ Jeffrey Wolf
|
|
|
|
Jeffrey Wolf
|
|
|
Director
|
GLOSSARY
An application in the U.S. through which biologic sponsors formally
propose that the FDA approve a new biologic for sale and marketing.
Term
|
|
Definition
|
Adverse Event
|
|
Any adverse change in health or “side-effect” that occurs in a person participating in a clinical trial, from the time they consent to joining the trial until a pre-specified period of time after their treatment has been completed.
|
AEN-100 (zinc)
|
|
Synthetic Biologics’ proprietary, once-daily, gastroretentive, sustained-release oral tablet formulation of zinc acetate.
|
Bioavailability
|
|
The quantity or fraction of the ingested dose that is absorbed by the body.
|
BLA - Biologics License Application
|
|
An application in the U.S. through which biologic sponsors formally propose that the FDA approve a new biologic for sale and marketing.
|
Clinical Study/Trial
|
|
A research study that is conducted to find out if a treatment or procedure is safe and/or effective in humans.
|
Controlled Clinical Trial
|
|
A clinical study that compares patients receiving a specific treatment to patients receiving an alternate treatment for the condition of interest. The alternate treatment may be another active treatment, standard of care for the condition and/or a placebo (inactive) treatment.
|
Double-blinded Study/Trial
|
|
Both the participant and the researcher are unaware of who is receiving the active treatment or the placebo.
|
Effirma (flupirtine)
|
|
Proposed tradename of Synthetic Biologics’ centrally-acting investigational oral drug for the treatment of fibromyalgia syndrome
|
FDA - Food & Drug Administration
|
|
The U.S. government agency that ensures that medicines, medical devices, prescription medical foods and radiation-emitting consumer products are safe and effective. Authorized by Congress to enforce the Federal Food, Drug, and Cosmetic Act and several other public health laws, the agency monitors the manufacture, import, transport, storage, and sale of $1 trillion worth of goods annually.
|
Gastroretentive
|
|
Medications designed to be retained in the upper gastrointestinal system.
|
GMP - Good Manufacturing Practice
|
|
Regulations that require that manufacturers, processors, and packagers of drugs, medical devices, some food, and blood take proactive steps to ensure that their products are consistently produced, pure, and stable. GMP regulations require a quality approach to manufacturing, enabling companies to minimize or eliminate instances of contamination, mix-ups, and errors.
|
IND - Investigational New Drug
|
|
An application in the U.S. submitted to the FDA for a new drug or biologic that, if allowed, will be used in a clinical trial.
|
IRB - Institutional Review Board
|
|
A committee designated to formally approve, monitor, and review biomedical research at an institution involving human studies. Institutional Review Boards aim to protect the rights and welfare of the research subjects.
|
NDA - New Drug Application
|
|
An application in the U.S. through which drug sponsors formally propose that the FDA approve a new pharmaceutical for sale and marketing.
|
Open-label Clinical Study/Trial
|
|
A trial in which both the treating physician and the patient know they are receiving the experimental treatment.
|
Phase I Clinical Trial
|
|
A Phase I trial represents an initial study in a small group of patients to primarily test for safety.
|
Phase II Clinical Trial
|
|
A Phase II trial represents a study in a larger number of patients to assess the safety and efficacy of a product.
|
Phase III Clinical Trial
|
|
Phase III trials are initiated to establish safety and efficacy in an expanded patient population and at multiple clinical trial sites and are generally larger than trials in earlier phases of development.
|
Placebo
|
|
An inactive pill or liquid. Many studies compare an active drug to a placebo to determine whether any changes seen during the study can be attributed to the active drug.
|
Principal Investigator
|
|
This is the study director who is ultimately responsible for the conduct of the study.
|
Prospective Clinical Study/Trial
|
|
A clinical study/trial in which participants are identified and then followed throughout the study going forward in time.
|
Protocol
|
|
A clinical study/trial’s plan — includes the schedule of tests, requirements for participation, procedures, and medications.
|
Randomized Study/Trial
|
|
Participants in a study are assigned by chance to either one or more of the active treatment group(s) or the placebo group.
|
Single-blinded Study/Trial
|
|
One party, either the participant or the researcher, does not know if the participant is taking the active treatment or the placebo.
|
Study/Trial Coordinator
|
|
Staff member who is often the primary contact for research participants and coordinates their care and evaluations throughout the study.
|
Synthetic Biology
|
|
Synthetic biology is an emerging field that combines molecular biology and automation to design, optimize and construct
new biological systems and functions. These technologies utilize a combination of
automated processes including, DNA sequencing, computer-aided design, DNA synthesis, fabrication of modular transgenes
and high throughput testing to create and optimize biologic products.
|
Trimesta (oral estriol)
|
|
Proposed tradename of Synthetic Biologics’ investigational oral drug for the treatment of relapsing- remitting MS.
|
Synthetic Biologics (AMEX:SYN)
과거 데이터 주식 차트
부터 7월(7) 2024 으로 8월(8) 2024
Synthetic Biologics (AMEX:SYN)
과거 데이터 주식 차트
부터 8월(8) 2023 으로 8월(8) 2024