UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities
Exchange Act of 1934
MONOPAR
THERAPEUTICS INC.
(Exact name of registrant as specified in its charter)
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Delaware
(State or other jurisdiction of incorporation)
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32-0463781
(IRS Employer Identification No.)
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5 Revere Drive, Suite 200
Northbrook, Illinois
(Address of principal executive offices)
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60062
(Zip Code)
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Registrant's telephone number, including area code:
(847)
373-0025
Securities to be registered pursuant to Section 12(b) of the
Act:
Securities to be registered pursuant to Section 12(g) of the
Act:
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Common Stock, $0.001 par value
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(Title of Class)
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Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See 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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☐
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Non-accelerated
filer
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☐ (Do not check if a smaller reporting
company)
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Smaller reporting company
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☒
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Emerging
growth company
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☒
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
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TABLE OF CONTENTS
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Page Number
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EXPLANATORY NOTE
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i
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FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
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i
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WHERE YOU CAN FIND MORE INFORMATION ABOUT US
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ii
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Item 1.
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Business.
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1
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Item 1A.
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Risk Factors.
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28
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Item 2.
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Financial Information.
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47
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Item 3.
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Properties.
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70
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Item 4.
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Security Ownership of Certain Beneficial Owners and
Management.
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70
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Item 5.
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Directors and Executive Officers.
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73
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Item 6.
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Executive Compensation.
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80
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Item 7.
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Certain Relationships and Related Transactions, and Director
Independence.
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84
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Item 8.
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Legal Proceedings.
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88
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Item 9.
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Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
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88
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Item 10.
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Recent Sales of Unregistered Securities.
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89
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Item 11.
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Description of Registrant's Securities to be
Registered.
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91
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Item 12.
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Indemnification of Directors and Officers.
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93
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Item 13.
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Financial Statements and Supplementary Data.
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95
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Item 14.
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Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
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95
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Item 15.
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Financial Statements and Exhibits
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95
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Exhibit Index
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96
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Unaudited condensed financial statements for the nine
months ended September 30, 2017 and 2016
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F-1
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Audited financial statements for the years ended December 31, 2016
and 2015
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F-22
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Signature
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EXPLANATORY NOTE
Monopar Therapeutics Inc. is filing this General Form for
Registration of Securities on Form 10, which we refer to as
the Registration Statement, to register our common stock, par value
$0.001 per share, pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended, or the “Exchange Act”
or the “34 Act.” Unless otherwise mentioned or unless
the context requires otherwise, when used in this Registration
Statement, the terms "Monopar," "Company," "we," "us," and "our"
refer to Monopar Therapeutics Inc.
FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
Forward-Looking Statements
This
Registration Statement contains “forward-looking
statements.” All statements other
than statements of historical facts included in this Registration
Statement are forward-looking statements. The words
“hopes,” “believes,”
“anticipates,” “plans,”
“seeks,” “estimates,”
“projects,” “expects,”
“intends,” “may,” “could,”
“should,” “would,” “will,”
“continue,” and similar expressions are intended to
identify forward-looking statements. Forward-looking statements
contained in this Registration Statement include without limitation
statements about the market for cancer products in general and
statements about our:
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projections and
related assumptions;
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business and
corporate strategy;
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plans, objectives,
expectations, and intentions;
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clinical and
preclinical pipeline and the anticipated development of our
technologies, products, and operations;
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anticipated revenue
and growth in revenue from various product offerings;
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future operating
results;
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intellectual
property portfolio;
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projected liquidity
and capital expenditures;
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development and
expansion of strategic relationships, collaborations, and
alliances; and
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market opportunity,
including without limitation the potential market acceptance of our
technologies and products and the size of the market for cancer
products.
Although
we believe that the expectations reflected in such forward-looking
statements are appropriate, we can give no assurance that such
expectations will be realized. Cautionary statements are disclosed
in this Registration Statement, including without limitation
statements in the section entitled “RISK FACTORS,” addressing
forward-looking statements. All subsequent written and oral
forward-looking statements attributable to us or persons acting on
our behalf are expressly qualified in their entirety by the
cautionary statements. We undertake no obligation to update any
statements made in this Registration Statement or elsewhere,
including without limitation any forward-looking statements,
except as required by law.
WHERE YOU CAN FIND MORE INFORMATION ABOUT US
When this Registration Statement becomes effective, we will begin
to file reports, proxy statements, information statements and other
information with the United States Securities and Exchange
Commission, or SEC. You may read and copy this information, for a
copying fee, at the SEC's Public Reference Room at 100 F
Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room.
Our SEC filings will also be available to the public from
commercial document retrieval services, and at the website
maintained by the SEC at http://www.sec.gov.
Our Internet website address is http://www.monopartherapeutics.com.
Information contained on the website does not constitute part of
this Registration Statement. We have included our website address
in this Registration Statement solely as an inactive textual
reference. When this Registration Statement is effective, we will
make available, through a link to the SEC's website, electronic
copies of the materials we file with the SEC, including annual
reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K, the Section 16 reports filed
by our executive officers, directors and 10% stockholders and
amendments to those reports.
Item 1.
Business.
Background and General Development of our Business
The
Company was initially formed as a Delaware limited liability
company in December 2014, with the name Monopar Therapeutics, LLC,
at which time Tactic Pharma, LLC (“Tactic Pharma”)
contributed technology and related assets to the Company. In May
2015 we entered into a Clinical Trial and Option Agreement with
Cancer Research UK with respect to our initial drug product
candidate, MNPR-101 (huATN-658), pursuant to which Cancer Research
is conducting preclinical work and plans to conduct a Phase Ia/Ib
clinical trial in cancer patients. See “Material Agreements.” In December
2015 the Company was converted into a Delaware corporation and all
outstanding membership Units were exchanged for shares of stock on
a ten for one basis (the “Reorganization”). In June
2016 we entered into an option agreement with Onxeo S.A. pursuant
to which we received the right to license the Phase III–ready
drug product candidate Validive®. In March 2017, shares of
Series Z Preferred Stock converted to Common Stock on a 1 for 1
basis and shares of Series A Preferred Stock converted to Common
Stock on a 1.2 for 1 basis (the “Conversion”).
Concurrent with the Conversion, the Company effected a 70 for 1
common stock split. All of our preferred stock was eliminated
pursuant to the Conversion so that only our common stock is
authorized and issued.
On June
27, 2017, we signed a term sheet with Gem Pharmaceuticals, LLC
(“Gem”) pursuant to which Gem was to transfer assets
related to certain of its drug product candidate programs to
Monopar in exchange for 32% of our outstanding common stock on a
fully-diluted basis. The Gem transaction was structured through a
limited liability company, TacticGem LLC (“TacticGem”)
which Gem formed with Tactic Pharma, LLC (“Tactic
Pharma”), our largest shareholder at that time. Gem
contributed certain of Gem’s drug product candidates’
intellectual property and agreements associated primarily with
Gem’s GPX-150 drug product candidate program, along with
$5,000,000 in cash (the “Gem Contributed Assets”) to
TacticGem for a 42.633% interest, and Tactic Pharma contributed
4,111,272.88 shares of common stock of Monopar to TacticGem for a
57.367% interest. Then, TacticGem contributed the Gem Contributed
Assets to Monopar in exchange for 3,055,394.12 newly issued shares
of common stock of Monopar resulting in 31.4% ownership of Monopar
on a fully-diluted basis (the two contributions collectively, the
“Gem Transaction”). The Gem Transaction closed on
August 25, 2017. Following the Gem Transaction, TacticGem owns
7,166,667 (77.1%) shares of our stock as of
December 1, 2017. Pursuant to the TacticGem limited
liability company agreement, all votes of Monopar’s common
stock by TacticGem (aside from the election of Monopar’s
Board of Directors) are to be passed through to Tactic Pharma and
Gem based on their percentage interests. Tactic Pharma has voting
and investment power over 4,111,272.88 shares of Monopar’s
common stock and Gem has voting and investment power over
3,055,394.12 shares of Monopar’s common stock). Pursuant to
the Gem Transaction, we are required to use our best efforts to
file a Form 10 within 90 days of the effective date of the
transaction to register our common stock under the Securities
Exchange Act of 1934.
In
September 2017, we exercised our exclusive option with Onxeo S.A.
to license the Phase III-ready drug Validive (clonidine mucobuccal
tablet; clonidine MBT), a mucoadhesive local cytokine-suppressing
tablet for the prevention and treatment of severe oral mucositis
(“SOM”), resulting from chemoradiotherapy in head and
neck cancer patients. See “Our Drug Product Candidates –
Validive®.”
Overview
Our
mission is to develop innovative drug combinations to improve
clinical outcomes for cancer patients. We are building a drug
development pipeline through the licensing or acquisition of
oncology therapeutics at the late preclinical through advanced
clinical development stage that have demonstrated good antitumor
efficacy and safety when used in combination, de-risking clinical
development.
Plan of Operations and Strategy
The
oncology therapeutic field is extremely competitive and the failure
rate of potential therapies in the clinic is high. Clinical failure
can be due to lack of efficacy, unacceptable safety profile, and/or
side effects. In spite of thorough preclinical evaluation, testing
in a human clinical setting is nearly always required to fully
appreciate the potential therapeutic value of any given therapy.
For an emerging company, obtaining the funds to cover these
“up-front” expenses of early clinical studies can be
challenging as it is hard to gauge what the future evidence of
clinical efficacy and safety will be. We believe that acquiring
drug candidates that have shown evidence of efficacy and/or
improved safety helps reduce the risk of potential clinical
failure.
We
currently have three drug product candidates under development and
we continue to seek opportunities to acquire or in-license
additional drug product candidates. All of our current drug product
candidates are either in preclinical or clinical trial testing
stages. As a result, we have not out-licensed or sold any of our
drug product candidates and have not received any revenue from
operations since we began operations in December 2014. Our ability
to eventually generate revenue will depend on, among other things,
successful completion of human clinical trials of one or more of
our drug product candidates; obtaining necessary regulatory
approvals from the U.S. Food and Drug Administration
(“FDA”) and/or international regulatory agencies;
establishing manufacturing, sales, and marketing capabilities
internally or with third parties or licensing or selling drug
product candidates to third parties.
Until
we are able to generate revenues from operations, our strategy has
been to fund operations by raising capital from investors and to
control development costs by collaborating with third parties to
share costs and risk and focusing resources on drug product
candidates that we believe have the greatest potential to reach
marketability. Therefore, we have chosen to partner with Cancer
Research UK to balance the risk profile of our MNPR-101 program.
Cancer Research UK has agreed to cover all the costs of
manufacturing and carrying out the Phase Ia and Ib clinical
studies. It is our expectation that the clinical data from these
early human studies in cancer patients will allow us to make an
informed decision of the therapeutic potential of MNPR-101. This
arrangement allows us to shift much of the human proof-of-concept
financial risk to Cancer Research UK, while still allowing us the
option of moving the program forward internally if the clinical
results are positive. See “Risk Factors – Risks Related to
Our Reliance on Third Parties.”
In June
of 2016, we executed an option agreement to obtain the right to
license Validive, a Phase III-ready molecule for the potential
treatment of SOM in patients undergoing chemoradiotherapy for head
and neck cancer. The licensing or purchasing of a Phase III
clinical trial ready program allows us to take advantage of
existing preclinical and Phase I/II clinical trial data. This
reduces the time and cost of advancing the program to this late
stage, reducing the ordinary bench discovery to commercialization
timeline by investing at the Phase III clinical trial stage rather
than at the discovery or preclinical or early-clinical stage of
development. In September 2017, we exercised the option in order to
advance the clinical development of Validive.
In
August 2017, we expanded our drug development pipeline through the
acquisition of the Phase II drug development program, GPX-150
(5-imino-13-deoxydoxorubicin), a proprietary analog of doxorubicin.
Doxorubicin has been a mainstay of cancer chemotherapy for several
decades and is used in the treatment of a number of solid and blood
cancers. However, its use is often limited by its toxicity
including irreversible damage to the heart (cardiotoxicity).
GPX-150 has been engineered specifically to retain the anticancer
activity of doxorubicin while minimizing toxic effects on the
heart. We plan to develop a clinical development plan when funding
is available to advance the clinical development of
GPX-150.
In
March and August 2017, we commenced private offerings in which we
received total net proceeds in the amount of approximately $4.7
million. Additionally, the Gem Transaction included a contribution
to us of $5 million, resulting in us having approximately $10.6
million of cash, cash equivalents and restricted cash as of
September 30, 2017. We believe that this provides us with
sufficient cash to fund planned operations for at least the next 12
months. We plan to seek additional equity financing to further
develop our drug product candidates, enable us to potentially
acquire or in-license additional drug product candidates, and for
operating expenses and other general corporate and working capital
purposes.
In
September 2017, we paid $1 million to exercise an option we held to
acquire the rights to Validive, a Phase III-ready drug product
candidate. See “Material
Agreements.” We plan, over the next 12 months, to
focus our efforts primarily on advancing the development of
Validive, including the initiation of a Phase III clinical trial.
Our partnership with Cancer Research UK provides for the continuing
development of our drug product candidate MNPR-101 without any
significant additional funding required from us until completion of
a Phase Ia/Ib clinical trial in cancer patients, at which time we
will have an option to acquire the data from the clinical trial.
With respect to GPX-150, after we raise additional capital, within
the next 24 months we anticipate initiating a Phase II clinical
trial that will evaluate GPX-150 in cancer indications where
previous studies have shown that doxorubicin showed efficacy but
its use is currently restricted due to cardiotoxicity.
Within the next 24 months, we plan to raise additional capital to
complete the clinical development of Validive, advance the clinical
development of GPX-150, acquire or in-license additional drug
product candidates in varying stages of development, and promote
public and biotech investor awareness of us and pursue a NASDAQ
uplisting. Uplisting to NASDAQ will require us to meet
NASDAQ’s initial listing requirements and may require a
public offering of our common stock or another public stock
transaction. See “Risk
Factors – Our ability to uplist to NASDAQ in the future will
require significant additional capital and likely require a public
stock transaction; failure to qualify to trade on NASDAQ will make
it more difficult to raise capital.” There is no assurance we will be able to achieve
any or all of these. See “Risk Factors -
Risks Associated with Our Capital
Stock.”
Our Drug Product Candidates
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MONOPAR PRODUCT PIPELINE
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Candidate
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Status
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Potential Indications
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Partnerships
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Validive®
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Phase
III-ready
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Severe
Oral Mucositis
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GPX-150
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Phase
II
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Advanced solid and
blood cancers
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MNPR-101
(huATN-658)
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Pre-IND
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Advanced solid
Cancers
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Cancer
Research UK
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Anti-uPAR
MAbs
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Preclinical
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Advanced solid
Cancers
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Validive® (clonidine mucobuccal tablet; clonidine
MBT)
Validive (clonidine MBT) is a mucobuccal tablet (MBT) of clonidine
based on the Lauriad mucoadhesive technology. The Lauriad
technology significantly increases the mucous and salivary
concentrations of the active ingredient it contains, with decreased
systemic absorption.
Mechanism of action
Validive
is designed to deliver high concentrations of the active
pharmaceutical ingredient clonidine, a modulator of alpha-2
adrenergic receptors, locally in the oral cavity, the site of
irradiation in the treatment of head and neck cancer. Clonidine
reduces the production of cytokines, the molecules that are
responsible for the ulcerations and pain in SOM, by white blood
cells called monocytes and macrophages in the oral mucosa. The
Lauriad MBT delivery technology provides high salivary
concentrations of clonidine and minimizes systemic absorption
allowing for maximal local dosing of drug to the at risk oral
mucosa. Onxeo’s preclinical studies and Phase II clinical
trial have provided evidence confirming Validive’s mechanism
of action and demonstrated its therapeutic potential for reducing
the development of SOM, improving oral mucositis-related symptoms,
decreasing radiotherapy-related adverse events, while exhibiting a
favorable safety profile and high compliance rate with
patients.
Severe Oral Mucositis (SOM)
SOM is induced by radiation treatment and is a frequent major
adverse effect observed in patients with head and neck cancer
(“HNC”). In the near term, SOM induces intense oral
pain and limits a patient’s ability to eat and drink, which
often leads to severe weight loss and a requirement for enteral or
parenteral nutritional support. A large proportion of patients that
develop SOM require hospitalization, and symptoms can force
patients to stop cancer treatment for an undefined period of time
or terminate early, thus reducing cancer treatment efficacy. Thus,
SOM impacts both quality of life and clinical outcomes in HNC
patients. Long term, HNC patients that are unable to consume food
or liquid due to SOM while receiving treatment have persistent
problems such as difficulty in swallowing, often leading to
problems with aspiration pneumonia, pain and fibrosis (Machtay et
al., 2012).
Currently, patients that develop radiation induced SOM have no
effective preventive or therapeutic options. There is a significant
unmet medical need for this condition. Radiation is a critical part
(and will continue to be for the foreseeable future) of the
standard of care for HNC regardless of anatomical location of the
tumor. The incidence of HNC in the United States is estimated to be
62,000 cases in 2016 is expected to increase to more than 93,000
new cases in 2030. A similar increase is also predicted in the EU5.
The incidence of HNC in Japan is estimated to be 18,000 new cases
per year and the incidence in Asia (China + South-East region) is
estimated at 180,000 in 2016, about 25% of the global incidence.
The global incidence of HNC was approximately 690,000 new cases in
2012 (Globocan 2012) and recent studies showed that up to 85% of
those patients receiving standard of care high-dose head and neck
radiation suffered from SOM (Peterson et al, 2011). By 2030, a
significant increase in the incidence of HNC is expected with
approximately 1.03M new cases per year. Oropharyngeal cancer
("OPC") is projected world-wide to be the
major form of HNC by 2030, with greater than 50% of OPC being
HPV+.
These projections include all HNC patients regardless of the
anatomic location of their disease. However, the most rapidly
growing sub-population of HNC in the United States and Europe are
patients with OPC. The oropharynx is the part of the throat at the
back of the mouth, which includes the soft palate, the base (rear
one third) of the tongue, and the tonsils. Over the past decade,
OPC due to smoking and alcohol consumption has decreased
significantly while OPC due to infection with the human papilloma
virus (HPV) has increased dramatically. The increase in incidence
of OPC has outpaced the incidence of other HNC in the United States
and Europe by 4 to5-fold over the past decade (Chaturvedi et al.,
2011; Castellsagué et al, 2017) and this trend is projected to
continue for the next 15 to 20 years. OPC patients are now
primarily non-smokers in early to mid-life. Recent data (Vatka et
al, 2014) has demonstrated that non-smoker patients with OPC have a
2.7-fold higher risk of developing SOM during radiation treatment.
We believe, based on these observations and Validive’s
mechanism of action, that OPC patients are especially highly likely
to benefit from Validive treatment and this group could be the
primary driver for market growth for Validive, if
approved.
Clinical Data
In November 2012, Onxeo submitted an Investigational New Drug
application ("IND") for Validive with the FDA for the prevention
and treatment of oral mucositis induced by radiotherapy and/or
chemotherapy in cancer patients. The IND was transferred to us in
December 2017. We believe that Onxeo’s Phase II data
supports the development of Validive for severe oral
mucositis ("SOM") in OPC patients, with a
superior response anticipated in HPV+ patients. Patients with HPV+
OPC have a 6.9-fold higher risk of developing severe oral mucositis
(Vatca et al., 2014) making them more amenable to
Validive treatment. HPV+ OPC is characterized by the increased
presence of immune cells in the tumor due to the presence of the
HPV infection (Lyford-Pike et al., 2013; Vatca et al.,
2014) that may release oral mucosa damaging cytokines in response
to radiation and may therefore be more responsive to Validive,
which suppresses the production of these cytokines.
In October 2015, the results from an international Phase II
clinical trial of Validive were announced by Onxeo, demonstrating
encouraging evidence of clinical activity and safety compared to
placebo. The trial enrolled 183 patients and was conducted in more
than thirty centers in Europe and the United States This global,
multi-center, double-blind, randomized, placebo-controlled,
three-arm study (NCT01385748)
compared the efficacy and safety of Validive (50 microgram
(µg) and 100 µg) to placebo in patients with HNC
receiving chemoradiation therapy. Validive and placebo were applied
to the gum of the mouth once daily beginning 1 to 3 days prior to
chemoradiotherapy and continuing until the end of chemoradiation
treatment.
The safety profile of Validive was similar to placebo. Patients
treated with Validive experienced less nausea and dysphagia
compared to placebo.
Compliance and acceptability of the treatment found that the mean
overall patient compliance to be approximately 90% across all
treatment groups. Overall compliance according to patient diaries
was similar in all treatment groups and consistent with the
compliance according to the investigator’s
evaluation.
The analysis of OPC patients in this study showed:
●
The incidence of severe oral
mucositis (primary endpoint) was reduced by 26.3% (40%
relative to placebo) in OPC patients treated with Validive (100
µg) (p=0.09† which is
a meaningful trend but not
statistically significant). 65.2% of OPC patients on placebo
experienced severe oral mucositis compared to only
38.9% of OPC patients on Validive 100 µg.
●
Secondary endpoints of severe drinking, eating,
and speaking limitations due to mouth and throat soreness
(“MTS”), score were reduced in the Validive (100
µg)
treated cohort (p<0.05).
●
Decreases in other indicators of clinical benefit
including decreased duration of severe oral mucositis
(by 15 days versus placebo), weight loss, decreased opiate use and
increased cumulative dose of radiation received strongly favored
the Validive (100 µg)
treated cohort.
●
A dose response was observed with the Validive
(100 µg)
dose demonstrating a trend toward superiority over the Validive
(50 µg)
dose as well as placebo.
†P-value
or probability value, is a statistical measurement of how likely a
drug doesn’t work based on the clinical data against a
control such as a placebo (with no active pharmaceutical
ingredient). In general, the FDA
requires a p-value of less than 5% or p < 0.05, which is
considered statistically significant, for marketing approval. A
p-value of p<0.05 for a clinical trial comparing a drug and
placebo means that there is less than a 5% chance the drug is
actually inactive.
Our review of Onxeo’s Phase II data indicated that the effect
of Validive was much greater in OPC compared to non-OPC patients
and we believe provides a rationale for developing Validive for the
treatment of radiation induced SOM in OPC patients as a first
indication. The most rapidly growing sub-population of HNC in the
United States and Europe are patients with human papilloma virus
positive (HPV+) disease, which are primarily HNC patients with
oropharyngeal cancer (“OPC”). The oropharynx is the
part of the throat at the back of the mouth, which includes the
soft palate, the base (rear one third) of the tongue, and the
tonsils. HPV+ OPC is a molecularly defined population of HNC
characterized by the expression of a protein biomarker, p16 INK4a,
and the presence of HPV DNA or RNA in the tumor. Evaluation of HPV
status is part of the routine clinical assessment of patients with
OPC prior to initiating treatment. The incidence of HPV+ OPC has
outpaced the incidence of HPV- HNC in the United States and Europe
by 4 to 5-fold over the past decade (Chaturvedi et al., 2011;
Castellsagué et al, 2017). This trend is projected to continue
for the next 15 to 20 years and mirrors the increase in HPV
infections in the general population. Recent data
(Vatca et al, 2014) has demonstrated that HPV+ OPC
patients have a 6.9-fold increase in the risk of developing SOM
during radiation treatment and that onset of SOM occurs sooner than
HPV- HNC patients. These observations indicate that HPV+ OPC
patients are highly likely to benefit from Validive treatment and
could drive market growth for Validive, if approved. HPV+ OPC is
characterized by the increased presence of immune cells in the
tumor due to the presence of the HPV infection (Lyford-Pike et al.,
2013; Vatca et al., 2014) that may release oral mucosa
damaging cytokines in response to radiation and are therefore more
responsive to Validive, which suppresses the production of these
cytokines.
Validive® Development Strategy
Based on the existing Phase II data in patients with OPC treated
with Validive, we are planning an adaptive trial that will evaluate
Validive compared to placebo in OPC patients. A planned interim
analysis will allow for a sample size re-estimation based on the
effect of Validive on the incidence of SOM in patients with HPV+ vs
HPV- OPC. This two-stage design will allow us to prospectively
confirm the observations made from the Phase II trial data, that
Validive will be most effective in preventing and treating
radiation-induced SOM in patients with OPC, to evaluate if it
performs better in the HPV+ OPC cohort, and then build a sufficient
database to support registration. We are currently working with the
United States and E.U. regulatory agencies to design a development
plan to move Validive toward registration in both a time- and cost-
efficient manner.
GPX-150 (5-imino-13-deoxydoxorubicin)
GPX-150
is a proprietary analog of doxorubicin.
Doxorubicin
is used to treat a variety of adult and pediatric solid and blood
(hematologic) cancers including breast, gastric, ovarian and
bladder cancer, soft tissue sarcomas and leukemias and lymphomas.
Doxorubicin is often used in combination with other cancer drugs
and is frequently used to treat metastatic disease in patients with
advanced solid cancers. Doxorubicin is currently indicated by the
FDA for use in 14 different cancer types. However, reaching optimal
efficacy of doxorubicin has been limited historically by the risk
of patients developing irreversible
cardiotoxicity.
GPX-150 has been engineered specifically to retain the anticancer
activity of doxorubicin while minimizing toxic effects on the
heart. Given extensive clinical data supporting the benefit of
higher doses of doxorubicin for longer periods of time, along with
the potential to combine a non-cardiotoxic version of doxorubicin
with other anticancer agents, we believe that there is a large
market opportunity in a broad spectrum of cancer types for
GPX-150.
Decreased
cardiotoxicity observed with GPX-150 in preclinical studies has
been shown to be mediated through several mechanisms
including: reduced reduction-oxidation
cycling, which is the recurring exchange of
electrons between two chemicals whereby one chemical loses an
electron and is oxidized and the other chemical gains the electron
and is reduced; primary metabolite
formation; and reduced interaction with topoisomerase
IIß in the heart. The antitumor effects of
GPX-150 are mediated through a mechanism similar to doxorubicin and
other anthracycline drugs through stabilization of the
topoisomerase II complex after a DNA strand break by intercalation
with the DNA, thereby preventing replication in a tumor cell,
leading to apoptosis (cell death).
Clinical Data
In
February 2007, Gem submitted an IND for GPX-150 for the treatment
of cancer. The IND remains open and was transferred to us in
September 2017. Several clinical studies of GPX-150 have
been completed. A Phase I dose escalation study conducted at the
University of Iowa enrolled 24 patients at 5 different dose levels
of GPX-150 ranging from 14-265 mg/M2. No evidence of
cardiotoxicity was observed in any of these patients, including 4
patients that had received prior anthracycline (doxorubicin or
related molecules) treatment. In the four highest dose levels
(>84 mg/M2), 9/17 patients
showed a stabilization of disease including 3 out of 4 patients
with leiomyosarcoma, which is a type of cancer that
originates in connective tissue and smooth muscle most commonly in
the uterus, stomach and small intestine.
Based
on the demonstration of stable disease in patients with
leiomyosarcoma in the Phase I trial, a multi-center open label
single arm Phase II trial was run in doxorubicin-naïve
patients with non-resectable or metastatic soft tissue sarcoma
(“STS”). Doxorubicin has historically been the standard
of care for the treatment of leiomyosarcoma and other STS. This
Phase II clinical trial enrolled 22 patients and was completed in
early 2017. GPX-150 was administered intravenously at 265
mg/M2
every 3 weeks for up to 16 doses and there was no evidence of
irreversible cardiotoxicity.
GPX-150 Development Strategy
We will
need to raise additional funds to support the next stage of
clinical development of GPX-150 which is expected to include a
Phase II clinical trial that will evaluate GPX-150 in cancer
indications where doxorubicin exhibits efficacy but its use is
restricted due to cardiotoxicity. The objective of this clinical
trial would be to demonstrate the ability to improve efficacy where
GPX-150 dosing does not have to be restricted due to
cardiotoxicity. For example, concurrent doxorubicin (60
mg/M2, 8
cycles) and paclitaxel yielded a 94% overall response rate in
patients with metastatic breast cancer but led to 18% of patients
developing congestive heart failure (Gianni et al, 1995). Reduction
of doxorubicin to 4-6 cycles of treatment decreased occurrence of
congestive heart failure, but also reduced response rate to 30-45%.
Consequently, one arm of our future Phase II clinical trial would
evaluate concurrent GPX-150 plus paclitaxel to see if a
higher
response
rate than 30-45% could be observed in the absence of
cardiotoxicity. Similar arms will be designed for the combination
of GPX-150+trastuzumab in metastatic HER2+ breast cancer patients,
and GPX-150 plus Yondelis in soft tissue sarcoma. The results of
this multi-arm screening “bucket” trial would be used
to inform an initial registration strategy for GPX-150, as well as
to support collaborative clinical development efforts with
co-operative groups and oncology foundations that could expand the
breadth of GPX-150 clinical studies.
MNPR-101 (huATN-658)
No IND is
required for MNPR-101 at this time because it is not yet in human
clinical trials.
uPA/uPAR Antibodies
A significant body of in vitro and in vivo data has established the
urokinase plasminogen activator ("uPA")
system as being central to the processes of angiogenesis and
metastasis, and therefore as a potentially promising target for
cancer drug development. The uPA system is involved in the tissue
remodeling and tumor signaling that leads to the progression of
cancer. Recent evidence suggests that, in addition to
uPA, its cell surface receptor, uPAR, may also be a suitable target
for cancer therapeutics and diagnostics because it:
●
is
selectively expressed on metastatic tumor, tumor-associated immune
and angiogenic endothelial cells, but not on most normal cells
(several Phase I imaging studies in human advanced cancer patients
show that uPAR can only be detected in the tumor and not in normal
tissues);
●
is
central to several extracellular and intracellular oncogenic
pathways required for metastasis (inhibiting the uPA system in turn
inhibits many other downstream targets that are currently being
targeted by other companies);
●
is
expressed on immune cells that allow the tumor to evade recognition
by the immune system and;
●
has
the potential to interfere at several different signaling pathways
that converge at uPAR.
Thus, uPAR-targeted therapies may have broad-spectrum activity
against many different cancer types.
We have developed a set of monoclonal antibodies that target uPA
and uPAR. Our lead antibody, huATN-658 which we now refer to as
MNPR-101, demonstrated significant anti-tumor activity in numerous
preclinical models of tumor growth and is being advanced for
clinical evaluation. Based on the selective expression of uPAR in
tumor, MNPR-101 is expected to be well-tolerated and amenable to a
variety of combination treatment approaches.
Market Opportunity
The development of solid tumors is one of the leading causes of
death in the United States and the treatment of these
tumors is a multi-billion dollar market. We believe that
currently available therapeutics intended to address this large and
growing market generally provide only marginal clinical benefit. In
contrast to most current cancer therapeutics, which work by
poisoning rapidly dividing cells, our drug product candidate
MNPR-101 is designed to selectively disrupt multiple cellular
processes important to tumor growth, metastasis and survival. We
believe MNPR-101 may improve treatment outcomes for cancer
patients.
Efficacy and Safety
Most current cancer drugs, unfortunately, do not distinguish
between rapidly growing healthy cells and cancer cells. This leads
to serious side effects and a very narrow therapeutic index. Often,
treatment is discontinued because of adverse effects or cumulative
toxicities, rendering chronic treatment impossible. Since tumors
are generally not completely eradicated by chemotherapy, cessation
of treatment often leads to a regrowth of the malignancy.
Furthermore, many tumors mutate rapidly and develop resistance to
chemotoxic drugs, thereby rendering further existing treatments
ineffective. There is an urgent need for new drugs to improve
cancer treatment.
Advances in the understanding of how tumor cells differ from normal
tissue have made possible the development of a new class of
targeted cancer therapies that interrupt processes important to
tumor survival and progression. These include anti-angiogenic
drugs, anti-metastatic drugs, and cell-signaling
inhibitors.
MNPR-101is designed to interrupt several pathways required for
tumor growth and progression. The compound’s mechanism of
action is designed to block several particular
cellular activities that are only turned “on” in a
tumor rather than to destroy the tumor cell directly. For this
reason, we believe that MNPR-101 may have fewer side effects than
current cytotoxic agents which kill cells indiscriminately. In
addition, by inhibiting multiple pathways required for tumor growth
and progression, we believe MNPR-101 may lead to more effective
tumor control than therapies that target only a single such
pathway. We believe that most tumors, regardless of the tissue from
which they originate, rely on the pathways that we are targeting;
therefore, therapies directed at such pathways have the potential
to be used against many different types of cancers.
Drug Resistance
MNPR-101 may also avoid some of the drug resistance problems caused
by genetic instability that plague many conventional
chemotherapies. Cancerous cells mutate and reproduce rapidly,
meaning that there is great genetic heterogeneity among cells in a
tumor. A given chemotherapy may be effective against the vast
majority of these cells, but if even a small number have mutations
that confer resistance, these cells will likely survive the
treatment. The tumor will grow back composed almost entirely of
these mutated cells, making the cancer resistant to further
treatments with that particular chemotherapy. By targeting multiple
tumor progression pathways, using drugs in combination regimens,
and targeting more genetically stable endothelial and immune cells
in addition to tumor cells, we believe that MNPR-101 has the
potential to avoid these drug resistance problems.
Combination Use
Published preclinical data has shown the ability of MNPR-101
to enhance the anti-tumor activity of chemotherapies such as
paclitaxel and gemcitabine (Bauer et al., 2005; Kenny et al.,
2011). The expression and targeting of uPAR in general also
suggests that MNPR-101 may combine with other targeted agents that
affect signaling leading to tumor growth including the
ability of tumors to evade immune response. In particular, uPAR is
selectively expressed on cells of the myeloid lineage such as
myeloid derived suppressor cells, neutrophils and
macrophages, all of which drive tumor
progression.
Reports of successful cancer therapy increasingly involve the use
of drug combinations that target multiple metabolic pathways
simultaneously. To that end, oncologists are increasing exploring
the combined use of approved drugs when treating their patients.
MNPR-101 is not expected to replace existing therapies, but rather
to complement them. MNPR-101 is intended to be combined with
existing therapies used to reduce tumor mass in order to make the
overall treatment more effective in the acute setting. MNPR-101
could make chemotherapy more effective by making tumors more
susceptible to chemotherapy by interrupting the tumors’
protective mechanisms. MNPR-101 could also potentially be used as a
standard follow-up therapy after chemotherapy to prevent tumor
regrowth and metastasis or in combination with immunotherapy
including immune checkpoint inhibitors. Cancer is generally not
fatal unless tumors metastasize beyond their primary site and
interfere with normal function in critical organs of the body.
Current thinking suggests that by containing or preventing tumor
growth, it may be possible to transform cancer into a manageable,
non-fatal condition treated with chronic drug therapy. Given these
potential uses, new treatments that target multiple pathways and
are designed to be used in drug combinations, like MNPR-101, have
the potential to significantly improve treatment outcomes, rather
than merely competing with each other in the market.
Material Agreements
Since
our inception, we have entered into three material agreements, one
with Cancer Research UK, one with XOMA Ltd., and one with Onxeo
S.A. None of the agreements requires any issuance of equity or any
annual maintenance fee. See the summary of each material
agreement below.
On May
15, 2015, we entered into a Clinical Trial and Option Agreement
(“CTOA”) with Cancer Research UK. Being a new entity at
the time of the agreement negotiations, one of the requirements
under the CTOA, which has already been fulfilled, was for us to
deposit $800,000 into an escrow to cover indemnities in the event
of third party claims resulting from actions or inactions of ours,
patent infringement claims, or potential costs on termination of
the CTOA by Cancer Research UK for cause. Under the CTOA, Cancer
Research UK will pay costs to manufacture the antibody, complete
any remaining preclinical work, and conduct a Phase Ia/Ib clinical
trial in cancer patients. On completion of the clinical trial, we
will have an exclusive option to acquire the data from the trial.
Under the terms of the CTOA, the first payment due from us, should
we elect to license the data from the trial, is toward the end of
the Phase Ib clinical trial in cancer patients. We will decide
whether or not to license the data based on the results of the
Phase Ib trial. Should we elect to license the data after
completion of the Phase Ib clinical trial, we would pay an upfront
option fee, plus additional payments required in the
future upon meeting certain developmental milestones, sales
milestones, and royalties on a
product-by-product and country-by-country basis in the single
digits payable based on the net sales of each product.
The option fee is expressed in British pounds and therefore
the value in U.S. dollars may vary slightly depending on the
exchange rate at the time of payment; however, payment of the
option fee is not expected to have a material effect on our
financial position. Upon taking the license, we will be
required to pay all future MNPR-101 development costs. We would need
to raise additional capital to cover further MNPR-101 development costs once we exercise
our license to the data with Cancer Research UK. Should we decline
to take the license to the data, we will pay nothing to Cancer
Research UK moving forward, and Cancer Research UK will then have
the opportunity to be assigned our intellectual property to
continue the development and commercialization of MNPR-101 in exchange for a net revenue
share and minimum royalty. Since entering into the
CTOA
with Cancer Research UK, it has significantly improved the
manufacturing efficiency of MNPR-101 with a new cell line and plans to
test the new cell line against the original cell line in a
comparability study. Upon a positive result in the comparability
study, Cancer Research UK plans to start scaling up manufacturing
production in order to supply clinical material for a Phase I
clinical trial. It is anticipated that it will be at least 12
months before they are ready to commence a Phase I clinical trial,
assuming positive results from the comparability
study.
To
humanize our ATN-658 antibody, we have taken a non-exclusive
license to XOMA Ltd.’s humanization technology and know-how.
Under the terms of the license, we are to pay only upon
developmental and sales milestone achievements which could
reach up to $14.925 million if we achieve all
milestones.
There can be no assurance that we will reach any
milestones. XOMA Ltd. will receive no royalty. The first
milestone payment is payable upon first dosing of a human patient
in a Phase II clinical trial.
In June
2016, we executed an agreement with Onxeo S.A., a French public
company, which gave us the option to license Validive (clonidine
mucobuccal tablet), a mucoadhesive tablet of clonidine based on the
Lauriad mucoadhesive technology to potentially treat severe oral
mucositis in patients undergoing treatment for head and neck
cancers. The pre-negotiated license terms included as part of the
option agreement included clinical,
regulatory, developmental and sales
milestones that could reach up to $108 million if we achieve
all milestones, and escalating royalties
on net sales from 5 - 10%. On September 8, 2017,
pursuant to the Onxeo license option agreement, we exercised the
option to license Validive for $1 million. The exercise of the
option assigns all of Onxeo’s rights to the Validive
intellectual property to us, which allows us to commence the
planning of our Phase III clinical trial in severe oral
mucositis. Under the
agreement, we are required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is
generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The Onxeo license
agreement does not have a pre-determined term, but expires on a
product-by-product and country-by-country basis; that is, the
agreement expires with respect to a given product in a given
country whenever our royalty payment obligations with respect to
such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We
may also choose to terminate the agreement, either in its entirety
or as to a certain product and a certain country, by providing
Onxeo with advance notice.
Competition
The
pharmaceutical industry in general, and the oncology therapeutics
sector in particular, are characterized by intense competition. We
face competition from pharmaceutical and biotechnology companies,
many of which are larger and better financed than us. We also face
competition in our efforts to develop and commercialize new
oncology therapeutics from academic and government laboratories.
The therapeutics that we are developing, if successfully
commercialized, will have to compete with existing therapeutics
already on the market and novel therapeutics currently in
development, as well as new therapeutics that may be discovered and
developed in the future. Our product candidates will also have to
compete with alternate treatment modalities, such as radiation,
which is also subject to continual innovation and improvement.
Additional information can be found in the section entitled
“Risk Factors – Risks
Related to Our Business Operations and
Industry.”
Intellectual Property Portfolio
An
important part of our strategy is obtaining patent protection to
help preserve the proprietary nature of our drug product
candidates, and to prevent others from developing competitive
agents that are similar. Our patent portfolio includes issued
patents and pending patent applications in the United States and in
foreign countries. Our general practice is to seek patent
protection in major markets worldwide. Our patent portfolio for our
MNPR-101 antibody (huATN-658), as well as its epitope, consists of
two issued U.S. composition of matter and their methods of
use patents, and allowed patent applications
and corresponding (granted and pending) patents and patent
applications in twenty-two foreign jurisdictions, including the
European Union, Japan, and other Asian countries. These
patents are owned by us. The
patents covering the composition of matter of MNPR-101 will expire
in 2025 and the patents covering the MNPR-101 epitope will expire
in 2027.
We
license all intellectual property related to Validive from Onxeo
S.A., a French public company. See “Material Agreements”. Validive is
covered by 32 issued patents and allowed patent applications and
corresponding patents and applications in 32 jurisdictions,
including the United States, E.U., Japan, and other Asian
countries, and has orphan drug designation in the E.U as well as
Fast Track designation from the United States Food and Drug
Administration (“FDA”). These patents are methods
of use patents that cover the use of Validive to prevent and/or
treat inflammation and inflammatory pain of the mucosa including
cancer therapy-induced mucositis, and have been assigned to us
pursuant to our license agreement with Onxeo. These
patents expire in 2029.
GPX-150
is covered by both composition of matter as well as manufacturing
process patents. We have a patent for chemical synthesis technology
that efficiently converts cardiotoxic "13-keto" anthracyclines such
as doxorubicin, daunorubicin, epirubicin, and idarubicin into
novel, patentable, and most likely non-cardiotoxic
"5-imino-13-deoxy" analogs. A novel chemical composition of an
intermediate for this synthesis is also patented. In addition, we
have a patent covering the combination of GPX-150 with paclitaxel
for the treatment of cancer, plus covering the method of use of
these two drugs for this purpose. Our GPX-150 patent portfolio,
which is still in the process of completing transfer of ownership
subsequent to the Gem Transaction, contains seven issued and
allowed U.S. patents and allowed patent applications and one
U.S. pending patent application. We have certain corresponding
patents and applications in twenty-nine foreign jurisdictions,
including the United States, E.U., Japan, and other Asian
countries. The composition of matter patents will expire in
2018, the process patents for the synthesis of GPX-150
intermediates will expires in 2024 and the patents covering the
combination use of GPX-150 and its analogs with taxanes will expire
in 2026. We may pursue patent term extensions where
appropriate. We do not believe that expiration of the GPX-150
composition of matter patents will significantly affect our ability
to develop or maintain our proprietary position around GPX-150,
given that we have obtained patent protection around the
intermediates and process used to manufacture GPX-150, will have
Hatch-Waxman exclusivity (applicable to new chemical entities) for
5 years that will prevent generic competition, and have obtained
U.S. orphan drug status in soft tissue sarcoma with additional
orphan cancer indications to follow. We also have a pending
International Nonproprietary Name (INN) request with the World
Health Organization for a non-proprietary (generic) name for
GPX-150.
Patent
life determination depends on the date of filing of the application
and other factors as promulgated under the patent laws. In most
countries, including the United States, the patent term is
generally 20 years from the earliest claimed filing date (the
priority date) of a non-provisional patent application in the
applicable country, not taking into consideration any potential
patent term adjustment that may be filed in the future or any
regulatory extensions that may be obtained. Some of our patents are
currently near expiration and we may pursue patent term extensions
for these where appropriate.
See
“Risk Factors – Risks
Related to Our Intellectual Property.”
Manufacturing
We do not currently own or operate manufacturing facilities for the
production or testing of MNPR-101, Validive, GPX-150 or any other
product candidates, nor do we have plans to develop our own
manufacturing operations in the foreseeable future. We presently
depend on third party
contract manufacturers for all our required raw materials, Active
Pharmaceutical Ingredients, or APIs and finished drug products for
our preclinical and clinical studies. We have not yet executed
manufacturing agreements for our API and supplies of MNPR-101,
GPX-150 or Validive. See “Risk Factors –
Risks Related to Our Reliance on Third
Parties.”
Research and Development Costs
Research
and development (“R&D”) costs are expensed as
incurred. Major components of research and development expenses
include materials and supplies and fees paid to consultants and to
the entities that conduct certain development activities on our
behalf. R&D expense, including upfront fees and milestones paid
to collaborators, are expensed as goods are received or services
rendered. Costs to acquire technologies to be used in research and
development that have not reached technological feasibility and
have no alternative future use are also expensed as incurred,
except in the case of a business combination when such costs are
capitalized as part of the purchase price allocation. During the
last two fiscal years we spent approximately $382,000 on research
and development costs (plus approximately $1.5 million spent by Gem
in development of GPX-150). Research
and development costs for the nine months ended
September 30, 2017 were $1.6 million.
See “Risk Factors –
Risks Related to Clinical Development and Regulatory
Approval.”
Government Regulation and Product Approval
Government authorities in the United States, at the federal, state
and local level, and other countries extensively regulate, among
other things, the research, development, testing, manufacture,
quality control, approval, labeling, packaging, storage,
record-keeping, promotion, advertising, distribution, post-approval
monitoring and reporting, marketing and export and import of
products such as those we are developing. The pharmaceutical drug
product candidates that we develop must be approved by the FDA
before they may be legally marketed in the United States.
See “Risk Factors –
Risks Related to Clinical Development and Regulatory
Approval.”
United States Pharmaceutical Product Development
Process
In the United States, the FDA regulates pharmaceutical products
under the Federal Food, Drug and Cosmetic Act (“FDCA”)
and implementing regulations. Pharmaceutical products are also
subject to other federal, state and local statutes and regulations.
The process of obtaining regulatory approvals and the subsequent
compliance with appropriate federal, state, local and foreign
statutes and regulations require the expenditure of substantial
time and financial resources. Failure to comply with the applicable
United States requirements at any time during the product
development process, approval process or after approval, may
subject an applicant to administrative or judicial enforcement. FDA
enforcement could result in refusal to approve pending
applications, withdrawal of an approval, a clinical hold, warning
letters, product recalls, product seizures, total or partial
suspension of production or distribution injunctions, fines,
refusals of government contracts, restitution, disgorgement or
civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us. The process
required by the FDA before a non-biological pharmaceutical product
may be marketed in the United States generally involves the
following:
●
Completion
of preclinical laboratory tests, animal studies and formulation
studies according to Good Laboratory Practices (“GLP”),
or other applicable regulations;
●
Submission
to the FDA of an Investigational New Drug application
(“IND”), which must become effective before human
clinical studies may begin;
●
Performance
of adequate and well-controlled human clinical studies according to
the FDA’s current Good Clinical Practices
(“GCP”), to establish the safety and efficacy of the
proposed pharmaceutical product for its intended use;
●
Submission
to the FDA of a New Drug Application (“NDA”), for a new
pharmaceutical product;
●
Satisfactory
completion of an FDA inspection of the manufacturing facility or
facilities where the pharmaceutical product is produced to assess
compliance with the FDA’s current Good Manufacturing Practice
standards (“cGMP:”), to assure that the facilities,
methods and controls are adequate to preserve the pharmaceutical
product’s identity, strength, quality and
purity;
●
Potential
FDA audit of the preclinical and clinical study sites that
generated the data in support of the NDA; and
●
FDA
review and approval of the NDA.
The lengthy process of seeking required approvals and the
continuing need for compliance with applicable statutes and
regulations require the expenditure of substantial resources and
approvals are inherently uncertain.
Before testing any compounds with potential therapeutic value in
humans, the pharmaceutical product candidate enters the preclinical
testing stage. Preclinical tests include laboratory evaluations of
product chemistry, toxicity and formulation, as well as animal
studies to assess the potential safety and activity of the
pharmaceutical product candidate. These early proof-of-principle
studies are done using sound scientific procedures and thorough
documentation. The conduct of the single and repeat dose toxicology
and toxicokinetic studies in animals must comply with federal
regulations and requirements including GLP. The sponsor must submit
the results of the preclinical tests, together with manufacturing
information, analytical data, any available clinical data or
literature and a proposed clinical protocol, to the FDA as part of
the IND. The IND automatically becomes effective 30 days after
receipt by the FDA, unless the FDA has concerns and notifies the
sponsor. In such a case, the IND sponsor and the FDA must resolve
any outstanding concerns before the clinical study can begin. If
resolution cannot be reached within the 30-day review period,
either the FDA places the IND on clinical hold or the sponsor
withdraws the application. The FDA may also impose clinical holds
on a pharmaceutical product candidate at any time before or during
clinical studies due to safety concerns or non-compliance.
Accordingly, it is not certain that submission of an IND will
result in the FDA allowing clinical studies to begin, or that, once
begun, issues will not arise that suspend or terminate such
clinical studies.
During the development of a new drug, sponsors are given
opportunities to meet with the FDA at certain points. These points
may be prior to submission of an IND, at the end of Phase II, and
before an NDA is submitted. Meetings at other times may be
requested. These meetings can provide an opportunity for the
sponsor to share information about the data gathered to date, for
the sponsor to ask specific questions to the FDA, for the FDA to
provide advice, and for the sponsor and FDA to reach agreement on
the next phase of development. Sponsors typically use the end of
Phase II meeting to discuss their Phase II clinical results and
present their plans for the pivotal Phase III clinical
(registration) trial that they believe will support approval of the
new drug. A sponsor may be able to request a Special Protocol
Assessment (“SPA”), the purpose of which is to reach
agreement with the FDA on the design of the Phase III clinical
trial protocol design and analyses that will form the primary basis
of an efficacy claim.
According to FDA guidance for industry on the SPA process, a
sponsor which meets the prerequisites may make a specific request
for a SPA and provide information regarding the design and size of
the proposed clinical trial. The FDA’s goal is to evaluate
the protocol within 45 days of the request to assess whether the
proposed trial is adequate, and that evaluation may result in
discussions and a request for additional information. A SPA request
must be made before the proposed trial begins, and all open issues
must be resolved before the trial begins. If a written agreement is
reached, it will be documented and made part of the IND record. The
agreement will be binding on the FDA and may not be changed by the
sponsor or the FDA after the trial begins except with the written
agreement of the sponsor and the FDA or if the FDA determines that
a substantial scientific issue essential to determining the safety
or efficacy of the drug was identified after the testing
began.
Clinical studies involve the administration of the pharmaceutical
product candidate to healthy volunteers or patients under the
supervision of qualified investigators, generally physicians not
employed by or under the clinical study sponsor’s control.
Clinical studies are conducted under protocols detailing, among
other things, the objectives of the clinical study, dosing
procedures, subject selection and exclusion criteria, how the
results will be analyzed and presented and the parameters to be
used to monitor subject safety. Each protocol must be submitted to
the FDA as part of the IND. Clinical studies must be conducted in
accordance with Good Clinical Practice (“GCP”)
guidelines. Further, each clinical study must be reviewed and
approved by an independent institutional review board
(“IRB”), at, or servicing, each institution at which
the clinical study will be conducted. An IRB is charged with
protecting the welfare and rights of study participants and is
tasked with considering such items as whether the risks to
individuals participating in the clinical studies are minimized and
are reasonable in relation to anticipated benefits. The IRB also
approves the informed consent form that must be provided to each
clinical study subject or his or her legal representative and must
monitor the clinical study until completed.
Human clinical studies are typically conducted in three sequential
phases that may overlap or be combined:
●
Phase
I. The pharmaceutical product is initially introduced into healthy
human subjects and tested for safety, dosage tolerance, absorption,
metabolism, distribution and excretion.
●
Phase
II. The pharmaceutical product is evaluated in a limited patient
population to identify possible adverse effects and safety risks,
to preliminarily evaluate the efficacy of the product for specific
targeted diseases, to determine dosage tolerance, optimal dosage
and dosing schedule and to identify patient populations with
specific characteristics where the pharmaceutical product may be
more effective.
●
Phase
III. Clinical studies are undertaken to further evaluate dosage,
clinical efficacy and safety in an expanded patient population at
geographically dispersed clinical study sites. These clinical
studies are intended to establish the overall risk/benefit ratio of
the product and provide an adequate basis for product labeling. The
studies must be well-controlled and usually include a control arm
for comparison. One or two Phase III studies are required by the
FDA for an NDA approval, depending on the disease severity and
other available treatment options.
●
Post-approval
studies, or phase IV clinical studies, may be conducted after
initial marketing approval. These studies are used to gain
additional experience from the treatment of patients in the
intended therapeutic indication.
●
Progress
reports detailing the results of the clinical studies must be
submitted at least annually to the FDA and written IND safety
reports must be submitted to the FDA and the investigators for
serious and unexpected adverse events or any finding from tests in
laboratory animals that suggests a significant risk for human
subjects. Phase I, Phase II and Phase III clinical studies may not
be completed successfully within any specified period, if at all.
The FDA or the sponsor or its data safety monitoring board may
suspend a clinical study at any time on various grounds, including
a finding that the research subjects or patients are being exposed
to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical study at its institution if the
clinical study is not being conducted in accordance with the
IRB’s requirements or if the pharmaceutical product has been
associated with unexpected serious harm to patients.
Concurrent with clinical studies, companies usually complete
additional animal studies and must also develop additional
information about the chemistry and physical characteristics of the
pharmaceutical product as well as finalize a process for
manufacturing the product in commercial quantities in accordance
with cGMP requirements. The manufacturing process must be capable
of consistently producing quality batches of the pharmaceutical
product candidate and, among other things, must develop methods for
testing the identity, strength, quality and purity of the final
pharmaceutical product. Additionally, appropriate packaging must be
selected and tested and stability studies must be conducted to
demonstrate that the pharmaceutical product candidate does not
undergo unacceptable deterioration over its shelf
life.
United States Review and Approval Processes
The results of product development, preclinical studies and
clinical studies, along with descriptions of the manufacturing
process, analytical tests conducted on the chemistry of the
pharmaceutical
product, proposed labeling and other relevant information are
submitted to the FDA as part of an NDA requesting approval to
market the product. The submission of an NDA is subject to the
payment of substantial user fees; a waiver of such fees may be
obtained under certain limited circumstances.
In addition, under the Pediatric Research Equity Act
(“PREA”), an NDA or supplement to an NDA must contain
data to assess the safety and effectiveness of the pharmaceutical
product for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each
pediatric subpopulation for which the product is safe and
effective. The FDA may grant deferrals for submission of data or
full or partial waivers. Unless otherwise required by regulation,
PREA does not apply to any pharmaceutical product for an indication
for which orphan designation has been granted.
The FDA reviews all NDAs submitted before it accepts them for
filing and may request additional information rather than accepting
an NDA for filing. Once the submission is accepted for filing, the
FDA begins an in-depth review of the NDA. Under the goals and
policies agreed to by the FDA under the Prescription Drug User Fee
Act (“PDUFA”), the FDA has 10 months in which to
complete its initial review of a standard NDA and respond to the
applicant, and six months for a priority NDA. The FDA does not
always meet its PDUFA goal dates for standard and priority NDAs.
The review process and the PDUFA goal date may be extended by three
months if the FDA requests or if the NDA sponsor otherwise provides
additional information or clarification regarding information
already provided in the submission within the last three months
before the PDUFA goal date.
After the NDA submission is accepted for filing, the FDA reviews
the NDA application to determine, among other things, whether the
proposed product is safe and effective for its intended use, and
whether the product is being manufactured in accordance with cGMP
to assure and preserve the product’s identity, strength,
quality and purity. The FDA may refer applications for novel
pharmaceutical products or pharmaceutical products which present
difficult questions of safety or efficacy to an advisory committee,
typically a panel that includes clinicians and other experts, for
review, evaluation and a recommendation as to whether the
application should be approved and under what conditions. The FDA
is not bound by the recommendations of an advisory committee, but
it considers such recommendations carefully when making decisions.
During the pharmaceutical product approval process, the FDA also
will determine whether a risk evaluation and mitigation strategy
(“REMS”), is necessary to assure the safe use of the
pharmaceutical product. If the FDA concludes that a REMS is needed,
the sponsor of the NDA must submit a proposed REMS; the FDA will
not approve the NDA without a REMS, if required.
Before approving an NDA, the FDA will inspect the facilities at
which the product is manufactured. The FDA will not approve the
product unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to
assure consistent production of the product within required
specifications. Additionally, before approving an NDA, the FDA will
typically inspect one or more clinical sites as well as the site
where the pharmaceutical product is manufactured to assure
compliance with GCP and cGMP. If the FDA
determines the application, manufacturing process or manufacturing
facilities are not acceptable, it will outline the deficiencies in
the submission and often will request additional testing or
information. In addition, the FDA will require the review and
approval of product labeling.
The NDA review and approval process is lengthy and difficult and
the FDA may refuse to approve an NDA if the applicable regulatory
criteria are not satisfied or may require additional clinical data
or other data and information. Even if such data and information is
submitted, the FDA may ultimately decide that the NDA does not
satisfy the criteria for approval. Data obtained from clinical
studies are not always conclusive and the FDA may interpret data
differently than the sponsor interprets the same data. The FDA will
issue a complete response letter if the agency decides not to
approve the NDA. The complete response letter usually describes all
of the specific deficiencies in the NDA identified by the FDA. The
deficiencies identified may be minor, for example, requiring
labeling changes, or major, for example, requiring additional
clinical studies. Additionally, the complete response letter may
include recommended actions that the applicant might take to place
the application in a condition for approval. If a complete response
letter is issued, the applicant may either resubmit the NDA,
addressing all of the deficiencies identified in the letter, or
withdraw the application.
If a product receives regulatory approval, the approval may be
significantly limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict
the commercial value of the product. Further, the FDA may require
that certain contraindications, warnings or precautions be included
in the product labeling. In addition, the FDA may require Phase IV
testing which involves clinical studies designed to further assess
pharmaceutical product safety and effectiveness and may require
testing and surveillance programs to monitor the safety of approved
products that have been commercialized.
Expedited Development and Review Programs
The FDA has a Fast Track program that is intended to expedite or
facilitate the process for reviewing new pharmaceutical products
that meet certain criteria. Specifically, new pharmaceutical
products are eligible for Fast Track designation if they are
intended to treat a serious or life-threatening condition and
demonstrate the potential to address unmet medical needs for the
condition. The Fast Track designation must be requested by the
sponsor. Fast Track designation applies to the combination of the
product and the specific indication for which it is being studied.
Unique to a Fast Track product, the FDA may consider for review
sections of the NDA on a rolling basis before the complete
application is submitted, if the sponsor provides a schedule for
the submission of the sections of the NDA, if the FDA agrees to
accept sections of the NDA and determines that the schedule is
acceptable and if the sponsor pays any required user fees upon
submission of the first section of the NDA.
Any product submitted to the FDA for marketing approval, including
a Fast Track program, may also be eligible for other types of FDA
programs intended to expedite development and review, such as
priority review and accelerated approval. Any product is eligible
for priority review if it has the potential to provide safe and
effective therapy where no satisfactory alternative therapy exists
or a significant improvement in the treatment, diagnosis or
prevention of a disease compared to marketed products. The FDA will
attempt to direct additional resources to the evaluation of
an
application for a new pharmaceutical product designated for
priority review in an effort to facilitate the review.
Additionally, a product may be eligible for accelerated approval.
Pharmaceutical products studied for their safety and effectiveness
in treating serious or life-threatening illnesses and that provide
meaningful therapeutic benefit over existing treatments may receive
accelerated approval, which means that the products may be approved
on the basis of adequate and well-controlled clinical studies
establishing that the product has an effect on a surrogate endpoint
that is reasonably likely to predict a clinical benefit, or on the
basis of an effect on a clinical endpoint other than survival or
irreversible morbidity. As a condition of approval, the FDA may
require that a sponsor of a pharmaceutical product receiving
accelerated approval perform adequate and well-controlled
post-marketing clinical studies. In addition, the FDA currently
requires as a condition for accelerated approval pre-approval of
promotional materials, which could adversely impact the timing of
the commercial launch of the product. Fast Track designation,
priority review and accelerated approval do not change the
standards for approval but may expedite the development or approval
process.
European Union Drug Review and Approval
In the European Economic Area (“EEA”) (which is
comprised of the 28 Member States of the European Union plus
Norway, Iceland and Liechtenstein), medicinal products can only be
commercialized after obtaining a Marketing Authorization
(“MA”). There are two types of MA:
The Community MA, which is issued by the European Commission
through the Centralized Procedure, based on the opinion of the
CHMP, or Committee for Medicinal Products for Human Use, of the
European Medicines Agency (“EMA”), is valid throughout
the entire territory of the EEA. The Centralized Procedure is
mandatory for certain types of products, such as biotechnology
medicinal products, orphan medicinal products, and medicinal
products containing a new active substance indicated for the
treatment of AIDS, cancer, neurodegenerative disorders, diabetes
and auto-immune and viral diseases. The Centralized Procedure is
optional for products containing a new active substance not yet
authorized in the EEA, or for products that constitute a
significant therapeutic, scientific or technical innovation or
which are in the interest of public health in the EU.
National MAs, which are issued by the competent authorities of the
Member States of the EEA and only cover their respective territory,
are available for products not falling within the mandatory scope
of the Centralized Procedure. Where a product has already been
authorized for marketing in a Member State of the EEA, this
National MA can be recognized in other Member States through the
Mutual Recognition Procedure. If the product has not received a
National MA in any Member State at the time of application, it can
be approved simultaneously in various Member States through the
Decentralized Procedure. Under the above described procedures,
before granting the MA, the EMA or the competent authorities of the
Member States of the EEA make an assessment of the risk-benefit
balance of the product on the basis of scientific criteria
concerning its quality, safety and efficacy.
The following chart provides the FDA Approval status and clinical
status of each of our drug product candidates:
|
Candidate
|
FDA Approval Status
|
Clinical Status
|
|
Validive®
|
Not
Approved
|
Phase
II completed; designing Phase III
|
|
GPX-150
|
Not
Approved
|
Small
Phase II completed; designing additional Phase II
study
|
|
MNPR-101
|
Not
Approved
|
Pre-IND
|
|
Anti-uPAR
MAbs
|
Not
Approved
|
Preclinical
|
Post-Approval Requirements
Any pharmaceutical products for which a sponsor receives FDA
approvals are subject to continuing regulation by the FDA,
including, among other things, record-keeping requirements,
reporting of adverse experiences with the product, providing the
FDA with updated safety and efficacy information, product sampling
and distribution requirements, complying with certain electronic
records and signature requirements and complying with FDA and FTC
promotion and advertising requirements, which include, among
others, standards for direct-to-consumer advertising, prohibitions
on promoting pharmaceutical products for uses or in patient
populations that are not described in the pharmaceutical
product’s approved labeling (known as “off-label
use”), industry-sponsored scientific and educational
activities and promotional activities involving the internet.
Failure to comply with FDA requirements can have negative
consequences, including adverse publicity, enforcement letters from
the FDA, actions by the United States Department of Justice and/or
United States Department of Health and Human Services Office of
Inspector General, mandated corrective advertising or
communications with doctors, and civil or criminal penalties.
Although physicians may prescribe legally available pharmaceutical
products for off-label uses, manufacturers may not directly or
indirectly market or promote such off-label uses.
Manufacturers of FDA approved products are required to comply with
applicable FDA manufacturing requirements contained in the
FDA’s cGMP regulations. cGMP regulations require, among other
things, quality control and quality assurance, as well as the
corresponding maintenance of records and documentation.
Pharmaceutical product manufacturers and other entities involved in
the manufacture and distribution of approved pharmaceutical
products are required to register their establishments with the FDA
and certain state agencies, and are subject to periodic unannounced
inspections by the FDA and certain state agencies for compliance
with cGMP and other laws. Accordingly, manufacturers must continue
to expend time, money and effort in the area of production and
quality control to maintain cGMP compliance. Discovery of problems
with a product after approval may result in restrictions on a
product, manufacturer or holder of an approved NDA, including
withdrawal of the product from the market. In addition, changes to
the manufacturing process generally require prior FDA approval
before being implemented and other types of changes to the approved
product, such as adding new indications and additional labeling
claims, are also subject to further FDA review and approval. The
FDA also may require post-marketing testing, known as Phase IV
testing, risk minimization action plans and surveillance to monitor
the effects of an approved product or place conditions on an
approval that could restrict the distribution or use of the
product.
United States Foreign Corrupt Practices Act
The United States Foreign Corrupt Practices Act
(“FCPA”), prohibits certain individuals and entities
from promising, paying, offering to pay, or authorizing the payment
of anything of value to any foreign government official, directly
or indirectly, to obtain or retain business or an improper
advantage. The United States Department of Justice and the SEC have
increased their enforcement efforts with respect to the FCPA.
Violations of the FCPA may result in large civil and criminal
penalties and could result in an adverse effect on a
company’s reputation, operations, and financial condition. A
company may also face collateral consequences such as debarment and
the loss of export privileges.
Federal and State Fraud and Abuse Laws
In addition to FDA restrictions on marketing of pharmaceutical
products, several other types of state and federal laws have been
applied to restrict certain business practices in the
biopharmaceutical industry in recent years. These laws include
anti-kickback statutes and false claims statutes. The federal
Anti-Kickback Statute prohibits, among other things, knowingly and
willfully offering, paying, soliciting, or receiving remuneration
to induce or in return for purchasing, leasing, ordering, or
arranging for the purchase, lease, or order of any healthcare item
or service reimbursable under Medicare, Medicaid, or other
federally financed healthcare programs. The term
“remuneration” has been broadly interpreted to include
anything of value, including for example, gifts, discounts, the
furnishing of supplies or equipment, credit arrangements, payments
of cash, waivers of payment, ownership interests and providing
anything at less than its fair market value. The Anti-Kickback
Statute has been interpreted to apply to arrangements between
pharmaceutical manufacturers on one hand and prescribers,
purchasers, and formulary managers on the other. Although there are
a number of statutory exemptions and regulatory safe harbors
protecting certain common activities from prosecution, the
exemptions and safe harbors are drawn narrowly, and a
company’s practices may not in all cases meet all of the
criteria for statutory exemptions or safe harbor protection.
Practices that involve remuneration that may be alleged to be
intended to induce prescribing, purchases, or recommendations may
be subject to scrutiny if they do not qualify for an exemption or
safe harbor. Several courts have interpreted the statute’s
intent requirement to mean that if any one purpose of an
arrangement involving remuneration is to induce referrals of
federal healthcare covered business, the statute has been violated.
The reach of the Anti-Kickback Statute was also broadened by the
PPACA, which, among other things, amends the intent requirement of
the federal Anti-Kickback Statute. Pursuant to the statutory
amendment, a person or entity no longer needs to have actual
knowledge of this statute or specific intent to violate it in order
to have committed a violation. In addition, the PPACA provides that
the government may assert that a claim including items or services
resulting from a violation of the federal Anti-Kickback Statute
constitutes a false or fraudulent claim for purposes of the civil
False Claims Act (discussed below) or the civil monetary penalties
statute, which imposes penalties against any person who is
determined to have presented or caused to be presented a claim to a
federal health program that the person knows or should know is for
an item or service that was not provided as claimed or is false or
fraudulent.
The federal False Claims Act prohibits any person from knowingly
presenting, or causing to be presented, a false claim for payment
to the federal government. Recently, several pharmaceutical and
other healthcare companies have been prosecuted under these laws
for allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the
product. Other companies have been prosecuted for causing false
claims to be submitted because of the companies’ marketing of
the product for unapproved, and thus non-reimbursable, uses. Many
states also have statutes or regulations similar to the federal
Anti-Kickback Statute and False Claims Act, which state laws apply
to items and services reimbursed under Medicaid and other state
programs, or, in several states, apply regardless of the payer.
Also, the federal Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”), created new federal criminal
statutes that prohibit knowingly and willfully executing a scheme
to defraud any healthcare benefit program, including private
third-party payers and knowingly and willfully falsifying,
concealing or covering up a material fact or making any materially
false, fictitious or fraudulent statement in connection with the
delivery of or payment for healthcare benefits, items or services.
Because of the breadth of these laws and the narrowness of the
federal Anti-Kickback Statute’s safe harbors, it is possible
that some of a company’s business activities could be subject
to challenge under one or more of such laws. Such a challenge could
have a material adverse effect on a company’s business,
financial condition and results of operations. See
“Risk Factors
- Risks Related to Commercialization of Our Product
Candidates.” HIPAA, as
amended by the Health Information Technology and Clinical Health
Act (“HITECH”), and its implementing regulations,
imposes certain requirements relating to the privacy, security and
transmission of individually identifiable health information. Among
other things, HITECH makes HIPAA’s privacy and security
standards directly applicable to “business
associates”—independent contractors or agents of
covered entities that receive or obtain protected health
information in connection with providing a service on behalf of a
covered entity. HITECH also increased the civil and criminal
penalties that may be imposed against covered entities, business
associates and possibly other persons, and gave state attorneys
general new authority to file civil actions for damages or
injunctions in federal courts to enforce the federal HIPAA laws and
seek attorney’s fees and costs associated with pursuing
federal civil actions. In addition, state laws govern the privacy
and security of health information in certain circumstances, many
of which differ from each other in significant ways and may not
have the same effect, thus complicating compliance
efforts. See “Risk Factors - Risks
Related to Commercialization of Our Product
Candidates.”
In the United States and foreign jurisdictions, there have been a
number of legislative and regulatory changes to the healthcare
system, in particular, there have been and continue to be a number
of initiatives at the United States federal and state levels that
seek to reduce healthcare costs. The Medicare Prescription Drug,
Improvement, and Modernization Act of 2003 (“MMA”),
imposed new requirements for the distribution and pricing of
prescription drugs for Medicare beneficiaries. Under Part D,
Medicare beneficiaries may enroll in prescription drug plans
offered by private entities, which will provide coverage of
outpatient prescription drugs. Part D plans include both
stand-alone prescription drug benefit plans and prescription drug
coverage as a supplement to Medicare Advantage plans. Unlike
Medicare Part A and B, Part D coverage is not standardized. Part D
prescription drug plan sponsors are not required to pay for all
covered Part D
drugs, and each drug plan can develop its own drug formulary that
identifies which drugs it will cover and at what tier or level.
However, Part D prescription drug formularies must include drugs
within each therapeutic category and class of covered Part D drugs,
though not necessarily all the drugs in each category or class. Any
formulary used by a Part D prescription drug plan must be developed
and reviewed by a pharmacy and therapeutic committee. Moreover,
while the MMA applies only to drug benefits for Medicare
beneficiaries, private payers often follow Medicare coverage policy
and payment limitations in setting their own payment rates. Any
reduction in payment that results from Medicare Part D may result
in a similar reduction in payments from non-governmental
payers.
The American Recovery and Reinvestment Act of 2009 provides funding
for the federal government to compare the effectiveness of
different treatments for the same illness. A plan for the research
will be developed by the Department of Health and Human Services,
the Agency for Healthcare Research and Quality and the National
Institutes for Health, and periodic reports on the status of the
research and related expenditures will be made to Congress.
Although the results of the comparative effectiveness studies are
not intended to mandate coverage policies for public or private
payers, it is not clear what effect, if any, the research will have
on the sales of any product, if any such product or the condition
that it is intended to treat is the subject of a
study.
In March 2010 the PPACA was enacted, which includes measures to
significantly change the way healthcare is financed by both
governmental and private insurers. Among the provisions of the
PPACA of importance to the pharmaceutical and biotechnology
industry are the following:
●
an
annual, nondeductible fee on any entity that manufactures or
imports certain branded prescription drugs and biologic agents,
apportioned among these entities according to their market share in
certain government healthcare programs, that began in
2011;
●
an
increase in the rebates a manufacturer must pay under the Medicaid
Drug Rebate Program to 23.1% and 13% of the average manufacturer
price for branded and generic drugs, respectively;
●
a
new Medicare Part D coverage gap discount program, in which
manufacturers must agree to offer 50% point-of-sale discounts to
negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for
the manufacturer’s outpatient drugs to be covered under
Medicare Part D;
●
extension
of manufacturers’ Medicaid rebate liability to covered drugs
dispensed to individuals who are enrolled in Medicaid managed care
organizations;
●
expansion
of eligibility criteria for Medicaid programs by, among other
things, allowing states to offer Medicaid coverage to additional
individuals and by adding new mandatory eligibility categories for
certain individuals with income at or below 133% of the Federal
Poverty Level beginning in 2014, thereby potentially increasing
manufacturers’ Medicaid rebate liability;
●
expansion
of the entities eligible for discounts under the Public Health
Service pharmaceutical pricing program
●
new
requirements under the federal Open Payments program, created under
Section 6002 of the PPACA and its implementing regulations,
that manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or
the Children’s Health Insurance Program (with certain
exceptions) report annually to the United States Department of
Health and Human Services (“HHS”), information related
to “payments or other transfers of value” made or
distributed to physicians (defined to include doctors, dentists,
optometrists, podiatrists and chiropractors) and teaching
hospitals, and that applicable manufacturers and applicable group
purchasing organizations report annually to HHS ownership and
investment interests held by physicians (as defined above) and
their immediate family members, with data collection required
beginning August 1, 2013 and reporting to the Centers for
Medicare & Medicaid Services (“CMS”), required
by March 31, 2014 and by the 90th day of each subsequent
calendar year;
●
a
requirement to annually report drug samples that manufacturers and
distributors provide to physicians, effective April 1,
2012;
●
expansion
of health care fraud and abuse laws, including the False Claims Act
and the Anti-Kickback Statute, new government investigative powers,
and enhanced penalties for noncompliance;
●
a
licensure framework for follow-on biologic products;
●
a
new Patient-Centered Outcomes Research Institute to oversee,
identify priorities in, and conduct comparative clinical
effectiveness research, along with funding for such
research;
●
creation
of the Independent Payment Advisory Board which, beginning in 2014,
will have authority to recommend certain changes to the Medicare
program that could result in reduced payments for prescription
drugs and those recommendations could have the effect of law even
if Congress does not act on the recommendations; and
●
establishment
of a Center for Medicare Innovation at CMS to test innovative
payment and service delivery models to lower Medicare and Medicaid
spending, potentially including prescription drug spending that
began on January 1, 2011.
In addition, other legislative changes have been proposed and
adopted since the PPACA was enacted. In August 2011, the President
signed into law the Budget Control Act of 2011, which, among other
things, created the Joint Select Committee on Deficit Reduction, or
joint committee, to recommend proposals in spending reductions to
Congress. The joint committee did not achieve its targeted deficit
reduction of at least $1.2 trillion and for the years 2013 through
2021, triggering automatic reductions to several government
programs. These reductions include aggregate reductions to Medicare
payments to providers of up to 2% per fiscal year, starting in
2013. In January 2013, the President signed into law the American
Taxpayer Relief Act of 2012, which, among other things, reduced
Medicare payments to several providers and increased the statute of
limitations period for the government to recover overpayments to
providers from three to five years. These new laws may result in
additional reductions in Medicare and other healthcare
funding.
There have been a number of proposals in the U.S. Congress to
repeal or replace parts of the PPACA. Some of the proposals include
the repeal of the tax on prescription medications, repeal of the
medical device excise tax for sales, and repeal of the elimination
of a deduction for expenses allocable to Medicare Part D subsidy.
It is uncertain whether any repeal or replace legislation will be
passed and signed into law or what effect any such legislation may
have on our commercialization strategy. See
“Risk
Factors - Future Legislation
or Executive Action May Increase the Difficulty and Cost for us to
Commercialize our Products and Affect the Prices Obtained for Such
Products.”
Patent Term Restoration and Marketing Exclusivity
Depending
upon the timing, duration and specifics of the FDA approval of the
use of our pharmaceutical product candidates, some of our products
to be licensed under United States patents may be eligible for
limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, commonly referred to as the
Hatch-Waxman Amendments. The Hatch-Waxman Amendments permits a
patent restoration term of up to five years as compensation for
patent term lost during product development and the FDA regulatory
review process. However, patent term restoration cannot extend the
remaining term of a patent beyond a total of 14 years from the
product’s approval date. The patent term restoration period
is generally one-half the time between the effective date of an IND
and the submission date of an NDA plus the time between the
submission date of an NDA and the approval of that application.
Only one patent applicable to an approved pharmaceutical product is
eligible for the extension and the application for the extension
must be submitted prior to the expiration of the patent. The United
States Patent and Trademark Office (“USPTO”), in
consultation with the FDA, reviews and approves the application for
any patent term extension or restoration.
Market
exclusivity provisions under the United States Food, Drug, and
Cosmetic Act can also delay the submission or the approval of
certain applications of other companies seeking to reference
another company’s NDA.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant
uncertainty exists as to the coverage and reimbursement status of
any pharmaceutical product candidates for which we obtain
regulatory approval. In the United States and markets in other
countries, sales of any products for which we receive regulatory
approval for commercial sale will depend in part upon the
availability of reimbursement from third-party payers. Third-party
payers include government payers such as Medicare and Medicaid,
managed care providers, private health insurers and other
organizations. The process for determining whether a payer will
provide coverage for a pharmaceutical product may be separate from
the process for setting the price or reimbursement rate that the
payer will pay for the pharmaceutical product. Third-party payers
may limit coverage to specific pharmaceutical products on an
approved list, or formulary, which might not include all of the
FDA-approved pharmaceutical products for a particular indication.
Third-party payers are increasingly challenging the price and
examining the medical necessity and cost-effectiveness of medical
products and services, in addition to their safety and efficacy. We
may need to conduct expensive pharmaco-economic studies in order to
demonstrate
the
medical necessity and cost-effectiveness of its products, in
addition to the costs required to obtain the FDA approvals. A
payer’s decision to provide coverage for a pharmaceutical
product does not imply that an adequate reimbursement rate will be
approved.
In
2003, the federal government enacted legislation providing a
partial prescription drug benefit for Medicare recipients, which
became effective at the beginning of 2006. However, to obtain
payments under this program, a company would be required to sell
products to Medicare recipients through prescription drug plans
operating pursuant to this legislation. As part of their
participation in the Medicare prescription drug program, these
plans negotiate discounted prices for prescription drugs. Federal,
state and local governments in the United States continue to
consider legislation to limit the growth of health care costs,
including the cost of prescription drugs. Future legislation and
regulations could limit payments for pharmaceuticals such as the
drug product candidates that we are developing.
Different
pricing and reimbursement schemes exist in other countries. In the
European Community, governments influence the price of
pharmaceutical products through their pricing and reimbursement
rules and control of national health care systems that fund a large
part of the cost of those products to consumers. Some jurisdictions
operate positive and negative list systems under which products may
only be marketed once a reimbursement price has been agreed upon.
To obtain reimbursement or pricing approval, some of these
countries may require the completion of clinical studies that
compare the cost-effectiveness of a particular pharmaceutical
product candidate to currently available therapies. Other member
states allow companies to fix their own prices for medicines, but
monitor and control company profits. The downward pressure on
health care costs in general, particularly prescription drugs, has
become very intense. As a result, increasingly high barriers are
being erected to the entry of new products. In addition, in some
countries, cross-border imports from low-priced markets exert a
commercial pressure on pricing within a country.
International Regulation
In
addition to regulations in the United States, there are a variety
of foreign regulations governing clinical studies and commercial
sales and distribution of our future product candidates. Whether or
not FDA approval is obtained for a product, approval of a product
must be obtained by the comparable regulatory authorities of
foreign countries before clinical studies or marketing of the
product can commence in those countries. The approval process
varies from country to country, and the time may be longer or
shorter than that required for FDA approval. The requirements
governing the conduct of clinical studies, product licensing,
pricing and reimbursement vary greatly from country to country. In
addition, certain regulatory authorities in select countries may
require us to repeat previously conducted preclinical and/or
clinical studies under specific criteria for approval in their
respective country which may delay and/or greatly increase the cost
of approval in certain markets targeted for approval by
us.
Under
E.U. regulatory systems, marketing applications for pharmaceutical
products must be submitted under a centralized procedure to the
European Medicines Agency (“EMA”). The centralized
procedure provides for the grant of a single marketing
authorization that is valid for all E.U. member states. The EMA
also has designations for Orphan Drugs, which, if applicable, can
provide for faster review, lower fees and more access to advice
during drug development. While
the
marketing authorization in the European Union is centralized, the
system for clinical studies (application, review and requirements)
is handled by each individual country. Approval to run a clinical
study in one country does not guarantee approval in any other
country. The pharmaceutical industry in Canada is regulated by
Health Canada. A New Drug Submission (NDS) is the equivalent of a
United States NDA and must be filed to obtain approval to market a
pharmaceutical product in Canada. Marketing regulations and
reimbursement are subject to national and provincial laws. In
Japan, applications for approval to manufacture and market new
drugs must be approved by the Ministry of Health, Labor and
Welfare. Nonclinical and clinical studies must meet the
requirements of Japanese laws. Results from clinical studies
conducted outside of Japan must be supplemented with at least a
bridging clinical study conducted in Japanese
patients.
In
addition to regulations in Europe, Canada, Japan and the United
States, there are a variety of foreign regulations governing
clinical studies, commercial distribution and reimbursement of
future product candidates which we may be subject to as we pursue
regulatory approval and commercialization of Validive, GPX-150,
MNPR-101, or any future product candidates
internationally.
Employees
Our
operations are currently overseen by five individuals, including
three with a PhD, two with an MD, one with an MBA, one with an MSc
in health economics and policy, and one with an inactive CPA. They
have worked at industry leading companies such as BioMarin
Pharmaceutical Inc., Raptor Pharmaceuticals, Abbott Laboratories,
and Onyx Pharmaceuticals. As of December 1, 2017, we
have five employees; four of them are full-time employees. For
information regarding our executive officers, see the section
entitled “EXECUTIVE OFFICERS
AND BOARD MEMBERS.”
Item 1A. Risk
Factors.
RISK FACTORS
An
investment in our common stock involves a high degree of risk. A
prospective investor should carefully consider the following
information about these risks, together with other information
appearing elsewhere in this Form 10, before deciding to invest in
our common stock. The occurrence of any of the following risks
could have a material adverse effect on our business, financial
condition, results of operations and future prospects and
prospective investors could lose all or part of their investment.
The risk factors discussed below and elsewhere in this Form 10 are
not exhaustive; other significant risks may exist that are not
identified in this Form 10, but that might still materially and
adversely affect our business, prospects, financial condition, and
results of operations were any of such risks to occur.
Risks Related to Our Financial Condition and Capital
Requirements
We have a limited operating history, expect to incur significant
operating losses, and have a high risk of never being
profitable.
We
commenced operations in December 2014 and have a limited operating
history of almost three years. Therefore, there is limited
historical financial information upon which to evaluate our
performance. Our prospects must be considered in light of the
uncertainties, risks, expenses, and difficulties frequently
encountered by companies in their early stages of operations. Most
companies in our industry and at our stage of development never
become profitable and go out of business without ever successfully
developing any product that generates revenue from commercial
sales.
From
inception in December 2014 through September 30, 2017,
we have incurred losses of approximately $17.7
million. We expect to continue to incur substantial operating
losses over the next several years for the clinical development of
our current and future licensed or purchased drug product
candidates.
The
amount of future losses and when, if ever, we will become
profitable are uncertain. We do not have any products that have
generated any revenues from commercial sales, and do not expect to
generate revenues from the commercial sale of products in the near
future, if ever. Our ability to generate revenue and achieve
profitability will depend on, among other things, successful
completion of the development of our product candidates; obtaining
necessary regulatory approvals from the FDA and international
regulatory agencies; establishing manufacturing, sales, and
marketing arrangements with third parties; obtaining adequate
reimbursement by third party payers; and raising sufficient funds
to finance our activities. We might not succeed at any of these
undertakings. If we are unsuccessful at some or all of these
undertakings, our business, financial condition, and results of
operations are expected to be materially and adversely
affected.
After
the filing of this Form 10, we will be a reporting company and will
be subject to reporting and other requirements, which will lead to
increased operating costs in order to meet these
requirements.
If we continue to incur operating losses and fail to obtain the
capital necessary to fund our operations, we may be unable to
advance our development program, complete our clinical trials, or
bring products to market, or may be forced to cease operations
entirely. In addition, any capital obtained by us may be obtained
on terms that are unfavorable to us, our investors, or
both.
Developing
a new drug and conducting clinical trials for one or more disease
indications involves substantial costs. We have projected cash
requirements for the near term based on a variety of assumptions,
but some or all of such assumptions are likely to be incorrect
and/or incomplete, possibly materially so. Our actual cash needs
may deviate materially from those projections, changes in market
conditions or other factors may increase our cash requirements, or
we may not be successful even in raising the amount of cash we
currently project will be required for the near
term.
See discussion of our material development agreements in
“Material
Agreements”. We will
need to
raise additional capital in the future; the amount of additional
capital needed will vary as a result of a number of factors,
including without limitation the following:
●
receiving less
funding than we require;
●
higher than
expected costs to produce our drug product candidates;
●
higher than
expected costs for preclinical testing;
●
an increase in the
number, size, duration, or complexity of our clinical
trials;
●
slower than
expected progress in developing Validive, GPX-150, MNPR-101, or
other drug product candidates;
●
higher than
expected costs associated with attempting to obtain regulatory
approvals, including without limitation additional costs caused by
delays;
●
higher than
expected personnel or other costs, such as adding personnel or
pursuing the licensing/acquisition of additional assets;
and
●
higher than
expected costs to protect our intellectual property portfolio or
otherwise pursue our intellectual property strategy.
If we
attempt to raise additional financing, there can be no assurance
that we will be able to secure such additional financing in
sufficient quantities or at all. We may be unable to raise
additional capital for reasons including without limitation our
financial performance, investor confidence in us and the
biopharmaceutical industry, credit availability from banks and
other financial institutions, the status of current projects, and
our prospects for obtaining any necessary regulatory
approvals.
In
addition, any additional financing might not be available and even
if available, may not be available on terms favorable to us or our
then-existing investors. We may seek to raise funds through public
or private equity offerings, debt financings, corporate
collaboration or licensing arrangements, mergers, acquisitions,
sales of intellectual property, or other financing vehicles or
arrangements. To the extent that we raise additional capital by
issuing equity securities or other securities, our then-existing
investors may experience significant dilution. If we raise funds
through debt financings or bank loans, we may become subject to
restrictive covenants, our assets may be pledged as collateral for
the debt, and the interests of our then-existing investors would be
subordinated to the debt holders or banks. In addition, our use of
and ability to exploit assets pledged as collateral for debt or
loans may be restricted or forfeited. To the extent that we raise
additional funds through collaboration or licensing arrangements,
we may be required to relinquish significant rights (including
without limitation intellectual property rights) to our
technologies or product candidates, or grant licenses on terms that
are not favorable to us. If we are not able to raise needed funding
under acceptable terms or at all, then we may have to reduce
expenses, including without limitation by curtailing operations,
abandoning opportunities, selling off assets, reducing costs, or
ceasing operations entirely.
Risks Related to Clinical Development and Regulatory
Approval
We do not have and may never have any approved products on the
market. Our business is highly dependent upon receiving approvals
from various United States and international governmental agencies
and will be severely harmed if we are not granted approval to
manufacture and sell our drug product candidates.
In
order for us to commercialize any treatment for a cancer indication
or for any other clinical indication, we must obtain regulatory
approvals of such treatment for that indication. Satisfying
regulatory requirements is an expensive process that typically
takes many years and involves compliance with requirements covering
research and development, testing, manufacturing, quality control,
labeling, and promotion of drugs for human use. To obtain necessary
regulatory approvals, we must, among other requirements, complete
clinical trials demonstrating that our products are safe and
effective for a particular indication. There can be no assurance
that our products are safe and effective, that our clinical trials
will demonstrate the necessary safety and effectiveness of our drug
product candidates, or that we will succeed in obtaining regulatory
approval for any treatment we develop even if such safety and
effectiveness are demonstrated.
Any
delays or difficulties we encounter in our clinical trials may
delay or preclude regulatory approval from the FDA or from
international regulatory organizations. Any delay or preclusion of
regulatory approval would be expected to delay or preclude the
commercialization of our products. Examples of delays or
difficulties that we may encounter in our clinical trials include
without limitation the following:
●
Clinical trials may
not yield sufficiently conclusive results for regulatory agencies
to approve the use of our products.
●
Our products may
fail to be more effective than current therapies, or to be
effective at all.
●
We may discover
that our products have adverse side effects, which could cause our
products to be delayed or precluded from receiving regulatory
approval or otherwise expose us to significant commercial and legal
risks.
●
It may take longer
than expected to determine whether or not a treatment is
effective.
●
Patients involved
in our clinical trials may die, whether as a result of treatment
with our products, the withholding of such treatment, or other
reasons (whether within or outside of our control).
●
We may fail to
enroll a sufficient number of patients in our clinical
trials.
●
Patients enrolled
in our clinical trials may not have the characteristics necessary
to obtain regulatory approval for a particular
indication.
●
We may be unable to
produce sufficient quantities of product to complete the clinical
trials.
●
Even if we are
successful in our clinical trials, any required governmental
approvals may still not be obtained or, if obtained, may not be
maintained.
●
If approval for
commercialization is granted, it is possible the authorized use
will be more limited than is necessary for commercial success, or
that approval may be conditioned on completion of further clinical
trials or other activities, which we might not succeed in
performing or completing.
●
If granted,
approval may be withdrawn or limited if problems with our products
emerge or are suggested by the data arising from their use or if
there is a change in law or regulation.
Any
success we may achieve at a given stage of our clinical trials does
not guarantee that we will achieve success at any subsequent stage,
including without limitation final FDA approval.
We may
encounter delays or rejections in the regulatory approval process
because of additional government regulation resulting from future
legislation or administrative action, or from changes in the
policies of the FDA or other regulatory bodies during the period of
product development, clinical trials, or regulatory review. Failure
to comply with applicable regulatory requirements may result in
criminal prosecution, civil penalties, recall or seizure of
products, total or partial suspension of production, or an
injunction preventing certain activity, as well as other regulatory
action against our product candidates or us. As a company, we have
no experience in successfully obtaining regulatory approval for a
drug and thus may be poorly equipped to gauge, and may prove unable
to manage risks relating to obtaining such approval.
Outside
the United States, our ability to market a product is contingent
upon receiving clearances from appropriate non-United States
regulatory authorities. Non-United States regulatory approval
typically includes all of the risks associated with FDA clearance
discussed above as well as the additional uncertainties and
potential prejudices faced by United States companies conducting
business abroad.
If we or our licensees, development collaborators, or suppliers are
unable to manufacture our products in sufficient quantities or are
unable to obtain regulatory approvals for the manufacturing
facility, we may be unable to develop and/or meet demand for our
products and lose potential revenues.
Completion
of our clinical trials and commercialization of our product
candidates require access to, or development of, facilities to
manufacture a sufficient supply of our product candidates. We
currently contract with outside sources to manufacture MNPR-101. In
order to be able to manufacture sufficient quantities of MNPR-101
to be able to proceed with human clinical trials, Cancer Research
UK has developed a new cell line and is in the process of testing
the new line against the original cell line. There can be no
assurance that such testing will be successful or that sufficient
quantities of MNPR-101 will be able to be manufactured. We in the
future may become unable, for various reasons, to rely on our
sources for the manufacture of our product candidates, either for
clinical trials or, at some future date, for commercial
distribution. We may not be successful in identifying additional or
replacement third-party manufacturers, or in negotiating acceptable
terms with any we do identify. We may face competition for access
to these manufacturers’ facilities and may be subject to
manufacturing delays if the manufacturers give other clients higher
priority than they give to us. Even if we are able to identify an
additional or replacement third-party manufacturer, the delays and
costs associated with establishing and maintaining a relationship
with such manufacturer may have a material adverse effect on
us.
Before
we can begin to commercially manufacture Validive, GPX-150,
MNPR-101, or any other product candidate, we must obtain regulatory
approval of the manufacturing facility and process. Manufacturing
of drugs for clinical and commercial purposes must comply with the
FDA's current Good Manufacturing Practices requirements, commonly
known as “cGMP”, and applicable non-United States
regulatory requirements. The cGMP requirements govern quality
control and
documentation
policies and procedures. Complying with cGMP and non-United States
regulatory requirements will require that we expend time, money,
and effort in production, recordkeeping, and quality control to
ensure that the product meets applicable specifications and other
requirements. We, or our contracted manufacturing facility, must
also pass a pre-approval inspection prior to FDA approval. Failure
to pass a pre-approval inspection may significantly delay or
prevent FDA approval of our products. If we fail to comply with
these requirements, we would be subject to possible regulatory
action and may be limited in the jurisdictions in which we are
permitted to sell our products.
It is uncertain whether insurance will be adequate to address
product liability claims, or that insurance against such claims
will be affordable or available on acceptable terms in the
future.
Clinical
research involves the testing of new drugs on human volunteers
pursuant to a clinical trial protocol. Such testing involves a risk
of liability for personal injury to or death of patients due to,
among other causes, adverse side effects, improper administration
of the new drug, or improper volunteer behavior. Claims may arise
from patients, clinical trial volunteers, consumers, physicians,
hospitals, companies, institutions, researchers, or others using,
selling, or buying our products, as well as from governmental
bodies. In addition, product liability and related risks are likely
to increase over time, in particular upon the commercialization or
marketing of any products by us or parties with which we enter into
development, marketing, or distribution collaborations. Although we
are contracting for general liability insurance in connection with
our ongoing business, there can be no assurance that the amount and
scope of such insurance coverage will be appropriate and sufficient
in the event any claims arise, that we will be able to secure
additional coverage should we attempt to do so, or that our
insurers would not contest or refuse any attempt by us to collect
on such insurance policies. Furthermore, there can be no assurance
that suitable insurance will continue to be available on terms
acceptable to us or at all, or that, if obtained, the insurance
coverage will be appropriate and sufficient to cover any potential
claims or liabilities.
Risks Related to Our Reliance on Third Parties
Corporate, non-profit, and academic collaborators may take actions
to delay, prevent, or undermine the success of our
products.
Our
operating and financial strategy for the development, clinical
testing, manufacture, and commercialization of drug product
candidates is heavily dependent on us entering into collaborations
with corporations, non-profits, academic institutions, licensors,
licensees, and other parties. There can be no assurance that we
will be successful in establishing such collaborations. Some of our
existing collaborations are, and future collaborations may be,
terminable at the sole discretion of the collaborator, such as the
Cancer Research UK Clinical Trial and Option Agreement. Replacement
collaborations might not be available on attractive terms, or at
all. The activities of any collaborator will not be within our
control and may not be in our power to influence. There can be no
assurance that any collaborator will perform its obligations to our
satisfaction or at all; that we will derive any revenue, profits,
or benefit from such collaborations; or that any collaborator will
not compete with us. If any collaboration is not pursued, we
may
require
substantially greater capital to undertake development and
commercialization of our proposed products, and may not be able to
develop and commercialize such products effectively, if at all. In
addition, a lack of development and commercialization
collaborations may lead to significant delays in introducing
proposed products into certain markets and/or reduced sales of
proposed products in such markets. Furthermore, current or future
collaborators may act deliberately or inadvertently in ways
detrimental to our interests.
The termination of third-party licenses could adversely affect our
rights to important compounds.
We rely
on certain rights to MNPR-101 that we have secured through a
non-exclusive license agreement with XOMA. XOMA, as licensor, has
the ability to terminate the license if we breach our obligations
under the license agreement and do not remedy any such breach in
time after receiving written notice of such breach from XOMA. A termination of the
license agreement might force us to cease developing and/or selling
MNPR-101. We have exercised our option to license Validive; as
such, Onxeo has the ability to terminate the license if we breach
our obligations under the option and license agreement. A
termination of the option and license agreement might force us to
cease developing and/or selling Validive.
Data provided by collaborators and other parties upon which we rely
has not been independently verified and could turn out to be false,
misleading, or incomplete.
We rely
on third-party vendors, scientists, and collaborators to provide us
with significant data and other information related to our
projects, clinical trials, and business. We do not independently
verify or audit all of such data (including possibly material
portions thereof). As a result, such data may be inaccurate,
misleading, or incomplete.
In certain cases, we rely on a single supplier for a particular
manufacturing material, and any interruption in or termination of
service by such supplier could delay or disrupt the
commercialization of our products.
We rely
on third-party suppliers for the materials used to manufacture our
compounds. Some of these materials may only be available from one
supplier. Any interruption in or termination of service by such
single source suppliers could result in a delay or disruption in
manufacturing until we locate an alternative source of supply.
There can be no assurance that we would be successful in locating
such alternative source of supply or in negotiating acceptable
terms with such prospective supplier.
Risks Related to Commercialization of Our Product
Candidates
Our product development efforts are at an early stage. We have not
yet undertaken any marketing efforts, and there can be no
assurances that we will be successful in either developing or
marketing any product.
We have
not completed the development or clinical trials of any product
candidates and, accordingly, have not yet begun to market or
generate revenue from the commercialization of any
products.
Commercializing these product candidates will require substantial
additional research and development as well as costly clinical
trials. There can be no assurance that we will successfully
complete development of our product candidates or successfully
market them. We may encounter problems and delays relating to
research and development, regulatory approval, intellectual
property rights of product candidates, or other factors. There can
be no assurance that our development programs will be successful,
that our products, if successfully developed, will prove to be safe
and effective in or after clinical trials, that the necessary
regulatory approvals for any product candidates will be obtained,
or, even if obtained, will be as broad as sought or will be
maintained for any period thereafter, that patents will issue on
our patent applications, that any intellectual property protections
we secure will be adequate, or that our collaboration arrangements
will not diminish the value of our intellectual property through
licensing or other arrangements. Furthermore, there can be no
assurance that any product we might market will be received
favorably by customers (whether physicians, patients, or both),
adequately reimbursed by third party payers, or that competitive
products will not perform better and/or be marketed more
successfully.
If we are unable to establish relationships with licensees or
collaborators to carry out sales, marketing, and distribution
functions or to create effective marketing, sales, and distribution
capabilities, we may be unable to market our products
successfully.
Our
business strategy may include out-licensing product candidates to
or collaborating with larger firms with experience in marketing and
selling pharmaceutical products. There can be no assurance that we
will successfully be able to establish marketing, sales, or
distribution relationships with any third party, that such
relationships, if established, will be successful, or that we will
be successful in gaining market acceptance for any products we
might develop. To the extent that we enter into any marketing,
sales, or distribution arrangements with third parties, our product
revenues per unit sold are expected to be lower than if we
marketed, sold, and distributed our products directly, and any
revenues we receive will depend upon the efforts of such third
parties.
If we
are unable to establish such third-party marketing and sales
relationships, or choose not to do so, we would have to establish
in-house marketing and sales capabilities. We have no experience in
marketing or selling oncology pharmaceutical products, and
currently have no marketing, sales, or distribution infrastructure
and no experience developing or managing such infrastructure for an
oncology product. To market any products directly, we would have to
establish a marketing, sales, and distribution force that had
technical expertise and could support a distribution capability.
Competition in the biopharmaceutical industry for technically
proficient marketing, sales, and distribution personnel is intense
and attracting and retaining such personnel may significantly
increase our costs. There can be no assurance that we will be able
to establish internal marketing, sales, or distribution
capabilities or that these capabilities will be sufficient to meet
our needs.
Commercial success of our product candidates will depend on the
acceptance of these products by physicians and
patients.
Any
product candidate that we may develop may not gain market
acceptance among physicians and patients. Market acceptance of and
demand for any product that we may develop will depend on many
factors, including without limitation:
●
prevalence and
severity of adverse side effects;
●
potential
advantages over alternative treatments;
●
convenience and
ease of administration;
●
sufficient
third-party coverage or reimbursement;
●
strength of
marketing and distribution support; and
●
our ability to
provide acceptable evidence of safety and efficacy.
If any
product candidate developed by us receives regulatory approval but
does not achieve an adequate level of market acceptance by
physicians and patients, we may generate little or no product
revenue and may not become profitable.
Our products may not be accepted for reimbursement or properly
reimbursed by third-party payers.
The
successful commercialization of any products we might develop will
depend substantially on whether the costs of our products and
related treatments are reimbursed at acceptable levels by
government authorities, private healthcare insurers, and other
third-party payers, such as health maintenance organizations.
Reimbursement rates may vary, depending upon the third-party payer,
the type of insurance plan, and other similar or dissimilar
factors. If our products are not subject to adequate reimbursement,
physicians may not prescribe for our products in sufficient amounts
to make our products profitable.
Comparative effectiveness research demonstrating benefits in a
competitor’s product could adversely affect the sales
of our drug product candidates.
If third-party payers do not consider our products to be cost-effective compared to other
available therapies, they may not cover our products as a benefit under their plans or, if
they do, the level of payment may not be sufficient to allow
us to sell our products on a
profitable basis.
Adequate
third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return
on our investment in product development. In addition, in the U.S.
there is a growing emphasis on comparative effectiveness research,
both by private payers and by government agencies. To the extent
other drugs or therapies are found to be more effective than our
products, payers may elect to cover such therapies in lieu of our
products and/or reimburse our products at a lower
rate.
In
addition, emphasis on managed care in the U.S. has increased and we
expect this will continue to increase the pressure on
pharmaceutical pricing. Coverage policies and third-party
reimbursement rates may change at any time. Even if favorable
coverage and reimbursement status is attained for one or more
products for which we receive regulatory approval, less favorable
coverage policies and reimbursement rates may be implemented in the
future.
Healthcare reform and other changes in the healthcare industry
could hinder or prevent the commercial success of our product
candidates.
Third-party
payers are increasingly attempting to contain healthcare costs by
limiting both coverage and the level of reimbursement for new
medical treatment products. Any development along these lines could
materially and adversely affect our prospects. We are unable to
predict what legislative or regulatory changes relating to the
healthcare industry, including without limitation any changes
affecting governmental and/or private or third party coverage and
reimbursement, may be enacted in the future, or what effect such
legislative or regulatory changes would have on our
business.
If we obtain FDA approval for any of our product candidates, we
will be subject to various federal and state fraud and abuse laws;
these laws may impact, among other things, our proposed sales,
marketing and education programs, which may increase our operating
costs.
If we obtain FDA approval for
any of our product candidates and begin commercializing those
products in the United States, our operations may be directly, or indirectly through
our customers, distributors, or other business partners, subject to
various federal and state fraud and abuse laws, including, without
limitation, anti-kickback statutes and false claims statutes which
may increase our operating
costs. These laws may impact, among other things, our
proposed sales, marketing and
education programs. In addition, we may be subject to data privacy and security
regulation by both the federal government and the states in which
we conduct business.
If our operations are found to be in violation of any of the
federal and state laws or any other governmental regulations that
apply to us, we may be subject to criminal and significant civil
monetary penalties, which could adversely affect our ability to
operate our business and our results of operations.
If our operations are found to
be in violation of any of the federal and state laws described
above or any other governmental regulations that apply to
us, we may be subject to penalties, including criminal
and significant civil monetary penalties, damages, fines,
imprisonment, exclusion from participation in government healthcare
programs, and the curtailment or restructuring of our
operations, any of which could
adversely affect our ability to
operate our business and our results of operations. To the extent
that any of our product
candidates are ultimately sold in a foreign country, we
may be subject to similar foreign laws
and regulations, which may include, for instance, applicable
post-marketing requirements, including safety surveillance,
anti-fraud and abuse laws, and implementation of corporate
compliance programs and reporting of payments or transfers of value
to healthcare professionals.
Negotiated prices for our products covered by a Part D prescription
drug plan will likely be lower than the prices we might otherwise
obtain.
Government payment for some of the costs of prescription drugs may
increase demand for our products for which we receive marketing approval, however, any
negotiated prices for our products covered by a Part D prescription drug
plan will likely be lower than the prices we might otherwise obtain.
Risks Related to Our Intellectual Property
If we and our third-party licensors do not obtain and preserve
protection for our respective intellectual property rights, our
competitors may be able to take advantage of our (and our
licensors’) development efforts to develop competing
drugs.
Our
commercial success will depend in part on obtaining patent
protection for any products and other technologies we might
develop, and successfully defending any patents we obtain against
third-party challenges. We filed and have been granted in the U.S.
and various countries around the world patents for antibodies that
target uPAR. Our GPX-150 patent portfolio is in the process of
completing transfer of ownership subsequent to the Gem Transaction.
We have also been granted in the U.S. and various countries around
the world patents to a specific sequence of amino acids on uPAR, to
which our MNPR-101 antibody binds. We are currently prosecuting
this patent in other countries around the world to further protect
MNPR-101. We license all intellectual property related to Validive
from Onxeo S.A., a French public company. See “Material Agreements”. The patent
process is subject to numerous risks and uncertainties, and there
can be no assurance that we will be successful in obtaining and
defending patents. See “Intellectual Property Portfolio”.
These risks and uncertainties include without limitation the
following:
●
Patents that may be
issued or licensed may be challenged, invalidated, or circumvented;
or may not provide any competitive advantage for other
reasons.
●
Our competitors,
many of which have substantially greater resources than us and have
made significant investments in competing technologies, may seek,
or may already have obtained, patents that will limit, interfere
with, or eliminate our ability to make, use, and sell our potential
products either in the U.S. or in international
markets.
●
As a matter of
public policy regarding worldwide health concerns, there may be
significant pressure on the U.S. government and other international
governmental bodies to limit the scope of domestic and
international patent protection for cancer treatments that prove
successful.
●
Countries other
than the U.S. may have less restrictive patent laws than those
upheld by the U.S. courts; therefore, non-U.S. competitors could
exploit these laws to create, develop, and market competing
products.
In
addition, the USPTO and patent offices in other jurisdictions have
often required that patent applications concerning pharmaceutical
and/or biotechnology-related inventions be limited or
narrowed
substantially to cover only the specific innovations exemplified in
the patent application, thereby limiting their scope of protection
against competitive challenges. Thus, even if we or our licensors
are able to obtain patents, the patents may be substantially
narrower than anticipated.
If we
permit our patents to lapse or expire, we will not be protected and
will have less of a competitive advantage. The value of our
products may be greatly reduced if this occurs. Our patents expire
at different times and are subject to the laws of multiple
countries. Some of our patents are currently near expiration and we
may pursue patent term extensions for these where appropriate. See
“Intellectual Property
Portfolio”.
In
addition to patents, we also rely on trade secrets and proprietary
know-how. While we take measures to protect this information by
entering into confidentiality and invention agreements with our
consultants and collaborators, we cannot provide any assurances
that these agreements will be fully enforceable and will not be
breached, that we will be able to protect ourselves from the
harmful effects of disclosure if they are not fully enforceable or
are breached, that any remedy for a breach will adequately
compensate us, that these agreements will achieve their intended
aims, or that our trade secrets will not otherwise become known or
be independently discovered by competitors. If any of these events
for which we cannot provide assurances occurs, or we otherwise lose
protection for our trade secrets or proprietary know-how, the value
of this information may be greatly reduced.
Intellectual property disputes could require us to spend time and
money to address such disputes and could limit our intellectual
property rights.
The
biopharmaceutical industry has been characterized by
extensive litigation regarding patents and other intellectual
property rights, and companies have employed intellectual property
litigation to gain a competitive advantage. We may become subject
to infringement claims or litigation arising out of patents and
pending applications of our competitors, or additional interference
proceedings declared by the USPTO to determine the priority of
inventions. The defense and prosecution of intellectual property
suits, USPTO proceedings, and related legal and administrative
proceedings are costly and time-consuming to pursue, and their
outcome is uncertain. Litigation may be necessary to enforce our
issued patents, to protect our trade secrets and know-how, or to
determine the enforceability, scope, and validity of the
proprietary rights of others. An adverse determination in
litigation or interference proceedings to which we may become a
party could subject us to significant liabilities, require us to
obtain licenses from third parties, or restrict or prevent us from
selling our products in certain markets. Even if a given patent or
intellectual property dispute were settled through licensing or
similar arrangements, our costs associated with such arrangements
may be substantial and could include the payment by us of large
fixed payments and ongoing royalties. Furthermore, the necessary
licenses may not be available on satisfactory terms or at all. In
addition, even where we have meritorious claims or defenses, the
costs of litigation may prevent us from pursuing these claims or
defenses and/or may require extensive financial and personnel
resources to pursue these claims or defenses.
Risks Related to Our Business Operations and Industry
We have a limited operating history as we are a new
entity.
As of
December 1, 2017, we have engaged exclusively in
acquiring pharmaceutical drug product candidates, licensing rights
to drug product candidates and entering into the CTOA with Cancer
Research UK, and have not completed any clinical trials, received
any governmental approvals, brought any product to market,
manufactured or produced products in commercial quantities or sold
any pharmaceutical products. We have limited experience in
negotiating, establishing, and maintaining strategic relationships,
conducting clinical trials, and managing the regulatory approval
process, all of which will be necessary if we are to be successful.
Our lack of experience in these critical areas makes it difficult
for a prospective investor to evaluate our abilities, and increases
the risk that we will fail to successfully execute our
strategies.
Furthermore,
if our business grows rapidly, our operational, managerial, legal,
and financial resources will be strained. Our development will
require continued improvement and expansion of our management team
and our operational, managerial, legal, and financial systems and
controls.
In the
normal course of business, we have evaluated and expect to evaluate
potential acquisitions and/or licenses of patents, compounds, and
technologies that our management believes could complement or
expand our business. We have limited history of conducting
acquisitions, and negotiating
and acquiring licenses. In the event that we identify an
acquisition or license candidate we find attractive, there is no
assurance that we will be successful in negotiating an agreement to
acquire or license, or in financing or profitably exploiting, such
patents, compounds, or technologies. Furthermore, such an
acquisition or license could divert management time and resources
away from other activities that would further our business
development.
If we lose key management, leadership, or scientific personnel,
cannot recruit qualified employees, directors, officers, or other
significant personnel, or experiences increases in compensation
costs, then our business may be materially disrupted.
Our
future success is highly dependent on the continued service of
principal members of our management, leadership, and scientific
personnel, who are able to terminate their employment with us at
any time, and may be able to compete with us. The loss of any of
our key management, leadership, or scientific personnel including
in particular, Chandler D. Robinson, our President and CEO, and
Andrew P. Mazar, our Executive Vice President of Research and
Development, and Chief Scientific Officer, could materially disrupt
our business and materially delay or prevent the successful
commercialization of our product candidates. We have an employment
agreement with Dr. Robinson which has no term but is for
at-will employment, and we have an employment agreement with
Dr. Mazar which has no term but is for at-will
employment.
Our
future success will also depend on our continuing ability to
identify, hire, and retain highly skilled personnel for all areas
of the organization. Competition in the
biopharmaceutical industry
for
scientifically and technically qualified personnel is intense,
and we may be unsuccessful in identifying, hiring, and retaining
qualified personnel. Our continued ability to identify, hire, and
retain highly skilled personnel may cause our compensation costs to
increase materially.
We are an emerging growth company and we cannot be certain if the
reduced disclosure requirements applicable to emerging growth
companies will make our common stock less attractive to
investors.
We are
an emerging growth company. Under the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), emerging growth
companies can delay adopting new or revised accounting standards
until such time as those standards apply to private companies.
Therefore, we may not be subject to the same new or revised
accounting standards as other public companies that are not
“emerging growth companies.”
For as
long as we continue to be an emerging growth company, we also
intend to take advantage of certain other exemptions from various
reporting requirements that are applicable to other public
companies including, but not limited to, reduced disclosure
obligations regarding executive compensation in our periodic
reports and proxy statements, exemptions from the requirements of
holding a nonbinding advisory stockholder vote on executive
compensation and any golden parachute payments not previously
approved, exemption from the requirement of auditor attestation in
the assessment of our internal control over financial reporting and
exemption from any requirement that may be adopted by the Public
Company Accounting Oversight Board regarding mandatory audit firm
rotation or a supplement to the auditor’s report providing
additional information about the audit and the financial statements
(auditor discussion and analysis). If we do take advantage of these
exemptions, the information that we provide stockholders will be
different than what is available with respect to other public
companies. We cannot predict if investors will find our Common
Stock less attractive because we will rely on these exemptions. If
investors find our Common Stock less attractive as a result of our
status as an emerging growth company, there may be less liquidity
for our Common Stock and our stock price may be more
volatile.
After
we become a reporting company under the 34 Act, we will remain an
emerging growth company until the earliest of (i) the end of
the fiscal year in which the market value of our common stock that
is held by non-affiliates exceeds $700 million as of the end of the
second fiscal quarter, (ii) the end of the fiscal year in
which we have total annual gross revenues of $1 billion or more
during such fiscal year, (iii) the date on which we issue more
than $1 billion in non-convertible debt in a three-year period or
(iv) the end of the fiscal year following the fifth
anniversary of the date of the first sale of our Common Stock
pursuant to an effective registration statement filed under the
Act.
Competition and technological change may make our product
candidates obsolete or non-competitive.
The
biopharmaceutical industry is subject to rapid technological
change. We have many potential competitors, including major drug
and chemical companies, specialized biopharmaceutical
firms,
and
universities and other research institutions. These companies,
firms, and other institutions may develop products that are more
effective than our product candidates or that would make our
product candidates obsolete or non-competitive. Many of these
companies, firms, and other institutions have greater financial
resources than us and may be better able to withstand and respond
to adverse market conditions within the biopharmaceutical industry,
including without limitation the lengthy regulatory approval
process for product candidates.
If product liability lawsuits are brought against us, we may incur
substantial costs to defend them and address any damages awarded,
and demand for our products could be reduced as a result of such
lawsuits.
The
testing and marketing of medical products is subject to an inherent
risk of product liability claims. Since we currently are not
sponsoring a clinical trial, we do not have product liability
insurance coverage, but plan to obtain appropriate coverage when we
enroll patients in a Validive or other clinical trial. Regardless
of their merit or eventual outcome, product liability claims may
result in:
●
decreased demand
for our products;
●
injury to our
reputation and significant, adverse media attention;
●
withdrawal of
clinical trial volunteers; and
●
potentially
significant litigation
costs, including without limitation any damages awarded to the
plaintiffs if we lose or settle claims.
We use hazardous materials, including radioactive materials, in our
business, and any claims relating to improper handling, storage, or
disposal of these materials could materially harm our
business.
Our
business involves the use of a broad range of hazardous chemicals
and materials, including radioactive materials. Environmental laws
impose stringent civil and criminal penalties for improper
handling, disposal, and storage of these materials. In addition, in
the event of an improper or unauthorized release of, or exposure of
individuals to, hazardous materials, we could be subject to civil
damages due to personal injury or property damage caused by the
release or exposure. A failure to comply with environmental laws
could result in fines and the revocation of environmental permits,
which could prevent us from conducting our business.
We have limited the liability of and indemnified our directors and
officers.
Although
our directors and officers are accountable to us and must exercise
good faith and integrity in handling our affairs, our Second
Amended and Restated Certificate of Incorporation (the
“Certificate of Incorporation”), provides that our
directors will be indemnified to the fullest extent permitted under
Delaware law. As a result, our stockholders may have fewer rights
against our directors than they would have absent such provisions
in our Certificate of Incorporation, and a stockholder’s
ability to seek and recover damages for a breach of fiduciary
duties may be reduced or restricted. Delaware law allows
indemnification if our Board Member (a) has acted in good faith, in
a manner the Board Member reasonably believes to be in or not
opposed to our best interests, and (b) with respect to any criminal
action or proceeding, if the Board Member had no reasonable cause
to believe the conduct was unlawful.
Pursuant
to the Certificate of Incorporation, each director and (to the
extent approved by our Board) each of our officers who is made a
party to a legal proceeding because he or she is or was a Board
Member or officer, is indemnified by us from and against any and
all liability, except that we may not indemnify a Board Member or
officer: (a) for any liability incurred in a proceeding in which
such person is adjudged liable to Monopar or is subjected to
injunctive relief in favor of Monopar; (b) for acts or omissions
that involve intentional misconduct or a knowing violation of law,
fraud or gross negligence; (c) for unlawful distributions; (d) for
any transaction for which such Board Member or officer received a
personal benefit or as otherwise prohibited by or as may be
disallowed under Delaware law; or (e) with respect to any dispute
or proceeding between us and such Board Member or officer unless
such indemnification has been approved by a disinterested majority
of Board Members or by a majority in interest of disinterested
stockholders. We are required to pay or reimburse attorney’s
fees and expenses of a Board Member seeking indemnification as they
are incurred, provided the director executes an agreement to repay
the amount to be paid or reimbursed if there is a final
determination by a court of competent jurisdiction that such person
is not entitled to indemnification.
Future legislation or executive action may increase the difficulty
and cost for us to commercialize our products and affect the prices
obtained for such products.
President Trump ran for office on a platform that supported the
repeal of the Patient Protection and Affordable Care Act (the
“PPACA”); therefore modification and partial or
complete repeal of the Affordable Care Act is possible. Healthcare
reform measures that may be adopted in the future may result in
more rigorous coverage criteria and lower reimbursement, and in
additional downward pressure on the price that may be charged for
any of our product candidates, if approved. This could
materially
and adversely affect our business by reducing our ability to
generate revenues, raise capital, obtain additional licensees and
market our products.
Additionally, Executive Orders and policy statements issued
by President Trump have increased the uncertainty regarding the
timing for the FDA’s interpretation and implementation of
requirements under the Federal Food, Drug and Cosmetic Act
(“FDCA”). Some of these executive actions may also
negatively affect the FDA’s exercise of regulatory oversight
and ability to timely review industry submissions and applications
in connection with the drug development and approval process.
Notably, on April 12, 2017, the Director for the Office of
Management and Budget (“OMB”) implemented a long-term
plan to reduce the size of the federal workforce. An under-staffed
FDA could result in increasing delays in the FDA’s
responsiveness or in its ability to review applications, issue
regulations or guidance, or implement or enforce regulatory
requirements in a timely fashion or at all. A January 30, 2017
Executive Order also included a budget neutrality provision that
requires the total incremental cost of all new regulations in the
2017 fiscal year, including repealed regulations, to be no greater
than zero, except in limited circumstances. It is difficult to
predict how these requirements will be interpreted and implemented,
and the extent to which they will impact the FDA’s ability to
continue engaging in its regulatory authorities under the FDCA. If
executive actions impose restrictions on FDA’s ability to
engage in oversight and implementation activities in the normal
course, our business may be negatively impacted.
There is no assurance that federal or state health care reform will
not adversely affect our future business and financial results, and
we cannot predict how future federal or state legislative, judicial
or administrative changes relating to healthcare reform will affect
the pharmaceutical industry in general and our business in
particular. There can
be no assurance that our product candidates, if approved, will be
considered cost-effective by third-party payers, that an adequate
level of reimbursement will be available or that the third-party
payers' reimbursement policies will not adversely affect our
ability to sell our products profitably. If reimbursement of our
products are unavailable or limited in scope or amount, or if
pricing is set at unsatisfactory levels, our business could be
adversely affected.
Our
business may be negatively impacted by tax reform measures. If tax
reform measures are passed, there can be no assurance that we will
continue to receive favorable tax treatment related to our patents.
For example, current tax reform proposals being considered could
result in the following if passed (among others): self-created
patents would no longer qualify as a capital asset, patents
transferred prior to commercialization would not qualify for
long-term capital gain treatment, and the drug manufacturer credit
of 50% of qualified clinical testing expenses would be repealed. It
is difficult to predict what tax reform measures, if any, could be
implemented and the extent to which they will impact our accounting
practices and our business.
Our anticipated operating expenses
over the next year are based upon our management’s estimates
of possible future events. Actual amounts could differ materially
from those estimated by our management.
Development
of pharmaceuticals and cancer drugs is extremely risky and
unpredictable. We have estimated operating expenses and capital
expenditures over the next year based on certain assumptions. Any
change in the assumptions could and will cause the actual results
to vary substantially from the anticipated expenditures, and could
result in material differences in actual versus forecasted expenses
or expenditures. Furthermore, all of the factors are subject to the
effect of unforeseeable future events. The estimates of capital
expenditures and operating expenses represent forward-looking
statements within the meaning of the federal securities laws.
Prospective investors are cautioned that any such forward-looking
statements are not guarantees of future performance and involve
risks and uncertainties. Actual events or results may differ
materially from those discussed in the forward looking statements
as a result of various factors, including the risk factors set
forth under "RISK FACTORS"
in this Form 10. In view of the foregoing, investors should not
rely on these estimates in making a decision to invest in
us.
Risks Associated with Our Capital Stock
We may never provide liquidity to our investors.
No
public market exists with respect to any of our securities. There
is no assurance that any public offering, merger, combination,
sale, or other liquidity event relating to us will ever take place,
or that any public offering, merger, combination, sale, or other
event that might take place would provide liquidity for our
investors or that we will be able to provide liquidity to our
investors in any fashion. In the event that we are unable to affect
a public offering, merger, combination, sale, or other liquidity
event, our investors would likely be unable to sell their interests
in us.
Existing and new investors will experience dilution as a result of
our option plan and potential future stock sales.
Our
Board Members, employees, and certain of our consultants have been
and will be issued equity and/or granted options that vest with the
passage of time. Up to a total of 1,600,000 shares of our Common
Stock may be issued as stock options or restricted stock under the
Amended and Restated Monopar Therapeutics Inc. 2016 Stock Incentive
Plan, and stock options for the purchase of up to 658,592 shares of
our common stock have already been granted. See “Stock Option Plan.” The issuance
of such equity and/or the exercise of such options will dilute both
our existing and our new investors. As of December 1,
2017, no stock options have been exercised.
Our
existing and our new investors will likely also experience
substantial dilution resulting from the issuance by us of equity
securities in connection with certain transactions, including
without limitation, future offering of shares, intellectual
property licensing, acquisition, or commercialization
arrangements.
Holders of the shares of our Common Stock will have no control of
our operations or in connection with major
transactions.
Our
business and affairs will be managed by or under the direction of
our Board. Our Stockholders are entitled to vote only on actions
that require a Stockholder vote under federal or state law.
Stockholder approval requires the consent and approval of holders
of a majority or more of our outstanding stock. Shares of stock do
not have cumulative voting rights and therefore, holders of a
majority of the shares of our outstanding stock will be able to
elect all Board Members. TacticGem, LLC owns 7,166,667 shares of common stock (77.1%).
The limited liability company agreement of TacticGem, LLC provides
that the manager will vote its shares of Monopar to elect to the
Board of Directors those persons nominated by TacticPharma LLC plus
one person nominated by Gem Pharmaceuticals, LLC. Additionally,
other than in the elections of directors the limited liability
company agreement requires TacticGem to pass through votes to its
members in proportion to their membership percentages in TacticGem.
As a result, Tactic Pharma, our initial investor, holds an
approximately 46% beneficial interest in us and together with
Gem’s beneficial ownership of approximately 33%, the two
entities control a majority of our stock and will be able to elect
all Board Members and control our affairs. Some of our Board
Members and
executive
officers own and control Tactic Pharma. Although no single person
has a controlling interest in Tactic Pharma, acting together they
are able to control Tactic Pharma and a large voting block of
Monopar and elect over a majority of our Board of Directors. See
“Security Ownership of
Certain Beneficial Owners and
Management.”
We may not be able to raise funds as an Over the Counter Bulletin
Board (“OTCBB”) traded company. If we are unable to
raise funds, we may have to cease or reduce
operations.
If we
succeed in trading on the OTCBB, we may not be successful in
raising additional capital due to the limitations many traditional
healthcare investors have in investing in OTCBB companies. Also,
companies trading on the OTCBB typically experience low trading
volume compared to NASDAQ and NYSE listed companies, which may
result in higher trading price volatility. Low trading volume and
high price volatility could make raising funds challenging. If we
are unable to raise funds, we may have to cease or reduce
operations.
Our ability to uplist to NASDAQ in the future will require raising
significant additional capital and likely require a public stock
transaction; failure to qualify to trade on NASDAQ will make it
more difficult to raise capital.
We will
need to raise significant funds in the next 24 months to execute
our clinical development plans and we believe that if our stock is
trading on NASDAQ’s Capital Market it will provide better
access to capital. NASDAQ has listing requirements for inclusion of
securities for trading on the NASDAQ Capital Market, including
stockholders equity of $4 million (market value standard) or $5
million (equity standard), market value of publicly held shares of
$15 million, an operating history of 2 years under the equity
standard or a market value of listed securities of $50 million
under the market value standard, 1 million publicly held shares,
300 shareholders, three market makers and a $4 bid price or a
closing price of $3 (equity standard) or $2 (market value
standard). If we are unable to eventually uplist to NASDAQ due to
lack of external market support, lack of trading volume, low stock
price or failing other initial listing requirements, it could make
it harder for us to raise capital in the long-term. If we are
unable to raise capital when needed in the future, we may have to
cease or reduce operations.
Item 2.
Financial Information.
Management's Discussion and Analysis of Financial Condition and
Results of Operations.
You should read the following discussion and analysis of our
financial condition and results of operations together with our
financial statements and related notes appearing at the end of this
Registration Statement. Some of the information contained in this
discussion and analysis or set forth elsewhere in this Registration
Statement, including information with respect to our plans and
strategy for our business and related financing, includes
forward-looking statements that involve risks and uncertainties.
You should read the "Risk Factors" section of this Registration
Statement for a discussion of important factors that could cause
actual results to differ materially from the results described in
or implied by the forward-looking statements contained in the
following discussion and analysis.
Overview
Our
mission is to develop innovative drug combinations to improve
clinical outcomes for cancer patients. We are building a drug
development pipeline through the licensing or acquisition of
oncology therapeutics at the late preclinical through advanced
clinical development stage.
In
August 2017, we acquired GPX-150 (13-imino-13-deoxydoxorubicin), a
proprietary analog of doxorubicin from TacticGem. GPX-150 has been
engineered specifically to retain the anticancer activity of
doxorubicin while minimizing toxic effects on the
heart.
Validive
is being developed for the treatment of radiation-induced severe
oral mucositis (“SOM”). SOM is a frequent major adverse
side effect for patients with head and neck cancer who are treated
by radiation treatment. SOM causes intense oral pain and limits a
patient’s ability to eat and drink, which causes additional
complications. Many affected patients require hospitalization and
the symptoms can force patients to stop cancer treatments early,
which reduces the success of treatments. Validive is designed to deliver
the active ingredient, clonidine, at the site of radiation
treatment. Clonidine reduces the production of cytokines, the
molecules that cause sores and pain in SOM patients. Preclinical
studies and a Phase II clinical trial have demonstrated that
Validive has the potential for reducing the frequency of developing
SOM in addition to improving its symptoms, as compared to a
placebo. We have an exclusive option to license Validive and on
September 8, 2017 we exercised the option in order to advance the
development of Validive with the near-term goal of commencing a
Phase III clinical trial. If successful, this Phase III program may
allow us to apply for marketing approval. See “Material Agreements” and
“Strategy.”
MNPR-101
is a drug product candidate designed to reduce tumor growth by
targeting a specific receptor, the urokinase plasminogen activator
receptor (“uPAR”), which is present in a range of tumor
types, including pancreatic and ovarian tumors. uPAR is part of the
normal cell repair process in non-cancerous cells; however, in
cancerous cells the tumor hijacks uPAR to help the tumor grow and
spread. Pre-clincal models have shown that MNPR-101 is effective at
reducing tumor growth, both used alone and in combination with
existing therapies. Pursuant to a collaboration agreement, Cancer
Research UK is conducting MNPR-101’s early development
through a planned Phase Ib clinical trial in cancer
patients.
Over
the next three years, we plan to execute a Phase III clinical trial
for Validive, work with Cancer Research UK in the clinical
development of MNPR-101, potentially commence clinical development
of GPX-150, raise additional capital to fund our drug development
programs, acquire or in-license additional drug product candidates
and promote public and biotech investor awareness of
us.
Developing
a new drug and conducting clinical trials for one or more disease
indications involves substantial costs and resources. Our operating
and financial strategy for the development, clinical testing,
manufacture and commercialization of drug product candidates is
heavily dependent on our entering into collaborations with
corporations, non-profits, scientific institutions, licensors,
licensees and other parties, which enables us to utilize their
financial and other resources to assist in the drug development.
Additionally, we will need to raise significant funds in the next
12–24 months to execute our clinical development of Validive
and potential commercialization plans. We believe that we will have
better access to capital if we are a public reporting company and a
trading market develops for our stock. This would increase
corporate visibility, provide potential liquidity for our
stockholders, and create a market value for our drug product
candidates. Therefore, we plan to become a public reporting company
under the Securities Exchange Act of 1934 (the “34
Act”) through the filing of this Form 10 registration
statement with the SEC. Subsequent to this Form 10 registration, we
will work with investment bankers or stock traders to become market
makers, which will allow us to trade our Common Stock on the OTCBB,
with the intention of uplisting to NASDAQ as soon as we are able to
meet the capitalization and other requirements for such a listing.
Uplisting to NASDAQ will require us to meet NASDAQ’s strict
listing requirements and will also likely require a public offering
of our stock or another public stock transaction. See
“Risk Factors
– Our ability to uplist to NASDAQ in the future
will require significant additional capital and likely require a
public stock transaction; failure to qualify to trade on NASDAQ
will make it more difficult to raise capital.” There
can be no assurance that we will be successful in including our
stock for trading on either OTCBB or NASDAQ or that a market will
develop for our stock. See “Risk Factors – Risks Related to Our
Financial Condition and Capital Requirements”, and
“Risks Related to Our
Business Operations and Industry.”
Conversion of Preferred Stock to Common Stock
In
March 2017, holders of a majority in interest of our Series A
Preferred Stock and holders of a majority in interest of our Series
Z Preferred Stock voted to adopt the Second Amended and Restated
Certificate of Incorporation of the Company (the “Certificate
of Incorporation”). When the Certificate of Incorporation
took effect, each share of Series A Preferred Stock was
automatically converted into 84 shares of Common Stock of the
Company (a 1.2 for 1 conversion to Common Stock concurrent with a
70 for 1 stock split) and each share of Series Z Preferred Stock
was automatically converted into 70 shares of Common Stock of the
Company (a 1 for 1 conversion to Common Stock concurrent with a 70
for 1 stock split) and Series A Preferred Stock and Series Z
Preferred Stock were eliminated (the “Conversion”).
100,000 shares of Series Z Preferred Stock was converted into
7,000,000 shares of common stock and 15,893.801 shares of Series A
Preferred Stock was converted into 1,335,079.284 shares of common
stock. All references
in this
“Management’s Discussion and Analysis of Financial
Conditions and Results of Operations” to common stock
authorized, issued and outstanding and common stock options take
into account the stock split that occurred as part of the
Conversion.
Critical Accounting Policies and Use of Estimates
While
our significant accounting policies are described in more detail in
Note 2 of our financial statements included elsewhere in this Form
10, we believe the following accounting policies to be critical to
the judgments and estimates used in the preparation of our
financial statements.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires our management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities, and reported amounts of
revenues and expenses in the financial statements and accompanying
notes. Actual results could differ from those
estimates.
Going Concern Assessment
We
adopted Accounting Standards Updates (“ASU”) 2014-15,
Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern,
which the Financial Accounting Standards Board (“FASB”)
issued to provide guidance on determining when and how reporting
companies must disclose going-concern uncertainties in their
financial statements. The ASU requires management to perform
interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date of issuance
of the entity’s financial statements (or within one year
after the date on which the financial statements are available to
be issued, when applicable). Further, a company must provide
certain disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” In December 2017, we
analyzed our minimum cash requirements through
December 2018 and have determined that, based upon our
current available cash, we have no substantial doubt about our
ability to continue as a going concern. See “Risk Factors” – our
anticipated operating expenses over the next year are based upon
our management’s estimates of possible future events. Actual
amounts could differ materially from those estimated by our
management.
Revenue
We are
an emerging growth company, have no approved drugs and have not
generated any revenues. See “Overview – Revenues”. To
date, we have engaged in acquiring pharmaceutical drug product
candidates, licensing rights to drug product candidates, entering
into collaboration agreements for testing and clinical development
of our drug product candidates and providing the infrastructure to
support the clinical development of drug product candidates. We do
not anticipate revenues from operations until we complete testing
and development of one of our drug product candidates and obtain
marketing approval or we sell or out-license one of our drug
product candidates to a third party. See “Liquidity and Capital
Resources”.
Research and Development Expenses
Research
and development (“R&D”) costs are expensed as
incurred. Major components of research and development expenses
include materials and supplies and fees paid to consultants and to
the entities that conduct certain development activities on our
behalf. R&D expense, including upfront license
fees and milestones paid to collaborators, are expensed as goods
are received or services rendered.
We
accrue and expense the costs for clinical trial activities
performed by third parties based upon estimates of the percentage
of work completed over the life of the individual study in
accordance with agreements established with contract research
organizations and clinical trial sites. We determine the estimates
through discussions with internal clinical personnel and external
service providers as to progress or stage of completion of trials
or services and the agreed upon fee to be paid for such services.
Costs of setting up clinical trial sites for participation in the
trials are expensed immediately as research and development
expenses. Clinical trial site costs related to patient enrollment
are accrued as patients are entered into the trial. During the
previous two fiscal years, we had no clinical trials in
progress.
The
successful development of our product pipeline remains highly
uncertain. We cannot reasonably estimate the nature, timing or
costs of the efforts that will be necessary to complete the
remainder of the development of any of our drug product candidates
or the period, if any, in which material net cash inflows from our
drug product candidates may commence. This is due to the numerous
risks and uncertainties associated with developing drug product
candidates, including:
●
receiving less
funding than we require;
●
slower than
expected progress in developing Validive, GPX-150, MNPR-101 or
other drug product candidates;
●
higher than
expected costs to produce our current and future drug product
candidates;
●
higher than
expected costs for preclinical testing of our future and current
acquired and/or in-licensed programs;
●
future clinical
trial costs, including an increase in the number, size, duration,
or complexity of future clinical trials;
●
future clinical
trial results;
●
higher than
expected costs associated with attempting to obtain regulatory
approvals, including without limitation additional costs caused by
delays;
●
higher than
expected personnel or other costs, such as adding personnel or
pursuing the acquisition or licensing of additional
assets;
●
higher than
expected costs to protect our intellectual property portfolio or
otherwise pursue our intellectual property strategy;
●
the potential
benefits of our product candidates over other therapies;
and
●
our ability to
market, commercialize and achieve market acceptance for any of our
product candidates that we are developing or may develop in the
future.
There
are other risks described in “Risk Factors”. A change in the
outcome of any of these variables with respect to the development
of a drug product candidate could mean a significant change in the
costs and timing associated with the development of that drug
product candidate. We expect that research and development expenses
will increase in future periods as a result of increased payroll,
increased consulting, future preclinical and clinical trial costs,
including clinical drug product manufacturing and related
costs.
In-process
Research and Development
In-process research
and development expense represents the costs to acquire
technologies to be used in research and development that have not
reached technological feasibility and have no alternative future
uses and are expensed as
incurred.
General and Administrative Expenses
General
and administrative expenses consist primarily of compensation and
expenses related to the employment of our executive personnel,
stock-based compensation expense related to stock options issued to
our executive team, legal and audit expenses, general and
administrative consulting, board fees and expenses, patent legal
and application fees, and facilities and related expenses. Future
general and administrative expenses may also include: compensation
and expenses related to the employment of finance, human resources
and business development personnel, depreciation and amortization
of general and administrative fixed assets, investor relations and
annual meeting expense, and stock-based compensation expense
related to general and administrative personnel. We expect that our
general and administrative expenses will increase in future periods
as a result of increased payroll, expanded infrastructure,
increased consulting, legal, accounting and investor relations
expenses associated with being a public company and costs incurred
to seek and establish collaborations with respect to any of our
drug product candidates.
Collaborative Arrangements
The
Company and our collaborative partners are active participants in a
collaborative arrangement and all parties are exposed to
significant risks and rewards depending on the commercial success
of the activities. Contractual payments to the other parties in the
collaboration agreement and costs incurred by us when we are deemed
to be the principal participant for a given transaction are
recognized on a gross basis in research and development expenses.
Royalties and license payments are recorded as earned.
On July
9, 2015, we entered into a CTOA with Cancer Research UK and Cancer
Research Technology Limited, a wholly-owned subsidiary of Cancer
Research UK, in which Cancer Research UK will manufacture MNPR-101,
perform preclinical studies and conduct a Phase Ia/Ib clinical
trial. At our discretion, we will pay an option fee for the right
to the Phase Ia/Ib clinical data, after which time, we may choose
to enter into a pre-negotiated license with Cancer Research
Technology Limited, which includes developmental and clinical
milestones, sales milestones, and royalties on a
product-by-product and country-by-country basis in the single
digits payable based on the net sales of each
product. If we enter into a pre-negotiated
license, we will carry 100% of the future development costs.
The option fee is expressed in British pounds and therefore
the value in U.S. dollars may vary slightly depending on the
exchange rate at the time of payment; however, payment of the
option fee is not expected to have a material effect on our
financial position. Should we decline to license the
clinical data, we will pay nothing to Cancer Research UK or Cancer
Research Technology Limited, and Cancer Research Technology Limited
will be assigned our intellectual property to continue the
development and commercialization of MNPR-101 in exchange for a
revenue share and minimum royalty.
In
addition, we have a non-exclusive license with XOMA Ltd. for its
humanization technology and know-how utilized in the development of
MNPR-101. Under the terms of the license, we are required to pay
developmental and sales milestones which could reach
up to $14.925 million if we achieve all milestones, and zero royalties. There can be no
assurance that we will reach any
milestones.
From
inception in December 2014 through
December 1, 2017, no milestones were met
and no royalties were earned, therefore, we did not pay or
accrue/expense any milestone or royalty payments under the CTOA and
XOMA Ltd. license agreement.
License Option Agreement
In June
2016, we executed an agreement with Onxeo S.A., a French public
company, which gave us the option to license Validive (clonidine
mucobuccal tablet), a mucoadhesive tablet of clonidine based on the
Lauriad mucoadhesive technology to potentially treat severe oral
mucositis in patients undergoing treatment for head and neck
cancers. The pre-negotiated license terms included as part of the
option agreement included clinical,
regulatory, developmental and sales
milestones that could reach up to $108 million if we achieve
all milestones, and escalating royalties on net sales from 5 -
10%. On September 8, 2017, we exercised the option to
license Validive in order to commence the clinical development of
the drug product candidate.
Under the
agreement, we are required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is
generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The Onxeo license
agreement does not have a pre-determined term, but expires on a
product-by-product and country-by-country basis; that is, the
agreement expires with respect to a given product in a given
country whenever our royalty payment obligations with respect to
such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We
may also choose to terminate the agreement, either in its entirety
or as to a certain product and a certain country, by providing
Onxeo with advance notice.
From
the execution of the agreement through December 1,
2017, no milestones were met and no royalties were earned,
therefore, we did not pay or accrue/expense any milestone or
royalty payments under the Onxeo option agreement.
Income Taxes
From
December 2014 to December 16, 2015, we were a limited liability
company (an “LLC”) taxed as a partnership under the
Internal Revenue Code, during which period the members separately
accounted for their pro-rata share of income, deductions, losses,
and credits of the Company. On December 16, 2015, we converted from
an LLC to a C Corporation. Beginning on December 16, 2015, we use
an asset and liability approach for accounting for deferred income
taxes, which requires recognition of deferred income tax assets and
liabilities for the expected future tax consequences of events that
have been recognized in our financial statements, but have not been
reflected in our taxable income. Estimates and judgments occur in
the calculation of certain tax liabilities and in the determination
of the recoverability of certain deferred income tax assets, which
arise from temporary differences and carry forwards. Deferred
income tax assets and liabilities are measured using the currently
enacted tax rates that apply to taxable income in effect for the
years in which those tax assets and liabilities are expected to be
realized or settled.
We
regularly assess the likelihood that our deferred income tax assets
will be realized from recoverable income taxes or recovered from
future taxable income. To the extent that we believe any amounts
are more likely not to be realized, we record a valuation allowance
to reduce the deferred income tax assets. In the event we determine
that all or part of the net deferred tax assets are not realizable
in the future, an adjustment to the valuation allowance would be
charged to earnings in the period such determination is made.
Similarly, if we subsequently realize deferred income tax assets
that were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in an adjustment
to earnings in the period such determination is made.
Internal
Revenue Code Section 382 provides that, after an ownership change,
the amount of a loss corporation’s taxable income or net
operating loss (“NOL”) for any post-change year that
may be offset by pre-change losses shall not exceed the section 382
limitation for that year. Because we will continue to raise equity
in the coming years, section 382 may limit our usage of NOLs in the
future.
Based
on the available evidence, we believe that the Company was not
likely to be able to utilize our minimal deferred tax assets in the
future and, as a result, we recorded a full valuation allowance as
of September 30, 2017 and for the year ended December
31, 2016 and the short period from December 16, 2015 to December
31, 2015. We intend to maintain the valuation allowance until
sufficient evidence exists to support its reversal. We regularly
review our tax positions and for a tax benefit to be recognized,
the related tax position must be more likely than not to be
sustained upon examination. Any amount recognized is generally the
largest benefit that is more likely than not to be realized upon
settlement. Our policy is to recognize interest and penalties
related to income tax matters as an income tax expense. For the
nine months ended September 30, 2017, the
year ended December 31, 2016 and the short tax year from December
16, 2015 to December 31, 2015, the Company did not have any
interest or penalties associated with unrecognized tax
benefits.
We are
subject to U.S. federal, Illinois and California income taxes. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply. We converted from an LLC taxed as a
partnership to a corporation on December 16, 2015 and are subject
to U.S. federal, state and local tax examinations by tax
authorities for the year ended December 31, 2016 and for the short
tax period from December 16, 2015 to December 31, 2015. We do not
anticipate significant changes to our current uncertain tax
positions through December 31, 2017. We plan on filing our
tax returns for the year ending December 31, 2017 prior to the
respective filing deadlines in all applicable
jurisdictions.
Stock-Based Compensation
We
account for stock-based compensation arrangements with employees,
nonemployee directors and consultants using a fair value method,
which requires the recognition of compensation expense for costs
related to all stock-based payments, including stock options. The
fair value method requires us to estimate the fair value of
stock-based payment awards on the date of grant using an option
pricing model.
Stock-based
compensation costs for options granted to our employees and
nonemployee directors are based on the fair value of the underlying
option calculated using the Black-Scholes option-pricing model on
the date of grant for stock options and recognized as expense on a
straight-line basis over the requisite service period, which is the
vesting period. Determining the appropriate fair value model and
related assumptions requires judgment, including estimating stock
price volatility, forfeiture rates and expected term. The expected
volatility rates are estimated based on the actual volatility of
comparable public companies over the expected term. We selected
these companies based on comparable characteristics, including
enterprise value, risk profiles, stage of development and with
historical share price information sufficient to meet the expected
life of the stock-based awards. The expected term for options
granted during the nine months ended
September 30,
2017
and the year ended December 31, 2016 is estimated using the
simplified method. There were no options granted during the year
ended December 31, 2015. Forfeitures are estimated at the time of
grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. We have not paid dividends
and do not anticipate paying a cash dividend in the foreseeable
future and, accordingly, use an expected dividend yield of zero.
The risk-free interest rate is based on the rate of U.S. Treasury
securities with maturities consistent with the estimated expected
term of the awards. The measurement of consultant share-based
compensation is subject to periodic adjustments as the underlying
equity instruments vest and is recognized as an expense over the
period over which services are rendered.
Stock Option Plan
In
April 2016 our Board and the preferred stockholders representing a
majority in interest of our outstanding stock approved the Amended
and Restated Monopar Therapeutics Inc. 2016 Stock Incentive Plan
(the “Plan”), allowing us to grant up to an aggregate
700,000 shares (as adjusted subsequent to the Conversion) of stock
awards, stock options, stock appreciation rights and other
stock-based awards to our employees, directors and consultants.
Through December 1, 2017, our Board granted to Board
Members, our Chief Financial Officer, our Acting Chief Medical
Officer, and our Senior Vice President of Clinical Development
stock options to purchase up to an aggregate 555,520 shares of our
common stock at an exercise price of $0.001 par value and stock
options to purchase up to an aggregate 103,072 shares of our common
stock at an exercise price of $6.00 based upon the third party
valuations of our common stock and based on the price per share at
which common stock was sold in our most recent private
offering.
Under
the Plan, the per share exercise price for the shares to be issued
upon exercise of an option is determined by our Plan administrator,
except that the per share exercise price cannot be less than 100%
of the fair market value per share on the grant date. In connection
with our stock options issued in April 2016, December 2016, and
February 2017, fair market value was established by our Plan
Administrator using recently obtained third party valuation
reports. In connection with our stock options issued in September
2017 and November 2017, fair market value was established by our
Plan Administrator based on the price per share at which common
stock was sold in our most recent private offering. Options
generally expire after ten years.
The
fair market value of the 273,000 options granted in April 2016, the
7,000 options granted in December 2016 and the 275,520 options
granted in February 2017 was nominal at the time of grant because
of both the low number of options granted prior to Conversion in
March 2017 and the low exercise price (equal to par value $0.001).
In September 2017, we granted three Board members options to
purchase up to 21,024 shares of our common stock each. These
options have a six month vesting cliff and vest between 24 and 48
months, depending on the Board member's prior months of
service. The fair market value of the aggregate 63,072
options totalled $3,612 during the nine months ended September 30,
2017.
We recognize as an expense the fair value of options granted to
persons who are neither employees nor directors. The fair value of
expensed options was based on the Black-Scholes option-pricing
model assuming the following factors: 6.0 to 4.3 year expected
term, 57% volatility, 1.9% to 1.7% risk free interest rate and zero
dividends. Stock-based compensation expense for non-employees for
the nine months ended September 30, 2017 was $238,404 of which
$189,271 was recorded as research and development expenses and
$49,133 as general and administrative
expenses.
Stock
option activity under the Plan through September 30,
2017 is as follows:
|
|
|
|
|
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
Balances,
December 31, 2015
|
-
|
-
|
-
|
|
Option
pool
|
700,000*
|
-
|
-
|
|
Granted(1)
|
(280,000)
|
280,000
|
$0.001
|
|
Forfeited
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balances,
December 31, 2016
|
420,000
|
280,000
|
$0.001
|
|
Granted(2)
|
(338,592)
|
338,592
|
$ 1.12
|
|
Balances,
September 30, 2017
|
81,408
|
618,592
|
$0.61
|
●
273,000 options
vested 50% upon grant date, 25% upon the 6-month anniversary of
grant date and 25% upon the 1-year anniversary of grant date; 7,000
options vested pro rata over 6 months.
●
296,544
options vest 6/48ths at the six-month
anniversary of grant date and 1/48th per month
thereafter, 21,024 options vest 6/24ths on the six-month
anniversary of grant date and 1/24th per month thereafter, and
21,024 options vest 6/42nds on the six-month anniversary of grant
date and 1/42nd per month thereafter.
* The
option pool was increased to 1,600,000 effective October 26,
2017.
A
summary of options outstanding as of September 30,
2017 is shown below:
|
|
Number
of Shares Subject to Options Outstanding
|
Weighted
Average Remaining Contractual Term
|
Number
of Shares Subject to Options Fully Vested and
Exercisable
|
Weighted
Average Remaining Contractual Term
|
|
$0.001
|
555,520
|
9.0
|
320,180
|
8.6
|
|
$ 6.00
|
63,072
|
10.0
|
-
|
N/A
|
A
summary of options outstanding as of December 31, 2016 is shown
below:
|
|
Number
of Shares Subject to Options Outstanding
|
Weighted
Average Remaining Contractual Term
|
Number
of Shares Subject to Options Fully Vested and
Exercisable
|
Weighted
Average Remaining Contractual Term
|
|
$0.001
|
280,000
|
9.3
|
204,750
|
9.3
|
There
were no options granted during the fiscal year ended December 31,
2015. No income tax benefits have been recognized in the statements
of operations for stock-based compensation
arrangements.
We
recognize as an expense the fair value of options granted to
persons who are neither our employees nor directors. The fair value
of expensed options is based on the Black-Scholes
option-pricing.
Results of Operations
Comparison of the Nine Months Ended
September 30, 2017 and September 30,
2016
The
following table summarizes the results of our operations for the
nine months ended September 30 2017 and
September 30, 2016:
|
|
Nine
Months Ended September
30,
|
|
|
(in
thousands)
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
Research and
development expenses
|
1,626
|
183
|
1,443
|
|
In-process
research and development expenses
|
13,501
|
-
|
13,501
|
|
General and
administrative expenses
|
739
|
688
|
51
|
|
|
|
|
|
|
Total operating
expenses
|
15,866
|
871
|
14,995
|
|
|
|
|
|
|
Operating
loss
|
(15,866)
|
(871)
|
(14,995)
|
|
Interest
income
|
25
|
6
|
19
|
|
Net
loss
|
$(15,841)
|
$(865)
|
$(14,976)
|
Research and Development (“R&D”)
Expenses
Research
and development expenses for the nine months ended
September 30, 2017 were approximately
$1.62 million, compared to approximately
$0.18 million for the nine months ended
September 30, 2016, an increase of approximately
$1.44 million. This increase was primarily
attributable to:
[table
on next page]
|
|
Nine months ended September 30,
2017 versus nine months ended September
30, 2016
|
|
Research and Development Exp. (in thousands)
|
|
|
License fee
for Validive in 2017
|
$ 1,000
|
|
Increased
consulting in clinical development for Validive in
2017
|
247
|
|
Stock-based
compensation (non-cash) for consultants in
2017
|
189
|
|
Other,
net
|
7
|
|
|
|
|
|
|
|
Net
increase in R&D expenses
|
$ 1,443
|
In-process
Research and Development ("IPR&D")
Expenses
IPR&D of
$13.5 million represents the value of GPX-150, including
transaction costs, acquired in the Gem Transaction in August
2017. The value was expensed because GPX-150 has not reached
technological feasibility and has no alternative
future use.
General and Administrative (“G&A”)
Expenses
General
and administrative expenses for the nine months ended
September 30, 2017 were approximately
$0.74 million, compared to approximately
$0.69 million for the nine months ended
September 30, 2016, an
increase of approximately $0.05 million.
This increase was primarily attributed
to:
|
|
Nine months ended September 30,
2017 versus nine months ended September
30, 2016
|
|
General and Administration Exp. (in thousands)
|
|
|
|
|
|
Intellectual
property legal costs in 2017
|
$ 121
|
|
CEO benefits
in 2017
|
58
|
|
Stock-based
compensation (non-cash) consultant in
2017
|
49
|
|
New Board member in
2017
|
42
|
|
Website revisions
in 2017
|
16
|
|
Other,
net
|
9
|
|
Consulting for
potential transaction not repeated in 2017
|
(39)
|
|
Legal expenses for
a potential transaction not repeated in 2017
|
(205)
|
|
|
|
|
Net
increase in G&A expenses
|
$ 51
|
|
|
|
Interest
income for the nine months ended
September 30, 2017 increased by approximately
$0.02 million versus the nine months ended
September 30, 2016 due to higher bank balances
resulting from funds raised in 2017. Interest income was
related to interest earned on our cash equivalent investments in
two business savings accounts and on our escrow
account.
Comparison of the Years Ended December 31, 2016 and December 31,
2015
The
following table summarizes the results of our operations for each
of the years ended December 31, 2016 and 2015:
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
Research and
development expenses
|
280
|
101
|
179
|
|
General and
administrative expenses
|
913
|
587
|
326
|
|
|
|
|
|
|
Total operating
expenses
|
1,193
|
688
|
505
|
|
|
|
|
|
|
Operating
loss
|
(1,193)
|
(688)
|
(505)
|
|
Interest
income
|
7
|
1
|
6
|
|
Net
loss
|
$(1,186)
|
$(687)
|
$(499)
|
Revenue
We are
an emerging growth company, have no approved drugs and have not
generated any revenues. See “Overview –
Revenues”.
Research and Development (“R&D”)
Expenses
Research
and development expenses for the year ended December 31, 2016 were
approximately $0.28 million, compared to approximately
$0.10 million for the year ended December 31, 2015, an
increase of approximately $0.18 million. This increase was
primarily attributable to:
|
|
Year ended December 31, 2016 versus year ended December 31,
2015
|
|
Research and Development Exp. (in thousands)
|
|
|
Increase
in consulting R&D due to increased time of acting chief
scientific officer
|
$112
|
|
Increase
in allocated executive expenses not allocated in 2015
|
64
|
|
Other,
net
|
3
|
|
|
|
|
Net
increase in R&D expenses
|
$179
|
General and Administrative Expenses
General
and administrative expenses for the year ended December 31, 2016
were approximately $0.91 million, compared to approximately
$0.59 million for the year ended December 31, 2015, an
increase of approximately $0.32 million. This increase was
primarily attributable to:
|
|
Year ended December 31, 2016 versus year ended December 31,
2015
|
|
General and Administration (“G&A”) Exp. (in
thousands)
|
|
|
|
|
|
Compensation,
taxes and benefits related to chief
|
|
|
executive
officer compensation recorded as
|
|
|
consulting
G&A in 2015
|
$390
|
|
Increase
in legal due to legal projects performed
|
|
|
in
Q2 2016
|
152
|
|
Increase
in board fees due to the appointment
|
|
|
of
Dr. Starr to the board whose fees were previously
|
|
|
recorded
as consulting G&A in 2015
|
96
|
|
Increase
in accounting fees due to the engagement
|
|
|
for
the year-end audit and interim review
|
48
|
|
Increase
due to software subscription that commenced in 2016
|
13
|
|
Increase
in rent due to lease for headquarters executed
|
|
|
in
May 2016
|
10
|
|
Increase
in tax fees due to the filing of our initial
|
|
|
corporation
tax returns
|
5
|
|
Decrease
in investor relations expense due to
|
|
|
advisory
costs incurred in 2015 not repeated in 2016
|
(17)
|
|
Increase
in allocation of executive expenses to R&D related
to
Dr. Robinson’s time spent on clinical
development
|
(64)
|
|
Decrease
in patent expenses related to historical
|
|
|
MNPR-101
patent expenses incurred in 2015
|
(128)
|
|
Decrease
in consulting G&A to due the classification
|
|
|
of
Dr. Robinson as an employee in 2016 and
|
|
|
as
Dr. Starr as a Board member in 2016, such
|
|
|
expenses
are recorded as compensation and board
|
|
|
fees,
respectively
|
(188)
|
|
Other,
net
|
9
|
|
|
|
|
Net
increase in G&A expenses
|
$326
|
Interest Income
Interest
income for the years ended December 31, 2016 and 2015 was nominal.
Interest income was related to interest earned on our cash
equivalent investments in a business savings account and on our
escrow account.
Liquidity and Capital Resources
Sources of Liquidity
We have
incurred losses and cumulative negative cash flows from operations
since our inception in December 2014 and, as of
September 30, 2017 we had an accumulated deficit of
approximately $17.7 million. We anticipate that we
will continue to incur losses for the foreseeable future. We expect
that our research and development and general and administrative
expenses will increase, and, as a result, we anticipate that we
will need to raise additional capital to fund our operations, which
we may seek to obtain through a combination of equity offerings,
debt financings, strategic collaborations and grant funding. From
our inception, through December 1, 2017,
we have financed our operations primarily through private
placements of our preferred stock and common stock, the $5 million
received in the Gem Transaction, and our Cancer Research UK
collaboration. As of December 1, 2017, we have
received net proceeds of approximately $4.70 million from the sale
of our preferred stock which have been converted into common stock
and we sold 789,674.33 shares of our common stock for
net proceeds of approximately $4.72 million. We anticipate that the
funds raised to-date will fund our planned operations through
2018.
We
invest our cash equivalents in two money market
accounts.
Contribution to Capital
In
August 2017, our largest stockholder, TacticPharma, LLC,
surrendered 2,888,727.12 shares of common stock back to us as a
contribution to the capital of the Company. This resulted in
reducing TacticPharma’s ownership in us from 79.5% to
69.9%.
The Gem Transaction
On
August 25, 2017, TacticPharma and Gem Pharmaceuticals formed a
limited liability company, TacticGem, LLC, with TacticPharma
contributing 4,111,272.88 shares of our common stock and Gem
contributing assets and $5 million in cash. TactiGem then
contributed the Gem assets and cash to us in exchange for
3,055,394.12 shares of our common stock. This has resulted in
TacticGem owning 77.1% of our outstanding common stock
as of December 1, 2017. The contribution by TacticGem,
made in conjunction with contributions from outside investors in a
private offering, was intended to qualify for tax-free treatment
and to satisfy a condition to the Gem Transaction that we have a
certain level of cash on hand prior to the
contribution.
The
Gem Transaction was recorded on our financial
statements for the nine months ended September 30, 2017 as
follows:
|
Cash
to be recorded on our Balance Sheet
|
$5,000,000
|
|
Assembled
Workforce to be recorded as In-process Research and Development
Expense on our Statement of Operations
|
9,886
|
|
GPX-150
recorded as In-process Research and Development Expense on our
Statement of Operations
|
13,491,736
|
|
Total
Gem Transaction
|
$18,501,622
|
Cash Flows
The
following table provides information regarding our cash flows for
the nine months ended September 30, 2017
and 2016 and the years ended December 31, 2016 and
2015.
|
(in
thousands)
|
Nine months ended September
30,
2017
|
Nine months ended September 30,
2016
|
Increase
(decrease) nine months ended September
30, 2017 over September 30, 2016
|
|
|
|
|
|
|
Cash used in
operating activities
|
$(1,811)
|
$(727)
|
$(1,084)
|
|
Cash provided by
financing activities
|
9,526
|
1,262
|
8,264
|
|
Net change in cash,
cash equivalents and restricted cash
|
$7,715
|
$535
|
$7,180
|
|
(in
thousands)
|
Year
Ended December 31,
2016
|
Year
Ended December 31,
2015
|
Increase
(Decrease) Year Ended December 31, 2016 over December 31,
2015
|
|
|
|
|
|
|
Cash used in
operating activities
|
$(1,195)
|
$(636)
|
$(559)
|
|
Cash provided by
financing activities
|
1,263
|
3,441
|
(2,178)
|
|
Net change in cash,
cash equivalents and restricted cash
|
$68
|
$2,805
|
$(2,737)
|
We had
no operations from December 5, 2014 (inception) through December
31, 2014.
During
the nine months ended September 30, 2017
and 2016, we had net cash inflows of $7.72 million and
$0.54 million, respectively.
During
the years ended December 31, 2016 and 2015, we had net cash inflows
of $0.07 million and $2.81 million, respectively.
Cash Flow Used in Operating Activities
The
increase to cash used in operating activities during the
nine months ended September 30, 2017
compared to the nine months ended
September 30, 2016 of approximately $1.08
million was primarily due to the $1.0 million license fee for
Validive paid in 2017 plus the increase in clinical
development consulting for planning our Phase III clinical trial
for Validive. Cash used in operating activities of approximately
$1.81 million for the nine months ended
September 30, 2017 was primarily a result of our
approximately $15.84 million net loss offset by
non-cash in-process research and development of $13.50
million, non-cash stock-based compensation of
$0.24
million and changes in operating assets and liabilities of
approximately $0.29 million. Cash used in operating
activities of approximately $0.73 million for the
nine months ended September 30, 2016 was
primarily a result of our approximately $0.87 million net loss offset by
changes in our operating assets and liabilities of approximately
$0.14 million.
The
increase to cash used in operating activities during the year ended
December 31, 2016 compared to the year ended December 31, 2015 of
approximately $0.56 million was primarily because our operations
began in June 2015, and 2016 reflects a full year of activity
including the employment of Dr. Robinson, our chief executive
officer and the engagement of consultants (acting chief scientific
officer and acting chief financial officer) and our Executive
Chairman of the Board for the full 12 months in 2016 versus
approximately 7 months in 2015. Cash used in operating activities
of approximately $1.19 million for the year ended December 31, 2016
was primarily a result of our approximately $1.19 million net loss
offset by nominal changes in operating assets and liabilities. Cash
used in operating activities of approximately $0.64 million for the
year ended December 31, 2015 was primarily a result of our
approximately $0.69 million net loss offset by changes in our
operating assets and liabilities of approximately $0.05
million.
Cash Flow Used in Investing Activities
There
was no cash provided by or used in investing activities for the
nine months ended September 30, 2017 and
2016 and the years ended December 31, 2016 and 2015.
Cash Flow Provided by Financing Activities
The
increase of cash provided by financing activities during the
nine months ended September 30, 2017
compared to the nine months ended
September 30, 2016 of approximately $8.26
million was due to the sale of common stock during the nine
months ended September 30, 2017 at $6.00 per share for
aggregate net proceeds of $4.69 million plus $4.83 million of net
proceeds from the Gem Transaction less $1.26 million raised during
the nine months ended September 30, 2016 from the sale of
convertible preferred stock.
The
decrease of cash provided by financing activities during the year
ended December 31, 2016 compared to the year ended December 31,
2015 of approximately $2.18 million was primarily due to our series
A preferred financing, which commenced in May 2015 and ended in
October 2015, with a smaller financing effort in March/April 2016
on the same terms as the 2015 financing.
During
the years ended December 31, 2016 and 2015, we sold 357,000.0
shares and 978,079.3 shares of our Common Stock (previously Series
A Preferred Stock), respectively, at $3.57 per share for net
proceeds of $1.26 million and $3.44 million, respectively. The sale
of our stock at $3.57 per share takes into the account a 1:10 split
effected upon our conversion from an LLC to a Corporation in
December 2015 and the Conversion which took effect in March
2017.
Future Funding Requirements
We have
not generated any revenue from product sales. We do not know when,
or if, we will generate any revenue from product sales. We do not
expect to generate any revenue from product sales unless and until
we obtain regulatory approval of and commercialize any of our
current or future drug product candidates or we out-license or sell
a drug product candidate to a third party. At the same time, we
expect our expenses to increase in connection with our ongoing
development activities, particularly as we continue the research,
development, future preclinical and clinical trials of, and seek
regulatory approval for, our current and future drug product
candidates. If we are able to uplist to NASDAQ or another national
stock exchange, we expect to incur additional costs associated with
operating as a public company. In addition, subject to obtaining
regulatory approval of any of our current and future drug product
candidates, we anticipate that we will need substantial additional
funding in connection with our continuing operations.
As a
company, we have not completed development of any therapeutic
products. We expect to continue to incur significant expenses and
increasing operating losses for the foreseeable future. We
anticipate that our expenses will increase substantially as
we:
●
continue the
preclinical and clinical development of MNPR-101;
●
advance the
clinical development and execute the regulatory strategy of
Validive;
●
continue the
clinical development of GPX-150;
●
acquire and/or
license additional pipeline drug product candidates and pursue the
future preclinical and/or clinical development of such
molecules;
●
seek regulatory
approvals for any of our current and future drug product candidates
that successfully complete registration trials;
●
establish a sales,
marketing and distribution infrastructure and increase or develop
our manufacturing capabilities to commercialize any products for
which we may obtain regulatory approval; and
●
add operational,
financial and management information systems and personnel,
including personnel to support our drug product candidate
development and planned commercialization efforts.
We
anticipate that the funds raised to-date will fund our planned
operations at least through the next 12 months. We have based this
estimate on assumptions that may prove to be wrong, and we could
use our available capital resources sooner than we currently
expect. Because of the numerous risks and uncertainties associated
with the development and commercialization of our drug product
candidates, and the extent to which we enter into additional
collaborations with third parties to participate in the development
and commercialization of our drug product candidates, we are unable
to estimate the amounts of increased capital outlays and operating
expenditures associated with our current and anticipated drug
product candidate development programs. Our future capital
requirements will depend on many factors, including:
●
the progress of
preclinical and clinical development of MNPR-101;
●
the progress of
regulatory interactions and clinical development of
Validive;
●
the progress of
clinical development of GPX-150;
●
the number and
characteristics of other drug product candidates that we may
pursue;
●
the scope,
progress, timing, cost and results of research, preclinical
development and clinical trials;
●
the costs, timing
and outcome of seeking and obtaining FDA and
non-U.S. regulatory approvals;
●
the costs
associated with manufacturing and establishing sales, marketing and
distribution capabilities;
●
our ability to
maintain, expand and defend the scope of our intellectual property
portfolio, including the amount and timing of any payments we may
be required to make in connection with the licensing, filing,
defense and enforcement of any patents or other intellectual
property rights;
●
our need and
ability to hire additional management, scientific and medical
personnel;
●
the effect of
competing products that may limit market penetration of our drug
product candidates;
●
our need to
implement additional internal systems and infrastructure;
and
●
the economic and
other terms, timing and success of our existing collaboration and
licensing arrangements and any collaboration, licensing or other
arrangements into which we may enter in the future, including the
timing of receipt of any milestone or royalty payments under these
arrangements.
See
“Risk Factors”.
In the first quarter of 2018,
expenditures are expected to increase in employee compensation as a
result of hiring various employees and consultants to support the
planning of our Phase III clinical trial of Validive, in
preparation for public market listing via this Form 10 process, and
in adjusting employee compensation to align with comparable public
companies. There can be no assurance that any such events will
occur. We intend to continue evaluating drug product candidates for
the purpose of growing our pipeline. Identifying and securing high
quality compounds usually takes time; however, our spending could
be significantly accelerated in 2018 if additional
compounds are acquired and enter clinical development. In this
event, we may be required to expand our management team, and pay
much higher insurance rates, contract manufacturing costs, contract
research organization fees or other clinical development costs that
are not currently anticipated. We, under this scenario, would plan
to pursue raising additional capital in the next 12 months. The
anticipated operating cost increases from 2018 through
2019 are expected to be primarily driven by the funding of our
planned Validive Phase III clinical program. Office space rent
in 2018 and 2019 will also likely
increase as a result of requiring additional space as we hire
additional employees. The $1 million fee to Onxeo in 2017 is a
one-time payment required for us to exercise our license option for
the exclusive world-wide license to Validive.
Until
we can generate a sufficient amount of product revenue to finance
our cash requirements, we expect to finance our future cash needs
primarily through a combination of equity offerings, debt
financings, strategic collaborations and grant funding. To the
extent that we raise additional capital through the sale of equity
or convertible debt securities, the ownership interest of our
stockholders will be diluted, and the terms of these securities may
include liquidation or other preferences that adversely affect our
stockholders’ rights. See “Risk Factors – Existing and new investors
will experience dilution as a result of our option plan and
potential future stock sales.”. Debt financing, if available,
may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring
dividends. If we raise additional funds through marketing and
distribution arrangements or other collaborations, strategic
alliances or licensing arrangements with third parties, we may have
to relinquish valuable rights to our technologies, future revenue
streams, research programs or product candidates or grant licenses
on terms that may not be favorable to us. If we are unable to raise
additional funds through equity or debt financings when needed, we
may be required to delay, limit, reduce or terminate our pipeline
product development or commercialization efforts or grant rights to
develop and market product candidates that we would otherwise
prefer to develop and market ourselves.
Contractual Obligations and Commitments
Development and Collaboration Agreements
Cancer
Research UK
In July
2015, we entered into a Clinical Trial and Option Agreement
(“CTOA”) with Cancer Research UK and Cancer Research
Technology Limited, a wholly-owned subsidiary of Cancer Research
UK. As part of the CTOA, we were obligated to deposit $0.8 million
in escrow to cover certain potential future claims, intellectual
property infringement costs or termination costs incurred by Cancer
Research UK.
Under
the CTOA, Cancer Research UK plans to manufacture MNPR-101, perform
preclinical studies and conduct a Phase Ia/Ib clinical trial in
cancer patients. At our discretion, we will pay an option fee for
the right to the Phase Ia/Ib clinical data, after which time, we
may choose to enter into a pre-negotiated license with Cancer
Research Technology Limited which includes developmental and
clinical milestones, sales milestones,
and royalties on a
product-by-product and country-by-country basis in the single
digits payable based on the net sales of each
product. The option fee is expressed in British
pounds and therefore the value in U.S. dollars may vary slightly
depending on the exchange rate at the time of payment; however,
payment of the option fee is not expected to have a material effect
on our financial position. If we enter into the
pre-negotiated license agreement, we will carry 100% of the future
development costs. Should we decline to enter into the
pre-negotiated license, we will pay nothing to Cancer Research UK
or Cancer Research Technology Limited, and Cancer Research
Technology Limited will be assigned our intellectual property to
continue the development and commercialization of MNPR-101 in
exchange for a revenue share and minimum royalty. As of
December 1, 2017, the Phase Ia/Ib clinical trial has
not commenced and we have not entered into the pre-negotiated
license agreement with Cancer Research Technology Limited and have
not been required to pay Cancer Research UK or Cancer Research
Technology Limited any funds under the CTOA.
XOMA
Ltd.
The
intellectual property rights contributed by Tactic Pharma, LLC to
us included the non-exclusive license agreement with XOMA Ltd. for
the humanization technology used in the development of MNPR-101.
Pursuant to such license agreement, we are obligated to pay XOMA
Ltd. clinical, regulatory and sales
milestones which could reach
up to $14.925 million if we achieve all milestones for MNPR-101 and zero
royalties. There can be no assurance that we will achieve any
milestones. As of December 1, 2017, we had not
reached any milestones and had not been required to pay XOMA Ltd.
any funds under this license agreement.
Onxeo
SA
In June
2016, we executed an agreement with Onxeo S.A., a French public
company, which gave us the exclusive option to license (on a
world-wide exclusive basis) Validive (clonidine
mucobuccal tablet; clonidine MBT a mucoadhesive tablet of clonidine
based on the Lauriad mucoadhesive technology) to potentially treat
severe oral mucositis in patients undergoing chemoradiation
treatment for head and neck cancers. The agreement includes
clinical, regulatory, developmental
and sales milestones that could reach up to $108
million if we achieve all milestones, and escalating royalties on
net sales from 5 - 10%. In September 2017, we exercised the
option to license Validive from Onxeo for $1 million, but as
of December 1, 2017, we have not been required to pay Onxeo
any other funds under the agreement.
Under the
agreement, we are required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is
generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The Onxeo license
agreement does not have a pre-determined term, but expires on a
product-by-product and country-by-country basis; that is, the
agreement expires with respect to a given product in a given
country whenever our royalty payment obligations with respect to
such product have expired. The agreement may also be terminated
early for cause if either we or Onxeo materially breach the
agreement, or if either we or Onxeo become insolvent. We
may also choose to terminate the agreement, either in its entirety
or as to a certain product and a certain country, by providing
Onxeo with advance notice.
Given
the strength of the Phase II data, we paid the $1 million fee to
Onxeo and exercised the license option in order to advance the
clinical development of Validive. We fully anticipate the need to
raise significant funds to support the completion of clinical
development of Validive.
Service Providers
In the
normal course of business, we contract with service providers to
assist in the performance of research and development, financial
strategy, audit, tax and legal support. We can elect to discontinue
the work under these agreements at any time. We could also enter
into additional collaborative research, contract research,
manufacturing and supplier agreements in the future, which may
require upfront payments and/or long-term commitments of
cash.
Office Lease
In May
2016, we executed a six-month office lease in Northbrook, Illinois
for $1,340 per month, which was extended to December 31,
2017. Effective January 1, 2018, we leased office space in
the Village of Wilmette for $2,379 per month for 24 months.
This office space represents our current headquarters. On November
1, 2017 we executed a month-to-month office lease in Seattle,
Washington for $1,249 per month for the first three months, but
which tiers up to $2,495 on the last month.
Legal Contingencies
We are
currently not, and to date have never been, a party to any material
legal proceedings.
Indemnification
In the
normal course of business, we enter into contracts and agreements
that contain a variety of representations and warranties and
provide for general indemnification. Our exposure under these
agreements is unknown because it involves claims that may be made
against us in the future, but that have not yet been made. To date,
we have not paid any claims or been required to defend any action
related to our indemnification obligations. However, we may record
charges in the future as a result of these indemnification
obligations.
In
accordance with our Second Amended and Restated Certificate of
Incorporation and Amended and Restated Bylaws we have
indemnification obligations to our officers and Board Members for
certain events or occurrences, subject to certain limits, while
they are serving at our request in such capacity. There have been
no claims to date. See “Indemnification of Directors and
Officers.”
Off-Balance Sheet Arrangements
To
date, we have not had any off-balance sheet arrangements, as
defined under SEC rules.
Recent Accounting Pronouncements
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which
provides guidance on determining when and how reporting companies
must disclose going-concern uncertainties in their financial
statements. The ASU requires management to perform interim and
annual assessments of an entity’s ability to continue as a
going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, a company must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” This ASU is effective for annual periods
ending after December 15, 2016 and interim periods within annual
periods beginning after December 15, 2016. Early adoption is
permitted. We have adopted this new accounting standard on our
financial statements and footnote disclosures.
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred
Taxes. This is part of FASB’s simplification
initiative. The amendments in this ASU require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. This ASU is effective for us in
the first quarter of 2017. Early adoption is
permitted. We have adopted this ASU and determined that
it does not have a material effect on our financial condition and
results of operations for the nine months ended
September 30, 2017.
In
January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities. The purpose is
to enhance the reporting model for financial instruments to provide
users of financial statements with more decision-useful
information. This ASU is effective for us in the first quarter of
2018. Early adoption is not permitted except for limited
provisions. We do not expect the adoption of this
amendment to have a material effect on our financial condition and
results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases, which for operating leases,
requires a lessee to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease
payments, in its balance sheet. The standard also requires a lessee
to recognize a single lease cost, calculated so that the cost of
the lease is allocated over the lease term, on a generally
straight-line basis. ASU 2016-02 will be effective for us in the
first quarter of 2019, and early adoption is permitted. We are
currently assessing the impact that adopting this new accounting
standard will have on our financial statements and footnote
disclosures.
In
March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the
accounting for employee share-based payment transactions for both
public and nonpublic companies, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. The ASU will
be effective for us in the first quarter of 2017, and early
adoption is permitted. We have adopted this ASU and determined that
it does not have a material effect on our financial condition and
results of operations for the nine months ended
September 30, 2017.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash. The
amendments apply to all entities that have restricted cash or
restricted cash equivalents and are required to present a statement
of cash flows. The amendments address diversity in practice that
exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments
require that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. As a result, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The amendments do not provide a definition of restricted cash or
restricted cash equivalents. The amendments are effective for
public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years
beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019. Early adoption is
permitted. We have early adopted the amendments and have applied
them using a retrospective transition method to each period
presented. Therefore, we have included restricted cash in cash
equivalents and restricted cash on our statements of cash flows for
the nine months ended September 30, 2017
and 2016.
In
January 2017, the FASB issued ASU
No. 2017-01, Business
Combinations (Topic 805): Clarifying the Definition of a
Business (“ASU No. 2017-01”). The
amendments in ASU No. 2017-01 clarify the definition of a
business with the objective of adding guidance to assist entities
with evaluating whether transactions should be accounted for as
acquisitions (or disposals) of assets or businesses. The definition
of a business affects many areas of accounting including
acquisitions, disposals, goodwill and consolidation. For
public companies, the amendments are effective for annual periods
beginning after December 15, 2017, including interim periods within
those periods. For all other companies and organizations, the
amendments are effective for annual periods beginning after
December 15, 2018, and interim periods within annual periods
beginning after December 15, 2019. The Company is currently
assessing the impact that adopting this new accounting standard
will have on its financial statements and footnote
disclosures.
In May
2017, the FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):
Scope of Modification Accounting. The amendment amends the
scope of modification accounting for share-based payment
arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an
entity would be required to apply modification accounting under ASC
718. This ASU is effective for all entities for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period for: (a) public business entities for
reporting periods for which financial statements have not yet been
issued, and (b) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The Company is currently assessing the impact that adopting this
new accounting standard will have on its financial statements and
footnote disclosures.
In July
2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260) Distinguishing
Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic
815) (Part I) Accounting for Certain Financial Instruments
with Down Round Features, (Part II) Replacement of the
Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests with
a Scope
Exception. This ASU simplifies the accounting for certain
financial instruments with down round features, a provision in an
equity-linked financial instrument (or embedded feature) that
provides a downward adjustment of the current exercise price based
on the price of future equity offerings. Down round features are
common in warrants, preferred shares, and convertible debt
instruments issued by private companies and development-stage
public companies. This new ASU requires companies to disregard the
down round feature when assessing whether the instrument is indexed
to its own stock, for purposes of determining liability or equity
classification. The provisions of this new ASU related to down
rounds are effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments are
effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15,
2020. Early adoption is permitted for all entities. The Company is
currently assessing the impact that adopting this new accounting
standard will have on its financial statements and footnote
disclosures.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT OUR MARKET
RISK
Our
cash and cash equivalents as of September 30, 2017,
December 31, 2016 and December 31, 2015 consisted of a checking and
a business savings fund with a second business savings fund added
in 2017. Our primary exposure to market risk is interest income
sensitivity, which is affected by changes in the general level of
U.S. interest rates. However, because of the short-term nature of
our business savings fund and nominal amount of interest earned, a
sudden change in market interest rates would not be expected to
have a material impact on the fair market value of our cash
equivalents. Accordingly, we would not expect our operating results
or cash flows to be affected to any significant degree by the
effect of a sudden change in market interest rates on our cash
equivalents. We do not have any foreign currency or other
derivative financial instruments.
Our
collaboration and option agreement with Cancer Research UK may
subject us to foreign currency rate fluctuation exposure, if any
payments are due under the agreement. As of December
1, 2017, no such
payments have been due. Transactions denominated in currencies
other than U.S. dollars are recorded based on exchange rates
at the time such transactions arise. As of September
30, 2017, December 31, 2016, and December 31, 2015, substantially
all of our total liabilities were denominated in U.S. dollars.
Inflation generally affects us by increasing our cost of labor and
facilities expenses. We do not believe that inflation has had a
material effect on our results of operations during the
nine months ended September 30, 2017, or
the years ended December 31, 2016 and December 31,
2015.
Item 3. Properties.
We lease space in the Village of
Wilmette, Illinois for our corporate offices,
under a lease which runs through the end of 2019. We
lease approximately 160 square feet in our Seattle, Washington
office. We believe that we will require additional office space
within the next 12 months as we begin to hire additional
personnel.
Item 4. Security Ownership of Certain Beneficial Owners
and Management.
The
following table and the related notes present information on the
beneficial ownership of shares of our common stock, our only
outstanding class of stock, as of December 1, 2017
(subsequent to the Conversion) by:
●
each of our named
executive officers;
●
all of our current
directors and executive officers as a group; and
●
each person known
by us to beneficially own more than five percent of our common
stock
Beneficial
ownership is determined in accordance with the rules of the SEC and
includes voting or investment power with respect to the securities.
Shares of our common stock that may be acquired by an individual or
group within 60 days of December 1, 2017,
pursuant to the exercise of options or warrants, are deemed to be
outstanding for the purpose of computing the percentage ownership
of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other
person shown in the table.
Except
as indicated in footnotes to this table, we believe that the
stockholders named in this table have sole voting and investment
power with respect to all shares of common stock shown to be
beneficially owned by them, based on information provided to us by
such stockholders.
|
Name and Address of Beneficial Owner
*Unless otherwise noted, addresses are:
5 Revere Dr., Suite 200, Northbrook, IL 60062
|
Shares of Common Stock Beneficially Owned (A)
|
Percent of Class Held (A)
|
|
TacticGem,
LLC
|
7,166,667(B)
|
77.1%
|
|
Tactic Pharma
LLC
|
4,277,939.88(B)
|
46.0%
|
|
Gem Pharmaceutical
LLC
941 Lake Forest
Cir.
Birmingham, AL
35244
|
3,055,394.12(B)
|
32.9%
|
|
Chandler D.
Robinson, Chief Executive Officer and Director
|
117,252.8
|
1.2%
|
|
Christopher M.
Starr, Executive Chairman
|
152,650
|
1.6%
|
|
Andrew P. Mazar,
Executive Vice President of Research and Development, Chief
Scientific Officer and Director
|
117,252.8
|
1.2%
|
|
Michael J. Brown,
Director
|
210,000
|
2.3%
|
|
Raymond
“Bill” Anderson, Director
|
1,000
|
*
|
|
Arthur Klausner,
Director
|
5,000
|
*
|
|
Kim R. Tsuchimoto,
Chief Financial Officer
|
26,390
|
*
|
|
Patrice P. Rioux,
Acting Chief Medical Officer
|
7,000
|
*
|
|
Named executive
officers and directors as a group(C)
|
7,803,212.6
|
81.0%
|
[Legend
on next page]
(A)
Beneficial ownership is based upon 9,291,420.614 shares of our
Common Stock outstanding; and includes common stock options that
vest within 60 days after December 1, 2017 as follows
– Chandler D. Robinson, Christopher M. Starr and Andrew P.
Mazar options to purchase up to 103,250 shares of
common stock, Kim R. Tsuchimoto options to purchase up to
26,390 shares of common stock and Patrice P. Rioux
options to purchase up to 7,000 shares. These vested option shares
are deemed to be outstanding and beneficially owned by the person
holding the applicable options for the purpose of computing the
percentage ownership of that person, but they are not treated as
outstanding for the purpose of computing the percentage ownership
of any other person.
(B)
Tactic Pharma LLC (“Tactic Pharma”) shares voting and
investment power over 4,111,272.88 shares of our common stock owned
by TacticGem, and Gem Pharmaceutical LLC (“Gem”) shares
voting and investment power over 3,055,394.12 shares of our common
stock owned by TacticGem, because pursuant to the TacticGem limited
liability company agreement all votes of our common stock (other
than votes for the election of directors) are passed through to
Tactic Pharma and Gem in proportion to their percentage interests
in TacticGem, and after an initial holding period, which ends after
we have been subject to the reporting requirements of the Exchange
Act and have filed all required reports for a period of at least 12
months, either member of TacticGem can cause up to its
proportionate shares of our common stock to be distributed to
it. Tactic Pharma holds
166,667 shares of stock in its own name.
Mr. Brown, Dr.
Mazar and Dr. Robinson are managers of Tactic Pharma;
because of this, they control voting and dispositive power
over
4,111,272.88 shares of our common stock owned by TacticGem, and
over our Common Stock owned by Tactic Pharma. Gem is controlled by
Pharma Investments, LLC, which is in turn controlled by Diane M.
Hendricks.
(C)
Shares held by TacticGem are only included in the total beneficial
ownership of our named executive officers and directors because the
limited liability agreement of TacticGem provides that the Manager
of TacticGem will vote our common stock held by TacticGem to elect
Tactic Pharma’s nominees plus one person designated by Gem to
our Board, and acting together the directors are able to control
Tactic Pharma, LLC, and how it selects its nominees for our Board
of Directors.
* Less
than 1%
Item 5.
Directors and Executive Officers.
The
Members of our Board of Directors, each of whom serves until the
next annual meeting of stockholders, and the executive officers of
the Company, each of whom serves at the discretion of the Board of
Directors are as follows:
|
Name
|
Age
|
Positions
|
Director Since
|
|
Christopher M.
Starr, Ph.D.
|
65
|
Executive
Chairman, Director, Member of the Audit Committee, the Compensation
Committee, and the Corporate Governance & Nominating
Committee
|
December
2014
|
|
|
|
|
|
|
Chandler D.
Robinson, MD MBA MSc
|
33
|
Chief
Executive Officer, Director
|
December
2014
|
|
|
|
|
|
|
Andrew
P. Mazar, Ph.D.
|
55
|
Executive Vice
President of Research and Development, Chief Scientific Officer,
Director
|
December
2014
|
|
|
|
|
|
|
Kim R.
Tsuchimoto
|
54
|
Chief
Financial Officer
|
-
|
|
|
|
|
|
|
Patrice Rioux, MD
Ph.D.
|
66
|
Acting
Chief Medical Officer
|
-
|
|
|
|
|
|
|
Michael J. Brown,
MSc
|
60
|
Director, Member
of the Audit Committee, the Compensation Committee, and the
Corporate Governance & Nominating Committee
|
December
2014
|
|
|
|
|
|
|
Raymond
“Bill” Anderson
|
75
|
Director, Chair of
the Audit Committee, Member of the Compensation Committee and the
Corporate Governance & Nominating Committee
|
April
2017
|
|
|
|
|
|
|
Arthur
Klausner, MBA
|
57
|
Director, Member
of the Audit Committee, the Compensation Committee, and the
Corporate Governance & Nominating Committee
|
August
2017
|
|
|
|
|
|
|
Kirsten
Anderson
|
50
|
Senior
Vice President, Clinical Development
|
-
|
Backgrounds
of our executive officers and board members are discussed
below.
Executive Officers and Board Members
Christopher M. Starr, PhD - Executive Chairman
Dr.
Starr is a co-founder and has been our Executive Chairman and a
Board Member of ours and our predecessor Monopar Therapeutics, LLC
since its inception in December 2014. Dr.
Starr’s
primary
responsibility as our Executive Chairman is to work with our Chief
Executive Officer and the rest of our Board to set our strategic
direction and provide guidance to, and oversight of our Chief
Executive Officer. Our Chairman also sets the agenda for Board
meetings and presides over them. Dr. Starr was the co-Founder and
served as the initial chief executive officer (“CEO”)
at Raptor Pharmaceuticals (“Raptor”), a public company
(NASDAQ: RPTP), since its inception in 2006 through December 2014
and continued to serve Raptor as a member of its board of directors
until Raptor was sold to Horizon Pharma plc in October 2016. The
principal business of Raptor is the development and
commercialization of treatments for rare diseases. Dr.
Starr’s primary responsibilities as CEO included the day to
day leadership and performance of Raptor which had one approved
drug marketed in the U.S. and Europe. Dr. Starr co-founded BioMarin
in 1997, a public company (NASDAQ: BMRN) where he last served as
Senior Vice President and Chief Scientific Officer overseeing the
approval of three drugs until starting Raptor in 2006. As Senior
Vice President at BioMarin, Dr. Starr was responsible for managing
a Scientific Operations team of 181 research, process development,
manufacturing and quality personnel through the successful
development of commercial manufacturing processes for its biologic
enzyme replacement therapy and small molecule products, and
supervised the cGMP design, construction and licensing of
BioMarin’s proprietary biological manufacturing facility.
From 1991 to 1997, Dr. Starr supervised research and commercial
programs at BioMarin’s predecessor company, Glyko, Inc.,
where he served as Vice President of Research and Development.
Prior to his tenure at Glyko, Inc., Dr. Starr was a National
Research Council Associate at the National Institutes of Health.
Dr. Starr earned a B.S. from Syracuse University and a Ph.D. in
Biochemistry and Molecular Biology from the State University of New
York Health Science Center, in Syracuse, New York.
Chandler D. Robinson, MD MBA MSc - Chief Executive
Officer
Dr.
Robinson is a co-founder and has been our CEO and a Board Member of
ours and our predecessor Monopar Therapeutics, LLC since its
inception in December 2014. Dr. Robinson’s primary
responsibilities as CEO are for our day to day leadership and
performance. Since 2010, Dr. Robinson has been, and continues to
be, a manager of Tactic Pharma LLC (“Tactic”), which he
co-founded and led as CEO until it became a holding company in
April 2014. Tactic acquired and developed preclinical and clinical
stage compounds. In 2010, Tactic Pharma acquired a drug on which
Dr. Robinson conducted research at Northwestern University. Tactic
licensed the drug to a company in Europe and manufactured it for
sale on a Named Patient basis throughout Europe. In April 2014,
Tactic Pharma sold its remaining rights to the compound to three
large European investment firms and this compound is currently in a
Phase III clinical trial for Wilson disease. Among his previous
experiences, Dr. Robinson in 2008 worked at Onyx Pharmaceuticals in
their Nexavar marketing division, from 2008 to 2009 as a co-manager
of a healthcare clinic in San Jose CA, from 2004 to present as
Founder and President of an undergraduate research focused
non-profit now in its 13th year, and from 2006 to 2007 as part of a
quantitative internal hedge-fund style team at Bear Stearns
investment bank. He was previously on the board of Wilson
Therapeutics, and is currently on the board of Northwestern
University’s Chemistry of Life Processes Institute. Dr.
Robinson graduated summa cum laude from Northwestern University,
earned a master's degree in International Health Policy and Health
Economics from the London School of Economics on a Fulbright
Scholarship, an MBA from Cambridge University on a Gates
Scholarship through Bill Gates’ Trust, and an MD from
Stanford University.
Andrew P. Mazar, PhD – Executive Vice President of
Research and Development, and Chief Scientific Officer
Dr.
Mazar is a co-founder and has been our Chief Scientific Officer and
a Board Member of ours and our predecessor Monopar Therapeutics,
LLC, since inception in December 2014. Dr. Mazar became our
Executive Vice President of Research and Development effective as
of November 1, 2017. Dr. Mazar’s primary responsibilities for
us are the day to day leadership and performance of our research
and development activities. Dr. Mazar has spent 28 years working on
drug discovery and development at the interface of academia and
industry and has founded or co-founded 8 start-up companies to
commercialize new drug discoveries, including Tactic Pharma LLC
(“Tactic”), which acquired and developed preclinical
and clinical stage compounds. He is also internationally recognized
for his basic research work on the role of the urokinase
plasminogen activator (uPA) system in tumor progression as well as
mechanisms of cancer invasion and metastasis. Prior to joining
Tactic Pharma, LLC in 2010 and the Chemistry of Life Processes
Institute at Northwestern University in 2009, Dr. Mazar was the
Chief Scientific Officer at Attenuon, LLC in San Diego from 2000 to
2009 and led discovery and development efforts resulting in three
drugs entering oncology clinical trials. Dr. Mazar has now overseen
18 IND-enabling efforts, many of these focused on drugs discovered
in academia.
Dr.
Mazar is the previous Chair of the NCI Nanotechnology Alliance
Animal Model working group (2011-2015) and has been a member of the
NHLBI Scientific Review Board (SRB) for the SMARTT program since
2011. Dr. Mazar served as Associate Editor for Recent Patent
Reviews on Anti - Cancer Drug Discovery (2010-2013) and is
currently a member of the editorial board of Clinical Cancer
Research. He most recently served as a charter member of the NIH
Developmental Therapeutics Study Section (2012-2016), and has also
served on study sections for the NCI, NIDDK, NHLBI, NIH Special
Emphasis Panels, VA Oncology Merit Review, AHA and the Phillip
Morris External Research Program. He is also the co-author of 110
peer reviewed publications and 18 reviews and book chapters, most
recently contributing chapters on Cancer Invasion and Metastasis to
the Oxford Textbook of Clinical Oncology and The Oxford Textbook of
Cancer Biology. Dr. Mazar has founded or advised several start-up
companies over the past 5 years including Tactic Pharma LLC,
Valence Therapeutics, Wilson Therapeutics, Panther Biotechnology,
Lung Therapeutics Inc., Actuate Therapeutics, AvidTox and
Tempus.
Kim R. Tsuchimoto –Chief Financial
Officer
Ms.
Tsuchimoto was our Acting Chief Financial Officer since June 2015,
and became employed as our Chief Financial Officer effective
November 1, 2017. Ms. Tsuchimoto spent over nine years at Raptor,
as its Chief Financial Officer from Raptor’s inception in May
2006 until September 2012, as Raptor’s Vice President of
International Finance, Tax & Treasury from September 2012 to
February 2015, and lastly served as Raptor’s Vice President,
Financial Planning & Analysis and Internal Controls from
February to May 2015. Prior to Raptor, Ms. Tsuchimoto spent eight
years at BioMarin and its predecessor, Glyko, Inc., where she held
the positions of Vice President-Treasurer, Vice
President-Controller and Controller. Ms. Tsuchimoto received a B.S.
in Business Administration from San Francisco State University. She
holds an inactive California Certified Public Accountant
license.
Patrice Rioux, MD Ph.D. – Acting Chief Medical
Officer
Dr.
Rioux has been our Acting Chief Medical Officer since December
2016. Dr. Rioux’s primary responsibilities include clinical
development and regulatory (FDA & EMA) planning, coordination
of clinical operations and statistical strategy, support of
investor relationship. Dr. Rioux has been deeply involved in
development of drugs for rare diseases for the last 20 years. His
background includes development of drugs and biologic products for
various indications across neurodegenerative diseases, immunology,
pain management, oncology and metabolic diseases. Dr. Rioux has
been performing development, medical/regulatory, and clinical
consulting services through his consulting company, pRx Consulting,
LLC from June 2004 to the present. From 2009 to October 2014, Dr.
Rioux was the Chief Medical Officer at Raptor where he was
responsible for securing regulatory approval of PROCYSBI, a
delayed-release cysteamine for the treatment of a lysosomal storage
disease, nephropathic cystinosis, in both the United States and
Europe. From 2005 to 2008 he served as the Chief Medical Officer at
Edison Pharmaceuticals, and as from 2000 to 2003, he served as Vice
President Clinical at Repligen, where he gained significant orphan
disease experience in mitochondrial diseases as well as in autism,
and auto-immune diseases. After several years as a clinical
researcher at INSERM (France), he started his career in the
pharmaceutical industry at Biogen in October 1995, working on
multiple sclerosis, before joining Variagenics, Inc. in 1998, one
of the first pharmacogenomic companies. Dr. Rioux received his
Medical Education at Faculté de Médecine
Pitié-Salpetriere, his Ph.D. in Mathematical Statistics at
Faculté des Sciences, and his Degree of Pharmacology
(pharmacokinetics and clinical pharmacology) at Faculté de
Médecine Pitié-Salpetriere.
Michael J. Brown, MSc – Board Member
Mr.
Brown has been a Board Member of ours and our predecessor, Monopar
Therapeutics, LLC since its inception in December 2014. Mr. Brown
is also the Administrator of the Monopar 2016 Stock Incentive Plan.
Mr. Brown is the Co-Founder, and since 1994 has served as Chairman,
and since 1996 as CEO, of Euronet Worldwide Inc.
(“Euronet”), a public company (NASDAQ: EEFT) which
offers payment and transaction processing and distribution
solutions to financial institutions, retailers, service providers
and individual consumer. Mr. Brown has been President of Euronet
since December 2014 and also served as President of Euronet from
December 2006 to June 2007. Mr. Brown has been a member of the
Euronet board of directors since December 1996 and also served on
the boards of Euronet’s predecessor companies.. He has a
Master of Science in molecular and cellular biology.
Raymond W. Anderson, MBA MS – Board
Member
Mr.
Anderson has been a Board Member of Monopar since April 2017. He
has been chair of the audit committee since October 2017. Mr.
Anderson has more than 35 years of biopharmaceutical/medical
technology sector experience, primarily focused in financial
management. Mr. Anderson worked at Dow Pharmaceutical Sciences,
Inc. from July 2003 until June 2010. He most recently served as
Dow’s Managing Director from January 2009 to June 2010, and
previously served as Dow’s Chief Financial Officer and Vice
President, Finance and Administration. Prior to joining Dow in
2003, Mr. Anderson was Chief Financial Officer for Transurgical,
Inc., a private medical technology company. Prior to that, Mr.
Anderson served as
Chief
Operating Officer and Chief Financial Officer at BioMarin
Pharmaceutical Inc. from June 1998 to January 2002. Prior to June
1998, Mr. Anderson held similar executive-level positions with
other biopharmaceutical companies, including Syntex Laboratories,
Chiron Corporation, Glycomed Incorporated and Fusion Medical
Technologies. Mr. Anderson served as a board member and chair of
the audit committee at Raptor Pharmaceutical Inc. from its founding
in 2006 to its acquisition in 2016. Mr. Anderson also served as an
officer in the United States Army Corps of Engineers, as a
strategic planner and operational profit and loss manager at
General Electric and as a finance manager at Memorex. Mr. Anderson
holds an M.B.A. from Harvard University, an M.S. in Administration
from George Washington University and a B.S. in Engineering from
the United States Military Academy.
Arthur Klausner – Board Member
Mr.
Klausner has been a consultant to the biopharmaceutical industry
since 2009. He served as Chief Executive Officer of Gem
Pharmaceuticals, LLC (“Gem”) from September 2012 until
Gem’s drug development assets were acquired by us in 2017.
Gem’s lead, Phase II drug product candidate was GPX-150
(5-imino-13-deoxydoxorubicin), a proprietary analog of doxorubicin
engineered specifically to retain the anticancer activity of
doxorubicin while minimizing toxic effects on the heart. In
addition to his role at Gem, Mr. Klausner served as CEO of Jade
Therapeutics Inc. (“Jade”) from September 2012 until
December 2015. Jade’s focus was on the development of
proprietary, cross-linked hyaluronic acid formulations for
ophthalmic applications until its March 2016 acquisition by EyeGate
Pharmaceuticals, Inc. (NASDAQ: EYEG). Previously, Mr. Klausner
spent a total of 18 years at the life science venture capital firms
Domain Associates and Pappas Ventures, where he was involved in the
investment in and subsequent nurturing of a variety of
biotechnology, specialty pharmaceutical, and medical device
companies. During that time, he was a member of the board of
directors at Santarus (acquired by Salix Pharmaceuticals), X-Ceptor
Therapeutics (acquired by Exelixis), Orexigen Therapeutics, Inc.
(NASDAQ: OREX), and Syndax Pharmaceuticals (NASDAQ: SNDX), and a
board observer at Peninsula Pharmaceuticals (acquired by Johnson
& Johnson) and Cerexa (acquired by Forest Laboratories). Mr.
Klausner currently serves on the board of directors of Cennerv
Pharma (S) Pte. Ltd. (Singapore), and on advisory boards for
Neurotez, Inc., and the New York University Innovation Venture
Fund. He received his M.B.A. from the Stanford University Graduate
School of Business and his undergraduate degree in Biology from
Princeton University.
Kirsten Anderson - Senior Vice President, Clinical
Development
Ms. Anderson has
more than 25 years of experience in the biotech and pharmaceutical
industry, with expertise in oncology drug development, most
recently as an independent clinical development consultant for us
from February 2017 through October 2017. She became our Senior Vice
President of Clinical Development effective November 1, 2017. From
2008 to 2016, she was at OncoGenex Pharmaceuticals,
where she served as Vice President of Clinical Operations
(March 2015 to November 2016). Since 2008, she has also held
the following positions with OncoGenex: Director, Clinical Research
(2008 to December 2010) and Senior Director, Clinical Research
(January 2012 to February 2015). Prior to joining OncoGenex, Ms
Anderson held clinical trial management positions at Sonus
Pharmaceuticals, Xcyte Therapies, and Immunex, including the
oversight of global clinical operations, drug safety and data
management. She has a laboratory research background and began her
career at the University of Pennsylvania. Ms. Anderson earned a
degree in Biology from the University of Vermont and is completing
her Masters in Biotech Enterprise (expected 2018) from Johns
Hopkins University.
Agreement Regarding Election of Directors
The
limited liability company agreement of TacticGem provides that the
Manager of TacticGem is required to vote TacticGem’s shares
of our common stock to elect Tactic Pharma’s nominees to our
Board plus one person designated by Gem. The Gem board nomination
right terminates at such time as we achieve a listing on a national
stock exchange (e.g. NASDAQ, the NYSE or similar national stock
exchange). Gem’s initial designee for election to our Board
was Arthur Klausner.
Board Composition and Election of Directors
Independence of the Board of Directors
We
believe it is important to have independent directors on our Board
who can make decisions without being influenced by personal
interests. Additionally, because one of our goals is to qualify for
listing with NADSDAQ we are following the NASDAQ Stock Market
(“NASDAQ”) listing standards, which requires that a
majority of the members of our Board of Directors must qualify as
“independent,” as affirmatively determined by our
Board. Our Board consults with our counsel to ensure that our
Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition
of “independent,” including those set forth in
pertinent listing standards of NASDAQ, as in effect from time to
time.
Consistent
with these considerations, after review of all relevant identified
transactions or relationships between each director, or any of his
family members, and us, our senior management and our independent
registered public accounting firm, our Board has affirmatively
determined that the following directors are independent directors
within the meaning of the applicable NASDAQ listing standards: Dr.
Starr, Mr. Brown, Mr. Anderson and Mr. Klausner. In making this
determination, our Board found that none of the directors had a
material or other disqualifying relationship with us. Dr. Robinson,
our President and Chief Executive Officer, is not an independent
director by virtue of his employment relationship with us, and
similarly Dr. Mazar by virtue of his employment relationship with
us is not an independent director.
There are no family relationships among any of our directors or
executive officers.
Board
Leadership Structure
We have
structured our Board in a way that we believe effectively serves
our objectives of corporate governance and management oversight. We
separate the roles of Chief Executive Officer and Chairman of the
Board in recognition of the differences between the two roles. We
believe that the Chief Executive Officer should be responsible for
Monopar’s day to day leadership and performance, while our
Executive Chairman of the Board should work with our Chief
Executive Officer and the rest of our Board to set our strategic
direction and provide guidance to, and oversight of our Chief
Executive Officer. Our Executive Chairman also sets the agenda for
Board meetings and presides over them.
Audit Committee
Our
Board has formed an audit committee. Mr. Anderson has been
appointed as chair of the audit committee. Mr. Anderson is a
financial expert as defined by NASDAQ and is an independent board
member as contemplated by
Rule 10A-3 under the Exchange Act. In addition, Dr.
Starr, Mr. Klausner and Mr. Brown have been appointed as
independent members of the audit committee.
It is anticipated that the functions of our Audit Committee will
include, among other things:
●
appointing,
approving the compensation of and assessing the independence of our
independent public accounting firm;
●
overseeing
the work of our independent public accounting firm, including
through the receipt and consideration of reports from such
firm;
●
reviewing
and discussing with management and the independent public
accounting firm our annual and quarterly financial statements and
related disclosures;
●
monitoring
our internal control over financial reporting, disclosure controls
and procedures and code of business conduct and
ethics;
●
overseeing
our risk assessment and risk management policies;
●
establishing
policies and procedures for the receipt and retention of accounting
related complaints and concerns;
●
meeting
independently with our independent public accounting firm and
management;
●
reviewing
and approving or ratifying any related person transactions;
and
●
preparing
the audit committee report required by SEC rules.
Corporate Governance and Nominating Committee
The
Board has formed a Corporate Governance and Nominating Committee
and has appointed Dr. Starr, Mr. Brown, Mr. Anderson and Mr.
Klausner as members of the committee.
It is anticipated that the functions of our corporate governance
and nominating committee will include, among other
things:
●
identifying
individuals qualified to become board members;
●
recommending
to our board the persons to be nominated for election as directors
and to each of the board's committees;
●
reviewing
and making recommendations to the board with respect to management
succession planning;
●
developing
and recommending to the board corporate governance guidelines;
and
●
overseeing
an annual evaluation of the board.
Compensation Committee
Our
Board has also formed a Compensation Committee consisting of Mr.
Brown Dr. Starr, Mr. Anderson and Mr. Klausner as independent
members. It is anticipated that the compensation committee will
engage independent third party compensation experts as
needed.
The functions of our Compensation Committee is anticipated to
include, among other things:
●
annually
reviewing and approving corporate goals and objectives relevant to
our chief executive officer's compensation;
●
determining
our chief executive officer's compensation;
●
reviewing
and approving, or making recommendations to our board with respect
to, the compensation of our other executive officers;
●
overseeing
an evaluation of our senior executives;
●
overseeing
and administering our equity incentive plans;
●
reviewing and making recommendations to our board
with respect to director compensation; and
●
preparing
the annual compensation committee report to the extent required by
SEC rules.
Item 6.
Executive Compensation.
Summary Compensation Table
The following table sets forth for the fiscal year ended December
31, 2016, the compensation of the Company’s Chief Executive
Officer and the only other executive officer whose compensation
exceeded $100,000. No other executive officer of the Company
received compensation in excess of $100,000 in the most recent
completed fiscal year.
|
Name and
Positions
|
Fiscal
Year
|
Salary
($)
|
Bonus
($)
|
Option Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
Chandler
D. Robinson, M.D., Chief Executive Officer and
Director
|
2016
|
300,000
|
-
|
55(1)
|
75,000 (2)
|
375,055
|
|
Andrew
P. Mazar, Ph.D., Chief Scientific Officer and Director
|
2016
|
-
|
-
|
55(1)
|
197,500 (3)
|
197,555
|
|
|
|
|
|
|
|
|
(1) In
2016, each of Dr. Robinson and Dr. Mazar was granted options to
purchase up to 84,000 shares of our common stock as discussed below
in the section Outstanding Equity
Awards at Fiscal Year End. Based upon the Black-Scholes
valuation model for stock option compensation expense, the value of
Dr. Robinson’s stock options was $55 and the value of Dr.
Mazar’s stock options was $55 for the year ended December 31,
2016. The options vested 50% on the grant date (April 4, 2016), 25%
on the six-month anniversary of the grant date (October 4, 2016)
and 25% on the one year anniversary of the grant date (April 3,
2017).
(2)
Consisting of an employer funded 401(k) in the amount of $53,000,
plus $22,000 in lieu of benefits.
(3)
Until November 1, 2017, Dr. Mazar was a consultant acting as chief
scientific officer for $197,500 in consulting fees, with no
additional compensation for board member services. As of November
1, 2017, Dr. Mazar became employed as our Executive Vice President
of Research and Development, and Chief Scientific
Officer.
Employment Agreements
In
December 2016, we entered into an employment agreement with Dr.
Robinson for his role as our chief executive officer. Although we
have been paying Dr. Robinson as our employee since January 1,
2016, we did not enter into a formal employment agreement until
December 2016. Dr. Robinson’s employment agreement is for an
indefinite term (for at-will employment). The agreement was amended
and restated on November 1, 2017.
Under
his employment agreement, Dr. Robinson currently receives a
$375,000 per year base salary, which may be adjusted from time to
time in accordance with normal business practice and in our sole
discretion. In addition, Dr. Robinson will be eligible for an
annual performance bonus, of up to 50% of his base salary, based on
achieving goals as determined by our Board and our Compensation
Committee. Until we obtain retirement and healthcare benefits for
our eligible employees and Dr. Robinson elects to opt in to such
benefits, Dr. Robinson is entitled to an additional salary of at
least $4,583.33 per month (or such greater amount as determined by
our Board) in lieu of such benefits.
On
November 1, 2017, we entered into an employment agreement with Dr.
Mazar for his role as our Executive Vice President of Research and
Development and Chief Scientific Officer. Dr. Mazar’s
employment agreement is for an indefinite term (for at-will
employment). Under his employment agreement, Dr. Mazar receives a
$350,000 per year base salary, which may be adjusted from time to
time in accordance with normal business practice and in our sole
discretion. In addition, Dr. Mazar will be eligible for an annual
performance bonus, of up to 40% of his base salary, based on
achieving goals as determined by our Board and our Compensation
Committee. Until we obtain retirement and healthcare benefits for
our eligible employees and Dr. Mazar elects to opt in to such
benefits, Dr. Mazar is entitled to an additional salary of at least
$4,583.33 per month (or such greater amount as determined by our
Board) in lieu of such benefits.
On
November 1, 2017, we entered into an employment agreement with Ms.
Tsuchimoto for her role as our Chief Financial Officer. Ms,
Tsuchimoto’s employment agreement is for an indefinite term
(for at-will employment). Under her employment agreement, Ms.
Tsuchimoto receives a $68,750 per year base salary to reflect 25%
time, which may be adjusted from time to time in accordance with
normal business practice and in our sole discretion. In addition,
Ms. Tsuchimoto will be eligible for an annual performance bonus
determined by our Board and our Compensation
Committee.
On
November 1, 2017, we entered into an employment agreement with Ms.
Anderson for her role as our Senior Vice President of Clinical
Development. Ms. Anderson’s employment agreement is for an
indefinite term (for at-will employment). Under her employment
agreement, Ms. Anderson
receives
a $260,000 per year base salary, which may be adjusted from time to
time in accordance with normal business practice and in our sole
discretion. In addition, Ms. Anderson will be eligible for an
annual performance bonus determined by our Board and our
Compensation Committee.
Outstanding Equity Awards at Fiscal Year End
The
following table sets forth outstanding stock option awards held by
named executive officers as of December 31, 2016. There were no
outstanding stock awards as of December 31, 2016.
|
Name
|
Number of securities underlying unexercised options (#)
exercisable
|
Number of securities underlying unexercised options (#)
unexercisable
|
Option exercise price ($)
|
Option expiration date
|
|
Chandler
D. Robinson, M.D.
|
63,000(1)
|
21,000(1)
|
$0.001
|
April 3, 2026
|
|
|
|
|
|
|
|
Andrew
P. Mazar, Ph.D
|
63,000(1)
|
21,000(1)
|
$0.001
|
April 3, 2026
|
|
|
|
|
|
|
(1)
Both Dr. Robinson and Dr. Mazar were granted stock option awards on
April 4, 2016 which vested 50% on the grant date (April 4, 2016),
25% on the six-month anniversary of the grant date (October 4,
2016) and 25% on the one year anniversary of the grant date (April
3, 2017).
Potential Payments upon Termination or Change in
Control
Because
we did not have an employment agreement in place for Dr. Robinson
until December 2016 effective January 1, 2017, we had no potential
payment obligations upon termination or change in control for the
year ended December 31, 2016.
Each of
Dr. Mazar’s and Dr. Robinson’s employment agreements
provides that upon execution and effectiveness of a release of
claims, Dr. Mazar and Dr. Robinson will be entitled to severance
payments if we terminate their employment without cause, as defined
in the employment agreement, or if Dr. Mazar or Dr. Robinson
terminates his employment with us for good reason, as defined in
the employment agreement. If employment terminates under these
circumstances, in each case absent a change in control, as defined
in the employment agreements, we will be obligated for a period of
twelve months, (1) to pay base salary, (2) to provide
that any equity
awards
will continue vesting, (3) to pay the monthly premiums for
COBRA coverage equal to the amount paid for similarly situated
employees and (4) to the extent allowed by applicable law and
the applicable plan documents, continue to provide all of our
employee benefit plans and arrangements that the employee was
receiving at the time of termination. In addition, equity awards
held by the terminated employee, that vest solely on the passage of
time, will be accelerated by 12 months. If employment
terminates under these circumstances, within 12 months
following a change in control, in addition to the severance
described above, we will be obligated to accelerate in full the
vesting of all of the employee’s outstanding equity
awards.
Stock Option Plan
In
April 2016, our Board and stockholders holding more than a majority
of our outstanding convertible preferred stock approved the Monopar
Therapeutics Inc. 2016 Stock Incentive Plan (as subsequently
amended, the “Plan”), allowing us to grant up to an
aggregate 700,000 shares of stock awards, stock options, stock
appreciation rights and other stock-based awards to employees,
directors and consultants. Concurrently, our Board granted to board
members and our acting chief financial officer stock options to
purchase up to an aggregate 273,000 shares of our common stock at
an exercise price of $0.001 per share (the par value) based upon a
third party valuation of the our common stock. Such stock options
vest 50% on grant date, 25% on the six month anniversary of the
grant date and 25% on the one year anniversary of the grant date.
In December 2016, our Board granted to our acting chief medical
officer options to purchase up to 7,000 shares of our common stock.
Such options vest pro rata monthly over six months from the grant
date. In February 2017, our Board granted to board members and our
acting chief financial officer stock options to purchase up to an
aggregate 275,520 shares of our common stock at an exercise price
of $0.001 per share (the par value) based upon a third party
valuation of the our common stock. Such options vest 6/48ths upon
the six month anniversary of the grant date and 1/48th per month
thereafter. In September 2017 and November 2017, stock options to
purchase up to an aggregate 103,072 shares of our common stock were
granted at an exercise price of $6.00, based on the price per share
at which common stock was sold in our most recent private offering.
61,024 of such options vest 6/48ths upon the six month anniversary
of the grant date and 1/48th per month
thereafter, 21,024 of such
options vest 6/42nd upon the six month anniversary of the grant
date and 1/42nd per month
thereafter and 21,024 of such
options vest 6/24ths upon the six month anniversary of the grant
date and 1/24th per month
thereafter. All outstanding stock options have a ten
year term. 658,592 stock options were outstanding as of
December 1, 2017.
Under
the Plan, the per share exercise price for the shares to be issued
upon exercise of an option is to be determined by the Plan
administrator, except that the per share exercise price may be no
less than 100% of the fair market value per share on the grant
date. Fair market value is established by our Board, using third
party valuation reports. Stock options generally expire after ten
years.
The
Plan provides that the Plan administrator will be our Board, a
committee designated by our Board, or an individual designee. Our
independent Directors reaffirmed the appointment of Mr. Brown as
the Board-representative Administrator of our 2016 Stock Incentive
Plan. The Administrator has exclusive authority, consistent with
laws and the terms of the Plan, to designate recipients of options
to be granted thereunder and to determine the number and type of
options and the number of shares subject thereto. In March 2017, at
the time of the Conversion, which resulted in a 70 for 1 split of
our common stock, the Administrator effected the 70 for 1 stock
split for the Plan which increased the stock option pool from
10,000 to 700,000 and changed the stock options granted in 2016 and
in February 2017 by a 70 for 1 factor. No other features were
changed on the outstanding stock options granted.
The
Plan was subsequently amended and restated in October 2017, which
was approved by stockholders holding more than a majority of our
outstanding common stock, as the Amended and Restated Monopar
Therapeutics Inc. 2016 Stock Incentive Plan, in order to increase
the maximum aggregate grants under the Plan from 700,000 to
1,600,000 shares of stock awards, stock options, stock appreciation
rights and other stock-based awards.
Director Compensation for Fiscal Year Ended December 31,
2016
The
following table sets forth the compensation of our Board of
Directors who were not also named executive officers during the
year ended December 31, 2016. Michael J. Brown was a
non-compensated director during the year ended December 31,
2016.
|
Name
|
Fees earned or paid in cash ($)
|
Option Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
Christopher
M. Starr, Ph.D.
|
96,339
|
55 (1)
|
-
|
96,394
|
|
Michael
J. Brown
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
(1)
Based upon the Black-Scholes valuation model for stock option
compensation expense, the value of Dr. Starr’s stock option
was $55 for the year ended December 31, 2016. Dr. Starr’s
options vested 50% on the grant date (April 4, 2016), 25% on the
six-month anniversary of the grant date (October 4, 2016) and 25%
on the one year anniversary of the grant date (April 3,
2017).
Options Exercised and Stock Vested
None of
our executive officers exercised any options during the years ended
December 31 2016 and 2015.
Item 7.
Certain Relationships and Related Transactions, and Director
Independence.
Since January 2015, we (including as Monopar Therapeutics, LLC)
have engaged in the following transactions with our directors,
executive officers, holders of more than 5% of our voting
securities, and affiliates or immediately family members of our
directors, executive officers and holders of more than 5% of our
voting securities, and our co-founders. We believe that all of
these transactions were on terms as favorable as could have been
obtained from unrelated third parties.
Contributions by Tactic Pharma, LLC
We were
initially formed as a Delaware limited liability company in
December 2014, with the name Monopar Therapeutics, LLC, at which
time Tactic Pharma contributed technology and related assets to us,
in exchange for 1,000,000 shares of Series Z Preferred Units, which
were
exchanged
for 100,000 shares of Series Z Preferred Stock at the time of our
conversion to a corporation. The issued Series Z Preferred Stock
was recorded at par value $0.001 per share on our balance sheet
reflecting the historical capitalized cost basis, due to the fact
that MNPR-101’s development costs were previously expensed
(not capitalized) by Tactic Pharma. In March 2017, the 100,000
shares of Series Z Preferred Stock were converted into 7,000,000
shares of our common stock, $.0001 par value in connection with the
Conversion. See “Conversion
of Preferred Stock to Common Stock”.
In
August 2017, Tactic Pharma surrendered 2,888,727.12 shares of our
common stock back to us in order to satisfy one of the pre-closing
conditions in the Gem Transaction. This reduced its ownership
percentage of our common stock from 79.5% to 69.9%.
Gem Transaction
On June
27, 2017, we signed a term sheet with Gem Pharmaceuticals, LLC
(“Gem”) pursuant to which Gem was to transfer assets
related to certain of its drug product candidate programs to us in
exchange for 32% of our outstanding common stock on a fully-diluted
basis. The Gem transaction was structured through a limited
liability company, TacticGem, which Gem formed with Tactic Pharma,
LLC (“Tactic Pharma”), our largest shareholder at that
time. Gem contributed certain of Gem’s drug product
candidates’ intellectual property and agreements associated
primarily with Gem’s GPX-150 drug product candidate program,
along with $5,000,000 in cash (the “Gem Contributed
Assets”) to TacticGem for a 42.633% interest, and Tactic
Pharma contributed 4,111,272.88 shares of our common stock to
TacticGem for a 57.367% interest. Then, TacticGem contributed the
Gem Contributed Assets to us in exchange for 3,055,394.12 newly
issued shares of our common stock (31.4% on a fully-diluted basis)
(the two contributions collectively, the “Gem
Transaction”). The contribution by TacticGem, made in
conjunction with contributions from outside investors in a private
offering, was intended to qualify for tax-free treatment and to
satisfy a condition to the Gem Transaction that we have a certain
level of cash on hand prior to the contribution. The Gem
Transaction closed on August 25, 2017. Following the Gem
Transaction, TacticGem owns 7,166,667 shares of our stock. Pursuant
to the TacticGem limited liability company agreement, all votes of
our common stock by TacticGem (aside from the election of our Board
of Directors) is required to be passed through to Tactic Pharma and
Gem based on their percentage interest (currently pursuant to this
voting agreement, Tactic has voting and investment power over
4,111,272.88 shares of our common stock and Gem has voting and
investment power over 3,055,394.12 shares of our common stock).
Neither Gem nor TacticGem was a related person prior to the Gem
Transaction. The TacticGem limited liability company agreement
provides that its manager will vote all shares of our common stock
held by it to elect Tactic Pharma’s nominees to our Board of
Directors plus one person nominated by Gem, initially Arthur
Klausner.
Pursuant
to the Conversion and the Gem Transaction and sales of our common
stock in September 2017, Tactic Pharma now holds voting and
investment power over 4,277,939.88 shares
of our Common Stock, which is 46.0% of our outstanding common
stock. In the ordinary course of business, we have reimbursed and
continue to reimburse Tactic Pharma for expenses Tactic Pharma has
paid on our behalf, which historically included legal patent fees
and storage rental fees. Certain of our Board Members and executive
officers own and control Tactic Pharma. Although no single person
has a controlling interest in Tactic Pharma, acting together they
are able to control Tactic Pharma and a large voting block of our
common stock.
We
reimbursed Tactic Pharma a de minimus amount in monthly storage
fees during the nine months ended
September 30, 2017 and the year ended December 31,
2016. In April 2017, Tactic Pharma purchased 166,667 shares of our
common stock at $6.00 per share.
During
the nine months ended September 30, 2017
and the year ended December 31, 2016, we paid or accrued legal fees
to Baker & Hostetler, LLP, a large national law firm in which
Barry Robinson, our Chief Executive Officer’s family member
is a law partner, of approximately $201,508 and
$54,000, respectively. The family member billed a de
minimis amount of time on our legal engagement with Baker &
Hostetler, LLP.
Stock Purchases by Directors and Executive Officers
The following table sets forth the number of shares of our common
stock owned by our co-founders; each co-founder purchased such
shares at $3.57 per share (taking into account the Conversion) in
2016.
|
Name
|
Related Person Status
|
# Shares of Common Stock
|
Transaction Value (and Related Person’s
Interest)
($)
|
|
Christopher M. Starr, Ph.D.
|
Executive Chairman
|
29,400
|
105,000
|
|
Chandler D. Robinson, M.D.
|
Director, Chief Executive Officer
|
14,002.3
|
50,010
|
|
Andrew P. Mazar, Ph.D.
|
Director, Chief Scientific Officer
|
14,002.3
|
50,010
|
Also in
2016, Michael Brown (Director), purchased 210,000 shares of our
common stock (taking into account the Conversion), at $3.57 per
share, for a total transaction value of $750,000.
In
2017, Board members purchased shares of our common stock at $6.00
per share, as follows: Dr. Starr purchased 20,000 shares for a
transaction value of $120,000.00; Mr. Anderson purchased 1,000
shares for a transaction value of $6,000.00; and Mr. Klausner
purchased 5,000 shares for a transaction value of
$30,000.00.
Promoters and Certain Control Persons
We have
not had any promoters since our formation in December
2014.
Parent Companies
Prior
to the Gem Transaction, Tactic Pharma was our parent company,
having a controlling interest in us. After the Gem Transaction,
TacticGem became our parent company, currently having a 77.1%
controlling interest in us. See “Contribution by Tactic Pharma,
LLC” and “Gem
Transaction”.
Director Independence
We have
decided to follow the NASDAQ Stock Market, or NASDAQ, listing
standards, which require that a majority of the members of our
Board of Directors, or our Board, must qualify as
“independent,” as affirmatively determined by our
Board. Our Board consults with our counsel to ensure that our
Board’s determinations are consistent with relevant
securities and other laws and regulations regarding the definition
of “independent,” including those set forth in
pertinent listing standards of NASDAQ, as in effect from time to
time.
Consistent
with these considerations, after review of all relevant identified
transactions or relationships between each director, or any of his
family members, and us, our senior management and our independent
registered public accounting firm, our Board has affirmatively
determined that the following four directors are independent
directors within the meaning of the applicable NASDAQ listing
standards: Dr. Starr, Mr. Brown, Mr. Anderson and Mr. Klausner. In
making this determination, our Board found that none of the
directors had a material or other disqualifying relationship with
us. Dr. Robinson, our President and Chief Executive Officer is not
an independent director by virtue of his employment relationship
with us, and similarly, Dr. Mazar by virtue of his employment
relationship with us is not an independent director.
There are no family relationships among any of our directors or
executive officers.
Relationships Considered in Determining Director
Independence
In addition to the stock transactions described above, in
considering director independence, we considered the following
transactions:
During
the six months ended June
30, 2017 and the year ended December 31, 2016, we were advised by
four members of our Board of Directors, who were Managers of the
LLC prior to our conversion to a C Corporation. The four former
Managers are also our current common stockholders (owning
approximately an aggregate 3% of our common stock outstanding as of
June 30, 2017). Three of
the former Managers are also Managers of Tactic Pharma, LLC, which
was, prior to the Gem Transaction, our largest and controlling
stockholder (owning 82.6%
of us at June 30, 2017). The Managers of Tactic Pharma, LLC were
paid the following during the six months ended June 30, 2017 and
the year ended December 31, 2016: Chandler D. Robinson, our
Co-Founder, Chief Executive Officer, common stockholder, Manager of
Tactic Pharma, LLC and former Manager of Monopar Therapeutics, LLC,
$161,000 and $322,000, respectively; and Andrew P. Mazar, our
Co-Founder, Chief Scientific Officer, common stockholder, Manager
of Tactic Pharma, LLC and former Manager of Monopar Therapeutics,
LLC, $150,000 and $197,500, respectively. We also paid Christopher
M. Starr, our Co-Founder, Executive Chairman of the Board of
Directors, common stockholder and former Manager of Monopar
Therapeutics, LLC, $50,449 and $96,339 during the six months ended June 30, 2017 and
the year ended December 31, 2016, respectively.
In the
normal course of business, our Chief Executive Officer, Board
Members and consultants incur expenses on behalf of us and are
reimbursed within 30 days of submission of relevant expense
reports.
Item 8. Legal
Proceedings.
We are not party to any material legal proceedings.
Item 9.
Market Price of and Dividends on the Registrant's Common Equity and
Related Stockholder Matters.
Market Information
There is no established public trading market in our common stock.
Our securities are not listed for trading on any national
securities exchange nor are bid or asked quotations reported in any
over-the-counter quotation service.
Rule 144 Eligibility
As of December 1, 2017, 1,335,079.3 shares of our
common stock are eligible for sale under Rule 144.
We expect approximately 1,335,079.3 shares of our common stock will
be eligible for sale under Rule 144 following the effective
date of this Form 10. We cannot estimate the number of shares of
our common stock that our existing stockholders will elect to sell
under Rule 144.
Holders
As of December 1, 2017, there were
9,291,420.614 shares of our common
stock outstanding held by 43 holders. In addition there were nine
holders of stock options to purchase up to 658,592 shares of our
common stock.
Dividends
We have never paid cash dividends on any of our capital stock and
we currently intend to retain our future earnings, if any, to fund
the development and growth of our business. We do not intend to pay
cash dividends to holders of our common stock in the foreseeable
future.
Securities Authorized for Issuance Under Equity Compensation
Plans
As of December 31, 2015, we did not have any stock options
outstanding. The following table provides information as of
December 31, 2016, with respect to shares of our common stock that
may be issued under existing equity compensation plans. There are
no equity compensation plans that have not been approved by our
security holders.
|
Plan
Category
|
Number of
Securities to be
Issued Upon
Exercise of
Outstanding
Options,
Warrants
and Rights
|
Weighted
Average
Exercise
Price
of
Outstanding
Options,
Warrants
and Rights
|
Number of
Securities
Remaining
Available
For Future
Issuance
under Equity
Compensation
Plans
|
|
Equity
compensation plans approved by security holders (1)
|
280,000
|
$.001
|
420,000
|
(1) The Monopar Therapeutics Inc. 2016 Stock Incentive
Plan.
Registration Rights
We are subject to an agreement with TacticGem (pursuant to the Gem
Transaction), which obligates us to file Form S-3 or other
appropriate form of registration statement covering the resale of
any of our Common Stock by TacticGem, Gem, or Tactic, upon
direction by TacticGem at any time after we have been subject to
the reporting requirements of the 1934 Act for at least twelve
months (the “Initial Holding Period’). We are required
to use our best efforts to have such registration statement
declared effective as soon as practical after it is filed. In the
event that such registration statement for resale is not approved
by the SEC, and TacticGem submits a written request, we are
required to prepare and file a registration statement on Form S-1
registering such Common Stock for resale and to use our best
efforts to have such registration statement declared effective as
soon as practical thereafter. After registration pursuant to these
rights, these shares will become freely tradable without
restriction under the Securities Act other than pursuant to
restrictions on affiliates under Rule 144.
Item 10. Recent Sales of Unregistered Securities.
Set forth below is information regarding shares of common stock
issued and options granted by us since our formation in December
2014, that were not registered under the Securities
Act. Also included is the
consideration, if any, received by us, for such shares and options
and information relating to the Securities Act, or rule of the SEC,
under which exemption from registration was claimed. No
underwriters were involved in the foregoing issuances of
securities. Below this description of recent sales of unregistered
securities is a description of the exemptions from registration
which were applicable to each sale or grant.
(a) In
December 2014, 1,000,000 Common Class Z Units of Monopar
Therapeutics, LLC, our predecessor entity, were sold to Tactic
Pharma, LLC in exchange for the contribution of all intellectual
property rights related to MNPR-101, valued at $30 per Unit. These
Units were converted into 100,000 shares of Series Z Preferred
Stock when we converted to a corporation on December 16, 2015, and
were further converted into 7,000,000 shares of our Common Stock
pursuant to the “Conversion” in March 2017. This was a
private placement of Securities to a single owner upon the
formation of the Company, and the Units were sold pursuant to the
exemption from registration under the Act, set forth in Section
4(a)(2) of the Act.
(b) In
May and June 2015, 116,438 Preferred Class A Units of Monopar
Therapeutics, LLC, our predecessor entity, were sold to accredited
investors at a price of $30 per Unit. These Units were converted
into 11,643.8 shares of Series A Preferred Stock when we converted
to a corporation on December 16, 2015 and were further converted
into 978,079.3 shares of our Common Stock pursuant to the
“Conversion” in March 2017.
(c)
During March and April 2016, 4,250 shares of Series A Preferred
Stock were sold to accredited investors, at a price of $300 per
share (after a 10:1 split of the previous shares). These shares
were converted into 357,000 shares of our Common Stock pursuant to
the “Conversion” in March 2017.
(d) On
April 4, 2016, we granted stock options for 1,200 shares of our
Common Stock to each of Dr. Christopher M. Starr, Dr. Chandler D.
Robinson, and Dr. Andrew P. Mazar in exchange for services.
Pursuant to the “Conversion” in March 2017, these
options were each adjusted to be for 84,000 shares. On the same
date, we granted a stock option for 300 shares of our Common Stock
to Kim R. Tsutchimoto in exchange for services, which was adjusted
to be for 21,000 shares pursuant to the Conversion. The exercise
price of each of these stock options was $0.001 per share and the
stock options expire on April 3, 2026.
(e) On
December 15, 2016, we granted an option for 100 shares of our
Common Stock to Dr. Patrice P. Rioux in exchange for services.
Pursuant to the “Conversion” in March 2017, the option
was adjusted to be for 7,000 shares. The exercise price of the
option was $0.001 per share and the option expires on December 14,
2026.
(f) On
February 20, 2017, we granted stock options for 1,200 shares of our
Common Stock to each of Dr. Christopher M. Starr, Dr. Chandler D.
Robinson, and Dr. Andrew P. Mazar in exchange for services.
Pursuant to the “Conversion” in March 2017, these stock
options were each adjusted to be for 84,000 shares. On the same
date, we granted a stock option for 336 shares of our Common Stock
to Kim R. Tsuchimoto in exchange for services, which was adjusted
to be for 23,520 shares pursuant to the Conversion. The exercise
price of each of these options was $0.001 per share and the options
expire on February 19, 2027.
(g)
During March 2017 through June 2017, 340,840.33 shares of Common
Stock were sold to accredited investors at a price of $6.00 per
share.
(h)
During August 2017 through September 2017, 448, 834 shares of
Common Stock were sold to accredited investors at a price of $6.00
per share.
(i) On
September 1, 2017, we granted options for 21,024 shares of Common
Stock to Arthur Klausner, and on September 18, 2017, we granted
options for 21,024 shares of Common Stock to each of Michael J.
Brown and Raymond W. Anderson, in exchange for services. The
exercise price of the options was $6.00 per share and the options
expire on August 31, 2027 and September 17, 2027,
respectively.
(j) On
August 25, 2017, 3,055,394.12 shares of our Common Stock were
issued to TacticGem in exchange for the Gem Contributed Assets
(including assets and $5 million in cash) as part of the Gem
Transaction.
(k) On
November 1, 2017, we granted options for 40,000 shares of Common
Stock to Kirsten Anderson in exchange for services. The exercise
price of the options was $6.00 per share and the options expire on
October 31, 2027.
The offers, sales and issuances of the securities described in
paragraphs (d), (e), (f), (i), and (k) were deemed to be exempt
from registration under the Securities Act in reliance on both
Section 4(a)(2) of the Act and Rule 701 in that the
transactions were under compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The
recipients of such securities were our employees, officers, bona
fide consultants and advisors and received the securities under our
Plan. Appropriate legends were affixed to the securities issued in
these transactions. Each of the recipients of securities in these
transactions had adequate access, through employment, business or
other relationships, to information about us and had knowledge and
experience to make the decision to accept the stock
options.
The offers, sales and issuances of the securities described in
paragraph (b), (c), (g), (h), and (j) were deemed to
be exempt from registration under the Securities Act in reliance on
Rule 506(b) of Regulation D in that the issuance of
securities to the accredited investors did not involve a public
offering. The recipients of securities in each of these
transactions acquired the securities for investment only and not
with a view to or for sale in connection with any distribution
thereof. Each of the recipients of securities in these transactions
was an accredited investor under Rule 501 of
Regulation D. Form D was filed related to the offer
described in paragraph (b) on June 18, 2015; Form D was filed
related to the offer described in paragraph (c) on June 18, 2015;
Form D was filed related to the offer described in paragraph (g) on
March 28, 2017; and Form D was filed related to the offer described
in paragraph (h) on August 23, 2017.
Item 11. Description of Registrant's Securities to be
Registered.
We are registering on this Registration Statement only our common
stock. We have the authority to issue 40,000,000 shares of
Common Stock, $0.001 par value. As of December 1, 2017
there were 9,291,420.614 shares of our Common Stock issued and
outstanding.
We have
reserved 1,600,000 shares of our Common Stock for issuance under
our 2016 Stock Incentive Plan, as subsequently amended (the
“Plan”), and as of December 1, 2017, we
have granted stock options to purchase up to 658,592 shares of our
Common Stock under the Plan. See “Stock Option Plan”.
Dividend Rights
Holders
of our Common Stock are entitled to receive such dividends as may
be declared by our Board out of funds legally available therefor.
Our stockholders have no preemptive rights to acquire additional
shares of our common stock or other securities. The shares of our
common stock are not subject to redemption. Upon our dissolution
and liquidation, holders of our Common Stock are entitled to a
ratable share of our net assets remaining after payments to our
creditors.
Voting Rights
The
holders of shares of our Common Stock are entitled to one vote per
share for the election of directors and on all other matters
submitted to a vote of stockholders. Shares of our common stock do
not have cumulative voting rights. The election of our Board of
Directors is decided by a plurality of the votes cast at a meeting
of our stockholders by the holders of stock entitled to vote in the
election.
Anti-Takeover Provisions
Delaware Law
We are subject to Section 203 of the Delaware General
Corporation Law. Subject to certain exceptions, Section 203
prevents a publicly held Delaware corporation from engaging in a
"business combination" with any "interested stockholder" for three
years following the date that the person became an interested
stockholder, unless the interested stockholder attained such status
with the approval of our board of directors or unless the business
combination is approved in a prescribed manner. A "business
combination" includes, among other things, a merger or
consolidation involving us and the "interested stockholder" and the
sale of more than 10% of our assets. In general, an "interested
stockholder" is any entity or person beneficially owning 15% or
more of our outstanding voting stock and any entity or person
affiliated with or controlling or controlled by such entity or
person.
Authorized but Unissued Shares
The authorized but unissued shares of common stock are available
for future issuance without stockholder approval, subject to any
limitations imposed by the listing standards of any exchange on
which our shares are listed. These additional shares may be used
for a variety of corporate finance transactions, acquisitions and
employee benefit plans. The existence of authorized but unissued
and unreserved common stock could make more difficult or discourage
an attempt to obtain control of us by means of a proxy contest,
tender offer, merger or otherwise.
Special Meeting of Stockholders; Advance Notice Requirements for
Stockholder Proposals and Director Nominations; Stockholder
Action
Our Second Amended and Restated Certificate of Incorporation and
our Amended and Restated By-laws provide that, except as otherwise
required by law, special meetings of the stockholders can only be
called by our Board of Directors. In addition, our Amended and
Restated By-laws establish an advance notice procedure for
proposals to be brought before a special meeting of our
stockholders. Stockholders at a special meeting may only consider
matters set forth in the notice of the meeting. These provisions
could have the effect of delaying until the next stockholder
meeting stockholder actions that are favored by the holders of a
majority of our outstanding voting securities.
Super Majority Voting
The General Corporation Law of the State of Delaware provides
generally that the affirmative vote of a majority of the shares
entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or by-laws, unless a corporation's
certificate of incorporation or by-laws, as the case may be, require a greater percentage. Our
Amended and Restated By-laws may be amended or repealed by a
majority vote of our board of directors or the affirmative vote of
the holders of at least a majority of the votes that all our
stockholders would be entitled to cast in any election of
directors.
Item 12. Indemnification of Directors and
Officers.
Delaware Law
Section 102 of the General Corporation Law of the State of
Delaware permits a corporation to eliminate the personal liability
of directors of a corporation to the corporation or its
stockholders for monetary damages for a breach of fiduciary duty as
a director, except where the director breached his duty of loyalty,
failed to act in good faith, engaged in intentional misconduct or
knowingly violated a law, authorized the payment of a dividend or
approved a stock repurchase in violation of Delaware corporate law
or obtained an improper personal benefit.
Section 145 of the General Corporation Law of the State of
Delaware provides that a corporation has the power to indemnify a
director, officer, employee, or agent of the corporation, or a
person serving at the request of the corporation for another
corporation, partnership, joint venture, trust or other enterprise
in related capacities against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and
reasonably incurred by the person in connection with an action,
suit or proceeding to which he was or is a party or is threatened
to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of such position, if such person acted
in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful, except that, in the case of actions
brought by or in the right of the corporation, no indemnification
shall be made with respect to any claim, issue or
matter
as to which such person shall have been adjudged to be liable to
the corporation unless and only to the extent that the Court of
Chancery or other adjudicating court determines that, despite the
adjudication of liability but in view of all of the circumstances
of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Second Amended and Restated Certificate of
Incorporation
Our Certificate of Incorporation provides that we are required to
provide indemnification and advancement of expenses to our
directors, officers or other agents to the fullest extent permitted
by Delaware's General Corporation Law. Our Certificate of
Incorporation limits the personal liability of directors for breach
of fiduciary duty to the maximum extent permitted by the Delaware
General Corporation Law and provides that no director will have
personal liability to us or to our stockholders for monetary
damages for breach of fiduciary duty or other duty as a director.
However, these provisions do not eliminate or limit the liability
of any of our directors for:
●
for
any breach of the director's duty of loyalty to us or our
stockholders;
●
or
acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, fraud, or gross
negligence;
●
for
voting for or assenting to unlawful payments of dividends, stock
repurchases or other distributions; or
●
for
any transaction from which the director derived an improper
personal benefit.
In addition, our Certificate of Incorporation provides that, to the
fullest extent permitted by Delaware’s General Corporation
Law, we will indemnify each person who was or is a party or
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, other than an action by or in
the right of the Company, by reason of the fact that he or she is
or was, or has agreed to become, a director or officer, or is or
was serving, or has agreed to serve, at our request as a director,
officer, partner, employee or trustee of, or in a similar capacity
with, another corporation, partnership, joint venture, trust or
other enterprise (all such persons being referred to as an
"Indemnitee"), or by reason of any action alleged to have been
taken or omitted in such capacity, against all expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action,
suit or proceeding and any appeal therefrom, if such Indemnitee
acted in good faith and in a manner he or she reasonably believed
to be in, or not opposed to, our best interests, and, with respect
to any criminal action or proceeding, he or she had no reasonable
cause to believe his or her conduct was unlawful.
Indemnification Agreements
We have previously entered into consulting agreements with certain
of our officers and directors, Andrew P. Mazar and Kim Tsuchimoto,
pursuant to which we have agreed to indemnify each of such officers
and directors from and against all liabilities, losses, damages,
expenses, charges and fees which he or she may sustain or incur by
reason of any claim which may be asserted against such officer or
director arising out of or attributable to us or our employees or
contractors.
Insurance
We maintain a general liability insurance policy that covers
certain liabilities of directors and officers of our corporation
arising out of claims based on acts or omissions in their
capacities as directors or officers.
Item 13. Financial Statements and Supplementary
Data.
Our audited financial statements for the years ended December 31,
2016 and 2015, and unaudited condensed financial statements for the
nine months ended September 30, 2017 and
2016 may be found beginning on page F-1 of this Registration
Statement.
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
Item 15. Financial Statements and Exhibits
|
|
Page Number
|
|
Unaudited condensed financial statements for the nine
months ended September 30, 2017 and 2016
|
F-1
|
|
Audited financial statements for the years ended December 31, 2016
and 2015
|
F-45
|
(b)
Exhibit Index
|
Exhibit
|
Document
|
|
3.1
|
Second Amended and Restated Certificate of
Incorporation
|
|
3.2
|
Amended and Restated Bylaws
|
|
10.1*
|
Clinical Trial and Option Agreement with Cancer Research
UK
|
|
10.2*
|
License Agreement with XOMA Ltd.
|
|
10.3*
|
Option and License Agreement with Onxeo S.A.
|
|
10.4*
|
Contribution Agreement (351) – Containing Registration Rights
Agreement with TacticGem
|
|
10.5
|
Amended and Restated 2016 Stock Incentive Plan
|
|
10.6
|
Employment Agreement of Chandler D. Robinson – terminated
October 31, 2017
|
|
10.7
|
Employment Agreement of Chandler D. Robinson – effective
November 1, 2017
|
|
10.8
|
Consulting Agreement of Kim Tsuchimoto – terminated October
31, 2017
|
|
10.9
|
Employment Agreement of Kim Tsuchimoto – effective November
1, 2017
|
|
10.1
|
Consulting Agreement of Andrew P. Mazar – terminated October
31, 2017
|
|
10.11
|
Employment Agreement of Andrew P. Mazar – effective November
1, 2017
|
|
10.12
|
Consulting Agreement of pRx Consulting (Patrice Rioux)
|
|
10.13
|
Employment Agreement of Kirsten Anderson
|
|
11
|
Statement Regarding Computation of Per Share Earnings
|
|
23.1
|
Consent Of Independent Registered Public Accounting
Firm
|
Confidential
Information has been omitted and filed separately with the
Securities and Exchange Commission on exhibits marked with
(*). Confidential treatment has been requested with respect
to the omitted information.
Monopar Therapeutics
Inc.
Condensed
Financial Statements
September
30, 2017 and 2016
(Unaudited)
____________
Table of Contents
Page(s)
|
Condensed
Balance Sheets
|
F-2
|
|
|
|
|
Condensed
Statements of Operations
|
F-3
|
|
|
|
|
Condensed
Statements of Stockholders’ Equity
|
F-4
|
|
|
|
|
Condensed
Statements of Cash Flows
|
F-5
|
|
|
|
|
Notes
to Condensed Financial Statements
|
F-6 to
F-21
|
Monopar Therapeutics Inc.
Condensed Consolidated Balance Sheets
|
ASSETS
|
|
|
|
|
|
|
|
|
(unaudited) |
|
|
Cash and cash
equivalents
|
$ 9,787,945
|
$ 2,072,611
|
|
Prepaid expenses
and other current assets
|
9,785
|
22,562
|
|
|
|
|
|
Total current
assets
|
9,797,730
|
2,095,173
|
|
|
|
|
|
Restricted
cash
|
800,000
|
800,393
|
|
|
|
|
|
Total
assets
|
$ 10,597,730
|
$ 2,895,566
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$ 337,936
|
$ 64,510
|
|
Total current
liabilities
|
337,936
|
64,510
|
|
|
|
|
|
Long-term
liabilities
|
-
|
-
|
|
Total liabilities
|
337,936
|
64,510
|
|
|
|
|
|
Commitments
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
Preferred stock, $0.001 par value; 200,000 shares
authorized;
|
|
|
115,894 shares issued and outstanding, aggregate
liquidation
|
|
|
|
preference of $34,768,140 at December 31, 2016;
|
|
|
|
zero shares authorized, issued and outstanding at September 30,
2017
|
-
|
116
|
Common stock, $0.001 par value; 40,000,000 shares
authorized;
|
|
|
zero shares issued and outstanding at December 31,
2016;
|
|
|
|
9,291,421 shares issued and outstanding at September 30,
2017
|
9,291
|
-
|
|
Additional paid-in
capital
|
27,964,700
|
4,703,848
|
|
Accumulated
deficit
|
(17,714,197)
|
(1,872,908)
|
|
|
|
|
|
Total
stockholders’ equity
|
10,259,794
|
2,831,056
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
$ 10,597,730
|
$ 2,895,566
|
|
|
|
|
(*) Derived
from the Company’s audited financial
statements.
The accompanying
notes are an integral
part of these
condensed consolidated financial statements.
Monopar Therapeutics Inc.
Condensed Consolidated Statements of Operations
Unaudited
|
|
Nine
Months Ended September 30,
|
|
|
|
|
|
|
|
|
|
Revenues:
|
$ -
|
$ -
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research
and development
|
1,626,004
|
183,027
|
|
In-process
research and development
|
13,501,622
|
-
|
|
General
and administrative
|
738,701
|
688,180
|
|
|
|
|
|
Total
operating expenses
|
15,866,327
|
871,207
|
|
|
|
|
|
Operating
loss
|
(15,866,327)
|
(871,207)
|
|
|
|
|
|
Other
income:
|
|
|
|
Interest
and other income
|
25,038
|
6,083
|
|
|
|
|
|
Net
loss
|
$ (15,841,289)
|
$ (865,124)
|
|
|
|
|
|
Net
loss per share:
|
|
|
|
Basic
and diluted
|
$ (1.84)
|
N/A
|
|
|
|
|
|
|
|
|
|
Basic
and diluted
|
8,610,376
|
N/A
|
The accompanying
notes are an integral
part of these
condensed consolidated financial statements.
Monopar Therapeutics Inc.
Condensed Consolidated Statements of Stockholders’
Equity
Unaudited
|
|
|
|
|
|
|
|
|
|
|
Series A and Z
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2015
|
-
|
$ -
|
-
|
$ -
|
$ -
|
$ -
|
$ -
|
|
|
|
|
|
|
|
|
|
|
Issuance of series
A convertible preferred stock
|
11,644
|
12
|
-
|
-
|
3,441,452
|
-
|
3,441,464
|
at $300 per
share for cash, net of
|
|
|
|
|
|
|
|
$51,676
issuance costs
|
|
|
|
|
|
|
|
|
Issuance of series
Z convertible preferred stock
|
100,000
|
100
|
-
|
-
|
(100)
|
-
|
-
|
|
in exchange
for intellectual property rights
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(687,311)
|
(687,311)
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
111,644
|
112
|
-
|
-
|
3,441,352
|
(687,311)
|
2,754,153
|
|
Issuance of series
A convertible preferred stock
|
4,250
|
4
|
-
|
-
|
1,262,496
|
-
|
1,262,500
|
at $300 per share
for cash, net of
|
|
|
|
|
|
|
|
$12,500 issuance
costs
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,185,597)
|
(1,185,597)
|
|
Balance, December
31, 2016
|
115,894
|
116
|
-
|
-
|
4,703,848
|
(1,872,908)
|
2,831,056
|
|
Conversion of
series A and Z convertible preferred
|
|
|
|
|
|
|
|
|
stock
to common stock concurrent with a
70
for 1 common stock split
|
(115,894)
|
(116)
|
8,335,080
|
8,335
|
(8,219)
|
-
|
-
|
|
Issuance of common
stock
|
|
|
|
|
|
|
|
at $6 per
share for cash, net of
|
|
|
|
|
|
|
|
$42,400
issuance costs
|
-
|
-
|
789,674
|
790
|
4,694,856
|
-
|
4,695,646
|
|
|
|
|
|
|
|
|
|
|
Tactic Pharma, LLC
shares forfeited
|
|
|
(2,888,727)
|
(2,889)
|
2,889
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Shares issued in
Gem transaction, net of issuance costs
of
$169,258
|
|
|
3,055,394
|
3,055
|
18,329,310
|
|
18,332,365
|
|
Non-cash
stock-based compensation
|
-
|
-
|
-
|
-
|
242,016
|
-
|
242,016
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
|
-
|
(15,841,289)
|
(15,841,289)
|
|
Balance September
30, 2017
|
-
|
$ -
|
9,291,421
|
$ 9,291
|
$ 27,964,700
|
$ (17,714,197)
|
$ 10,259,794
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral
part of these
condensed consolidated financial statements.
Monopar Therapeutics Inc.
Condensed Consolidated Statements of Cash Flows
Unaudited
|
|
Nine Months Ended
September 30
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net
loss
|
$ (15,841,289)
|
$ (865,124)
|
|
Adjustments to
reconcile net loss to net cash used in
|
|
|
|
operating
activities:
|
|
|
|
Stock-based
compensation expense
|
242,016
|
-
|
|
In-process research
and development
|
13,501,622
|
-
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Prepaid expenses
and other current assets
|
12,777
|
6,026
|
|
Accounts
receivable
|
-
|
(33,011)
|
|
Accounts payable
and accrued expenses
|
273,427
|
164,810
|
|
|
|
|
|
Net cash used in
operating activities
|
(1,811,447)
|
(727,299)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from sale
of series A convertible preferred stock
|
-
|
1,275,000
|
|
Cash received from
Gem, net of transaction costs
|
4,830,742
|
-
|
|
Proceeds from the
sale of common stock
|
4,738,046
|
-
|
|
Issuance costs
related to the sale of stock
|
(42,400)
|
(12,500)
|
|
|
|
|
|
Net cash provided
by financing activities
|
9,526,388
|
1,262,500
|
|
|
|
|
|
Net increase in
cash, cash equivalents and restricted cash
|
7,714,941
|
535,201
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, beginning of
period
|
2,873,004
|
2,805,136
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, end of period
|
$ 10,587,945
|
$ 3,340,337
|
|
|
|
|
The accompanying
notes are an integral
part of these
condensed consolidated financial statements.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
1.
Nature
of Business and Liquidity
Nature of Business
Monopar
Therapeutics Inc. (the ”Company”) is an emerging
biopharmaceutical company focused on developing innovative drug
candidates to improve clinical outcomes in cancer patients. Monopar
currently has three compounds in development: Validive®
(clonidine mucobuccal tablet; clonidine MBT), a Phase III-ready,
first-in-class mucoadhesive local anti-inflammatory tablet for the
prevention and treatment of radiation induced severe oral mucositis
(SOM) in head and neck cancer patients; MNPR-201 (GPX-150
5-imino-13-deoxydoxorubicin), a proprietary analog of doxorubicin
engineered specifically to retain the anticancer activity of
doxorubicin while minimizing toxic effects on the heart; and
MNPR-101 (formerly huATN-658), a near-to-the-clinic humanized
monoclonal antibody, which targets the urokinase plasminogen
activator receptor (uPAR), for the treatment of advanced solid
cancers. MNPR-101 (huATN-658) is being developed in collaboration
with Cancer Research UK.
The Company was
originally formed in the State of Delaware on December 5, 2014 as a
limited liability company (“LLC”) and on December 16,
2015 converted to a C Corporation in a tax-free exchange. In March
2017, the Company’s Series A Preferred Stock and Series Z
Preferred Stock converted to common stock at a conversion rate of
1.2 for 1 and 1 for 1, respectively, along with a concurrent common
stock split of 70 for 1 and the elimination all shares of Series A
Preferred Stock and Series Z Preferred Stock. All references to
common stock authorized, issued and outstanding and common stock
options take into account the 70 for 1 stock
split.
Liquidity
The Company has
incurred an accumulated loss of approximately $17.7 million as of
September 30, 2017. To date, the Company has primarily funded its
operations with the net proceeds from private placements of
convertible preferred stock and common stock and from the cash
provided in the Gem transaction discussed in detail in Note 6
below. Management believes that currently available resources will
provide sufficient funds to enable the Company to meet its minimum
obligations through 2018. The Company’s ability to fund its
future operations, including the clinical development of Validive,
is dependent primarily upon its ability to execute on its business
strategy and obtain additional funding or execute collaboration
research transactions. There can be no certainty that future
financing or collaborative research transactions will
occur.
2.
Significant
Accounting Policies
Basis of Presentation
These condensed
consolidated financial statements include the books of Monopar
Therapeutics Inc., its French branch and its wholly-owned French
subsidiary, Monopar Therapeutics, SARL and have been prepared in
accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) and include all disclosures
required by GAAP for interim financial reporting. The principal
accounting policies applied in the preparation of these condensed
consolidated financial statements are set out below and have been
consistently applied to all periods presented. The Company has been
primarily involved in performing research activities, developing
product technologies, and raising capital to support and expand
these activities.
Monopar
Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting
Policies,
continued
Comprehensive Loss
Comprehensive loss
represents net loss plus any gains or losses not reported in the
condensed consolidated statements of operations, such as foreign
currency translations gains and losses that are typically reflected
on a company’s statements of stockholders’ equity.
There were no differences between net loss for the nine months
ended September 30, 2017 and 2016, and comprehensive loss for those
periods.
Use of Estimates
The preparation of
condensed consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure
of contingent assets and liabilities, and reported amounts of
revenues and expenses in the condensed consolidated financial
statements and accompanying notes. Actual results could differ from
those estimates.
Unaudited Interim Financial Data
The
accompanying condensed consolidated balance sheet as of September
30, 2017, condensed consolidated statements of operations for the
nine months ended September 30, 2017 and 2016 and condensed
consolidated statements of cash flows for the nine months ended
September 30, 2017 and 2016 are unaudited. The unaudited interim
condensed consolidated financial statements have been prepared on a
basis consistent with the audited financial statements and, in the
opinion of management, reflect all adjustments (consisting of
normal recurring adjustments) considered necessary to state fairly
our financial position as of September 30, 2017 and the results of
operations for the nine months ended September 30, 2017 and 2016
and cash flows for the nine months ended September 30, 2017 and
2016. The financial data and other information disclosed in these
notes to the condensed consolidated financial statements related to
the nine months ended September 30, 2017 and 2016 are unaudited.
The results for the nine months ended September 30, 2017 are not
necessarily indicative of the results to be expected for the year
ending December 31, 2017 or for any other interim period. These
unaudited consolidated financial statements are condensed and
should be read in conjunction with the audited financial statements
and notes thereto for the year ended December 31,
2016.
Going Concern Assessment
The Company adopted
Accounting Standards Updates (“ASU”) 2014-15,
Disclosure of Uncertainties about
an Entity’s Ability to Continue as a Going Concern,
which the Financial Accounting Standards Board (“FASB”)
issued to provide guidance on determining when and how reporting
companies must disclose going-concern uncertainties in their
financial statements. The ASU requires management to perform
interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date of issuance
of the entity’s financial statements (or within one year
after the date on which the financial statements are available to
be issued, when applicable). Further, a company must provide
certain disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” In December 2017, the Company analyzed
its minimum cash requirements through December 2018 and has
determined that, based upon the Company’s current available
cash, the Company has no substantial doubt about its ability to
continue as a going concern.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Cash Equivalents
The Company
considers all highly liquid investments purchased with an original
maturity of 90 days or less to be cash equivalents. Cash
equivalents as of September 30, 2017 and December 31, 2016 consist
entirely of money market accounts.
Restricted Cash
On July 9, 2015,
the Company entered into a Clinical Trial and Option Agreement
(“CTOA”) with Cancer Research UK. Pursuant to the CTOA,
the Company deposited $0.8 million into an escrow account to cover
certain future indemnities, claims or potential termination costs
incurred by Cancer Research UK. Restricted cash was $0.8 million as
of September 30, 2017 and December 31,
2016.
Prepaid Expenses
Prepayments are
expenditures for goods or services before the goods are used or the
services are received and are charged to operations as the benefits
are realized. Prepaid expenses include insurance premiums and
software costs that are expensed monthly over the life of the
contract and prepaid legal patent fees that will be expensed as
incurred.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and restricted
cash. The Company maintains cash and cash equivalents at one
financial institution and restricted cash at another financial
institution. As of September 30, 2017, and December 31, 2016, cash
and cash equivalents and restricted cash balances at these two
financial institutions were in excess of the $250,000 Federal
Deposit Insurance Corporation (“FDIC”) insurable
limit.
Fair Value of Financial Instruments
For financial
instruments consisting of cash and cash equivalents, prepaid
expenses, accounts payable and accrued expenses, the carrying
amounts are reasonable estimates of fair value due to their
relatively short maturities.
The Company adopted Accounting Standard
Codification (“ASC”)
820, Fair
Value Measurements and Disclosures, as amended, addressing the measurement of the fair
value of financial assets and financial liabilities. Under this
standard, fair value is defined as the price that would be received
to sell an asset or paid to transfer a liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement
date.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting
Policies,
continued
Fair Value of Financial
Instruments, continued
In determining fair
values of all reported assets and liabilities that represent
financial instruments, the Company uses the carrying market values
of such amounts. The standard
establishes a hierarchy for inputs used in measuring fair value
that maximizes the use of observable inputs and minimizes the use
of unobservable inputs by requiring that the most observable inputs
be used when available. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources.
Unobservable inputs reflect a
reporting entity’s pricing an asset or liability developed based on the best information available
in the circumstances. The fair value hierarchy consists of
the following three levels:
Level 1 - instrument valuations
are obtained from real-time quotes for transactions in active
exchange markets involving identical assets.
Level 2 - instrument valuations
are obtained from readily-available pricing sources for comparable
instruments.
Level 3 - instrument valuations
are obtained without observable market values and require a
high-level of judgment to determine the fair
value.
Determining which
category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy
disclosures each reporting period. There were no transfers between
Level 1, 2 or 3 of the fair value hierarchy during the nine months
ended September 30, 2017 and the year ended December 31,
2016. The following table presents the assets and liabilities
recorded that are reported at fair value on our balance sheets on a
recurring basis.
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
|
September 30,
2017
|
|
|
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$ 9,476,102
|
$ -
|
$ 9,476,102
|
|
Restricted
cash(2)
|
-
|
800,000
|
800,000
|
|
Total
|
$ 9,476,102
|
$ 800,000
|
$ 10,276,102
|
|
(1)
(2)
|
Cash equivalents
represent the fair value of the Company’s investments in two
money market accounts at September 30, 2017.
Restricted cash
represents the fair value of the Company’s investments in an
$800,000 certificate of deposit at September 30,
2017.
|
|
December 31,
2016
|
|
|
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$ 2,009,018
|
$ -
|
$ 2,009,018
|
|
Restricted
cash(2)
|
393
|
800,000
|
800,393
|
|
Total
|
$ 2,009,411
|
$ 800,000
|
$ 2,809,411
|
|
(1)
|
Cash equivalents
represent the fair value of the Company’s investments in a
money market account at December 31, 2016.
|
|
(2)
|
Restricted cash
represents the fair value of the Company’s investments in an
$800,000 certificate of deposit and $383 in a money
market account at December
31, 2016.
|
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Net Loss per Share
Net loss per share
for the nine months ended September 30, 2017 is calculated by
dividing net loss by the weighted-average shares of common stock
outstanding during the period. Diluted net loss per share for the
nine months ended September 30, 2017 is calculated by dividing net
loss by the weighted-average shares of common stock outstanding and
potential shares of common stock during the period. As of September
30, 2017, potentially dilutive securities included 618,592 options
to purchase common stock.
During the nine
months ended September 30, 2016 there were no shares of common
stock outstanding.
Research and Development Expenses
Research and
development (“R&D”) costs are expensed as incurred.
Major components of research and development expenses include
materials and supplies and fees paid to consultants and to the
entities that conduct certain development activities on the
Company’s behalf. R&D expense, including upfront license
fees and milestones paid to collaborators, are expensed as goods
are received or services rendered.
The Company accrues
and expenses the costs for clinical trial activities performed by
third parties based upon estimates of the percentage of work
completed over the life of the individual study in accordance with
agreements established with contract research organizations and
clinical trial sites. The Company determines the estimates through
discussions with internal clinical personnel and external service
providers as to progress or stage of completion of trials or
services and the agreed upon fee to be paid for such services.
Costs of setting up clinical trial sites for participation in the
trials are expensed immediately as research and development
expenses. Clinical trial site costs related to patient enrollment
are accrued as patients are entered into the trial. During the nine
months ended September 30, 2017 and 2016, the Company had no
clinical trials in progress.
In-process Research and Development
In-process research
and development expense represents the costs to acquire
technologies to be used in research and development that have not
reached technological feasibility and have no alternative future
uses and are expensed as incurred.
Collaborative Arrangements
The Company and its
collaborative partner are active participants in a collaborative
arrangement and all parties are exposed to significant risks and
rewards depending on the technical and commercial success of the
activities. Contractual payments to the other party in the
collaboration agreement and costs incurred by the Company when the
Company is deemed to be the principal participant for a given
transaction are recognized on a gross basis in research and
development expenses. Royalties and license payments are recorded
as earned.
During the nine
months ended September 30, 2017 and 2016, no milestones were met
and no royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty
payments.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Licensing Agreements
The Company has
various agreements to license technology utilized in the
development of its programs. The licenses contain success milestone
obligations and royalties on future sales. During the nine months
ended September 30, 2017 and 2016, no milestones were met and no
royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty payments under and of its
license agreements.
Patent
Costs
The Company
expenses costs relating to issued patents and patent applications,
including costs relating to legal, renewal and application fees, as
a component of general and administrative expenses in the
accompanying condensed consolidated statements of
operations.
Income Taxes
From December 2014
to December 16, 2015, the Company was a limited liability company
(an “LLC”) taxed as a partnership under the Internal
Revenue Code, during which period the members separately accounted
for their pro-rata share of income, deductions, losses, and credits
of the Company. On December 16, 2015, the Company converted from an
LLC to a C Corporation. Beginning on December 16, 2015, the Company
uses an asset and liability approach for accounting for deferred
income taxes, which requires recognition of deferred income tax
assets and liabilities for the expected future tax consequences of
events that have been recognized in its financial statements, but
have not been reflected in its taxable income. Estimates and
judgments occur in the calculation of certain tax liabilities and
in the determination of the recoverability of certain deferred
income tax assets, which arise from temporary differences and carry
forwards. Deferred income tax assets and liabilities are measured
using the currently enacted tax rates that apply to taxable income
in effect for the years in which those tax assets and liabilities
are expected to be realized or settled.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Income Taxes,
continued
The Company
regularly assesses the likelihood that its deferred income tax
assets will be realized from recoverable income taxes or recovered
from future taxable income. To the extent that the Company believes
any amounts are more likely not to be realized, the Company records
a valuation allowance to reduce the deferred income tax assets. In
the event the Company determines that all or part of the net
deferred tax assets are not realizable in the future, an adjustment
to the valuation allowance would be charged to earnings in the
period such determination is made. Similarly, if the Company
subsequently realizes deferred income tax assets that were
previously determined to be unrealizable, the respective valuation
allowance would be reversed, resulting in an adjustment to earnings
in the period such determination is made.
Internal Revenue Code Section 382 provides that,
after an ownership change, the amount of a loss corporation’s
taxable income or net operating loss (“NOL”) for any
post-change year that may be offset by pre-change losses shall not
exceed the section 382 limitation for that year. Because the
Company will continue to raise equity in the coming years, section
382 may limit the Company’s usage of NOLs in the
future.
Based on the
available evidence, the Company believed it was not likely to
utilize its minimal deferred tax assets in the future and as a
result, the Company recorded a full valuation allowance as of
September 30, 2017 and December 31, 2016. The Company intends to
maintain the valuation allowance until sufficient evidence exists
to support its reversal. The Company regularly reviews its tax
positions and for a tax benefit to be recognized, the related tax
position must be more likely than not to be sustained upon
examination. Any amount recognized is generally the largest benefit
that is more likely than not to be realized upon settlement. The
Company’s policy is to recognize interest and penalties
related to income tax matters as an income tax expense. For the
nine months ended September 30, 2017 and the year ended December
31, 2016, the Company did not have any interest or penalties
associated with unrecognized tax benefits.
The Company is
subject to U.S. federal, Illinois and California income taxes. Tax
regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply.
The Company was incorporated on December 16, 2015 and is subject to
U.S. federal, state and local tax examinations by tax authorities
for the year ended December 31, 2016 and the short tax period
December 16, 2015 to December 31, 2015. The Company does not
anticipate significant changes to its current uncertain tax
positions through September 30, 2017. The Company plans on
filing its tax returns for the year ending December 31, 2017 prior
to the filing deadlines in all jurisdictions.
Stock-Based Compensation
The Company
accounts for stock-based compensation arrangements with employees,
nonemployee directors and consultants using a fair value method,
which requires the recognition of compensation expense for costs
related to all stock-based payments, including stock options. The
fair value method requires the Company to estimate the fair value
of stock-based payment awards on the date of grant using an option
pricing model.
Stock-based
compensation costs for options granted to employees and nonemployee
directors are based on the fair value of the underlying option
calculated using the Black-Scholes option-pricing model on the date
of grant for stock options and recognized as expense on a
straight-line basis over the requisite service
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting
Policies,
continued
Stock-Based Compensation,
continued
period, which is
the vesting period. Determining the appropriate fair value model
and related assumptions requires judgment, including estimating
stock price volatility, forfeiture rates and expected term. The
expected volatility rates are estimated based on the actual
volatility of comparable public companies over the expected term.
The Company selected these companies based on comparable
characteristics, including enterprise value, risk profiles, stage
of development and with historical share price information
sufficient to meet the expected life of the stock-based awards. The
expected term for options granted to date is estimated using the
simplified method. Forfeitures are estimated at the time of grant
and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The Company has not paid
dividends and does not anticipate paying a cash dividend in the
foreseeable future and, accordingly, uses an expected dividend
yield of zero. The risk-free interest rate is based on the rate of
U.S. Treasury securities with maturities consistent with the
estimated expected term of the awards. The measurement of
consultant share-based compensation is subject to periodic
adjustments as the underlying equity instruments vest and is
recognized as an expense over the period over which services are
rendered.
Recent Accounting Pronouncements
In August 2014,
FASB issued ASU 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which
provides guidance on determining when and how reporting companies
must disclose going-concern uncertainties in their financial
statements. The ASU requires management to perform interim and
annual assessments of an entity’s ability to continue as a
going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, a company must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” This ASU became effective for annual
periods ending after December 15, 2016 and interim periods within
annual periods beginning after December 15, 2016. The Company has
adopted this new accounting standard on its financial statements
and footnote disclosures.
In November 2015,
the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred
Taxes. This is part of FASB’s simplification
initiative. The amendments in this ASU require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. This ASU became effective for the
Company in the first quarter of 2017. The Company has adopted this
ASU and determined that it does not have a material effect on its
financial condition and results of operations for the nine months
ended September 30, 2017.
In January 2016,
the FASB issued ASU 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities. The purpose is
to enhance the reporting model for financial instruments to provide
users of financial statements with more decision-useful
information. This ASU is effective for the Company
in the first
quarter of 2018. Early adoption is not permitted except
for limited provisions. The Company does not expect the
adoption of this amendment to have a material effect on its
financial condition and results of operations.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Recent Accounting
Pronouncements, continued
In February 2016,
the FASB issued ASU 2016-02, Leases, which for operating leases,
requires a lessee to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease
payments, in its balance sheet. The standard also requires a lessee
to recognize a single lease cost, calculated so that the cost of
the lease is allocated over the lease term, generally on a
straight-line basis. ASU 2016-02 will be effective for the Company
in the first quarter of 2019, and early adoption is permitted. The
Company is currently assessing the impact that adopting this new
accounting standard will have on its condensed consolidated
financial statements and footnote
disclosures.
In March 2016, the
FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the
accounting for employee share-based payment transactions for both
public and nonpublic companies, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. The ASU
became effective for the Company in the first quarter of 2017. The
Company has adopted this ASU and determined that it does not have a
material effect on its financial condition and results of
operations for the nine months ended September 30,
2017.
In November 2016,
the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash. The
amendments apply to all entities that have restricted cash or
restricted cash equivalents and are required to present a statement
of cash flows. The amendments address diversity in practice that
exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments
require that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. As a result, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The amendments do not provide a definition of restricted cash or
restricted cash equivalents. The amendments are effective for
public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years
beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019. Early adoption is
permitted. The Company has early adopted the amendments and has
applied them using a retrospective transition method to each period
presented. Therefore, the Company has included restricted cash in
cash equivalents and restricted cash on its statements of cash
flows for the nine months ended September 30, 2017 and
2016.
In January
2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying
the Definition of a Business (“ASU No.
2017-01”). The amendments in ASU No. 2017-01
clarify the definition of a business with the objective of adding
guidance to assist entities with evaluating whether transactions
should be accounted for as acquisitions (or disposals) of assets or
businesses. The definition of a business affects many areas of
accounting including acquisitions, disposals, goodwill and
consolidation. For public companies, the amendments are
effective for annual periods beginning after December 15, 2017,
including interim periods within those periods. For all other
companies and organizations, the amendments are effective for
annual periods beginning after December 15, 2018, and interim
periods within annual periods beginning after December 15, 2019.
The Company is currently assessing the impact that adopting this
new accounting standard will have on its condensed consolidated
financial statements and footnote
disclosures.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
2.
Significant Accounting Policies,
continued
Recent Accounting
Pronouncements, continued
In May 2017, the
FASB issued ASU No. 2017-09, Compensation-Stock Compensation (Topic 718):
Scope of Modification Accounting. The amendment amends the
scope of modification accounting for share-based payment
arrangements, provides guidance on the types of changes to the
terms or conditions of share-based payment awards to which an
entity would be required to apply modification accounting under ASC
718. This ASU is effective for all entities for annual periods, and
interim periods within those annual periods, beginning after
December 15, 2017. Early adoption is permitted, including adoption
in any interim period for: (a) public business entities for
reporting periods for which financial statements have not yet been
issued, and (b) all other entities for reporting periods for which
financial statements have not yet been made available for issuance.
The Company is currently assessing the impact that adopting this
new accounting standard will have on its condensed consolidated
financial statements and footnote
disclosures.
In July 2017, the
FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260) Distinguishing
Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic
815) (Part I) Accounting for Certain Financial Instruments
with Down Round Features, (Part II) Replacement of the
Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain
Nonpublic Entities
and Certain Mandatorily Redeemable Noncontrolling Interests with
a Scope
Exception. This ASU simplifies the accounting for certain
financial instruments with down round features, a provision in an
equity-linked financial instrument (or embedded feature) that
provides a downward adjustment of the current exercise price based
on the price of future equity offerings. Down round features are
common in warrants, convertible preferred shares, and convertible
debt instruments issued by private companies and development-stage
public companies. This new ASU requires companies to disregard the
down round feature when assessing whether the instrument is indexed
to its own stock, for purposes of determining liability or equity
classification. The provisions of this new ASU related to down
rounds are effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments are
effective for fiscal years beginning after December 15, 2019, and
interim periods within fiscal years beginning after December 15,
2020. Early adoption is permitted for all entities. The Company is
currently assessing the impact that adopting this new accounting
standard will have on its condensed consolidated financial
statements and footnote
disclosures.
On December 16,
2015, the Company converted from an LLC to a C Corporation at which
time the Company effected a 1 for 10 reverse stock split. All
references to preferred stock authorized, issued and outstanding
and common stock authorized take into account the 1 for 10 reverse
stock split. In March 2017, the Company’s Series A Preferred
Stock and Series Z Preferred Stock converted to common stock at a
conversion rate of 1.2 for 1 and 1 for 1, respectively, along with
a simultaneous common stock split of 70 for 1 and the elimination
all shares of Series A Preferred Stock and Series Z Preferred Stock
(collectively, the “Conversion”). 100,000 shares of
Series Z Preferred Stock were converted into 7,000,000 shares of
common stock and 15,893.801 shares of Series A Preferred Stock was
converted into 1,335,079.284 shares of common stock. All references
to common stock authorized, issued and outstanding and common stock
options take into account the 70 for 1 stock
split.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
3.
Capital Stock,
continued
Holders of the
common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available
therefor. Upon dissolution and liquidation of the Company, holders
of the common stock are entitled to a ratable share of the net
assets of the Company remaining after payments to creditors of the
Company. The holders of shares of common stock are entitled to one
vote per share for the election of directors and on all other
matters submitted to a vote of stockholders.
The Company’s
amended and restated certificate of incorporation authorizes the
Company to issue 40,000,000 shares of common stock with a par value
of $0.001 per share.
Contribution to Capital
In August 2017, the
Company’s largest stockholder, Tactic Pharma, LLC
(“Tactic Pharma”), surrendered 2,888,727.12 shares of
common stock back to the Company as a contribution to the capital
of the Company. This resulted in reducing Tactic Pharma’s
ownership in Monopar from 79.5% to 69.9%.
Sales of Common Stock
Pursuant to an
active private placement memorandum, during the period from July 1,
2017 through September 30, 2017, Monopar sold 448,834 shares of
common stock at $6 per share for proceeds of approximately $2.7
million. This financing closed on September 30,
2017.
Issuance of Common Stock in the Gem Transaction
Pursuant to the Gem
Transaction, discussed in detail in Note 6 below, the Company
issued 3,055,394.12 shares of its common stock in exchange for cash
and intellectual property related to GPX-150.
As of
September 30, 2017, the Company had 9,291,421 shares of common
stock issued and outstanding. The Company no longer has any shares
of Preferred Stock authorized or outstanding
In April 2016, the
Company adopted the 2016 Stock Incentive Plan and the
Company’s Board of Directors reserved 700,000 shares of
common stock for issuances under the plan (as adjusted subsequent
to the Conversion). In October 2017, the Company’s Board of
Directors increased the stock option pool to 1,600,000 shares of
common stock.
In April 2016, the
Company’s Board of Directors and the convertible preferred
stockholders representing a majority of the Company’s
outstanding stock approved, the Monopar Therapeutics Inc. 2016
Stock Incentive Plan (the “Plan”) allowing the Company
to grant up to an aggregate 700,000 shares of stock awards, stock
options, stock appreciation rights and other stock-based awards to
employees, directors and consultants. Concurrently, the Board of
Directors granted to certain board members and the Company’s
acting chief financial officer stock options to purchase up to an
aggregate 273,000 shares of the Company’s common stock at an
exercise price of $0.001 par value based upon a third-party
valuation of the Company’s common stock.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
4.
Stock Option Plan,
continued
In December 2016,
the Board of Directors granted stock options to purchase up to
7,000 shares of the Company’s common stock at an exercise
price of $0.001 par value to the Company’s acting chief
medical officer.
In February 2017,
the Board of Directors granted to certain board members and the
Company’s acting chief financial officer stock options to
purchase up to an aggregate 275,520 shares of the Company’s
common stock at an exercise price of $0.001 par value based upon a
third-party valuation of the Company’s common stock. In
September 2017, the Board of Directors represented by the
designated Plan Administrator, granted options to purchase up to
21, 024 shares of common stock to each of the three new Board
members at an exercise price of $6 per share based on the price per
share at which common stock was sold in the Company’s most
recent private offering.
Under the Plan, the
per share exercise price for the shares to be issued upon exercise
of an option shall be determined by the Plan administrator, except
that the per share exercise price shall be no less than 100% of the
fair market value per share on the grant date. Fair market value is
established by the Company’s Board of Directors, using third
party valuation reports and recent financings. Options generally
expire after ten years.
Stock option
activity under the Plan is as follows:
|
|
|
|
|
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
Balances,
December 31, 2015
|
-
|
-
|
-
|
|
Option
pool
|
700,000
|
-
|
-
|
|
Granted(1)
|
(280,000)
|
280,000
|
$ 0.001
|
|
Forfeited
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balances,
December 31, 2016
|
420,000
|
280,000
|
$ 0.001
|
|
Granted(2)
|
(338,592)
|
338,592
|
$ 1.12
|
|
Forfeited
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balances,
September 30, 2017
|
81,408
|
618,592
|
$ 0.61
|
|
|
|
|
|
(1)
273,000 options
vested 50% upon grant date, 25% upon the 6-month anniversary of
grant date and 25% upon the 1-year anniversary of grant date; 7,000
options vested pro rata over 6 months.
(2)
296,544 options
vest 6/48ths at the six-month
anniversary of grant date and 1/48th per month
thereafter 21,024 options vest 6/24ths on the six-month anniversary
of grant date and 1/24th per month
thereafter; and 21,024 options vest 6/42nds on the six-month
anniversary of grant date and 1/42nd per month
thereafter.
(3)
In October 2017,
the Company’s Board of Directors increased the option pool to
1,600,000 shares.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
4.
Stock Option Plan,
continued
A
summary of options outstanding as of September 30, 2017 is shown
below:
|
|
Number
of Shares Outstanding
|
Weighted
Average Remaining Contractual Term
|
Number
of Shares Fully Vested and Exercisable
|
Weighted
Average Remaining Contractual Term
|
|
$ 0.001
|
555,520
|
9.0
years
|
320,180
|
|
|
$ 6.00
|
63,072
|
10.0
years
|
-
|
N/A
|
|
|
618,592
|
|
320,180
|
|
During the nine
months ended September 30, 2017, the Company recognized $3,612 of
employee stock-based compensation expense as general and
administrative expenses. The compensation expense is allocated on a
departmental basis, based on the classification of the option
holder. No income tax benefits have been recognized in the
statements of operations for stock-based compensation
arrangements.
The Company
recognizes as an expense the fair value of options granted to
persons who are neither employees nor directors. The fair value of
expensed options was based on the Black-Scholes option-pricing
model assuming the following factors: 6.0 to 4.3 year expected
term, 57% volatility, 1.9% to 1.7% risk free interest rate and zero
dividends. Stock-based compensation expense for non-employees for
the nine months ended September 30, 2017 was $238,404 for both
periods of which $189,271 was recorded as research and development
expenses and $49,133 as general and administrative expenses. At
September 30, 2017 unamortized unvested balance of stock base
compensation was $198,949, to be amortized over 3.1
years.
5.
Development
and Collaboration Agreements
Cancer
Research UK
In July 2015, the
Company entered into a CTOA with Cancer Research UK and Cancer
Research Technology Limited, a wholly-owned subsidiary of Cancer
Research UK. As part of the CTOA, the Company was obligated to
submit $0.8 million in escrow to cover certain potential future
claims, intellectual property infringement costs or termination
costs incurred by Cancer Research UK.
Under the CTOA,
Cancer Research UK will manufacture MNPR-101, perform preclinical
studies and conduct a Phase Ia/Ib clinical trial. At the
Company’s discretion, the Company has the option to pay an
option fee for the right to the Phase Ia/Ib clinical data, after
which time, the Company may choose to enter into a pre-negotiated
license with Cancer Research Technology Limited which includes
developmental and clinical milestones, sales milestones,
and
royalties on a product-by-product and country-by-country basis in
the single digits payable based on the net sales of each
product. The option fee is expressed in British pounds and
therefore the value in U.S. dollars may vary slightly depending on
the exchange rate at the time of payment; however, payment of the
option fee is not expected to have a material effect on the
Company's financial position. If the Company enters into the
pre-negotiated license agreement, the Company will carry 100% of
the development costs. Should the Company decline to enter into the
pre-negotiated license, the Company will pay nothing to Cancer
Research UK or Cancer Research Technology Limited, and Cancer
Research Technology Limited will be assigned the Company’s
intellectual property to continue the development and
commercialization of huATN-658 in exchange for a revenue share and
minimum royalty. As of September 30, 2017, the Phase Ia/Ib clinical
trial has not commenced and the Company has not entered into the
pre-negotiated license agreement with Cancer Research Technology
Limited and has not been required to pay Cancer Research UK or
Cancer Research Technology Limited any funds under the
CTOA.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
5.
Development and Collaboration
Agreements, continued
XOMA Ltd.
The intellectual
property rights contributed by Tactic Pharma to the Company
included the non-exclusive license agreement with XOMA Ltd. for the
humanization technology used in the development of MNPR-101.
Pursuant to such license agreement, the Company is obligated to pay
XOMA Ltd. clinical, regulatory and sales milestones for MNPR-101
that could reach up to $14.925 million if the Company achieves all
milestones and zero royalties. There can be no assurance that the
Company will reach any milestones. As of September 30, 2017, the
Company has not reached any milestones and has not been required to
pay XOMA Ltd. any funds under this license
agreement.
Onxeo SA
The pre-negotiated
Onxeo license agreement included as part of the option agreement
includes clinical, regulatory, developmental and sales milestones
that
could reach up to $108 million if the Company achieves all
milestones, and escalating royalties on net sales from 5 -
10%. On September 8, 2017, the Company exercised the option,
and therefore was required to pay Onxeo the $1 million fee under
the option and license agreement.
Under the
agreement, the Company is required to pay royalties to Onxeo on a
product-by-product and country-by-country basis until the later of
(1) the date when a given product is no longer within the scope of
a patent claim in the country of sale or manufacture, (2) the
expiry of any extended exclusivity period in the relevant country
(such as orphan drug exclusivity, pediatric exclusivity, new
chemical entity exclusivity, or other exclusivity granted beyond
the expiry of the relevant patent), or (3) a specific time period
after the first commercial sale of the product in such country. In
most countries, including the U.S., the patent term is
generally 20 years from the earliest claimed filing date of a
non-provisional patent application in the applicable country, not
taking into consideration any potential patent term adjustment that
may be filed in the future or any regulatory extensions that may be
obtained. The royalty termination provision pursuant to (3)
described above is shorter than 20 years and is the least likely
cause of termination of royalty payments.
The Onxeo license
agreement does not have a pre-determined term, but expires on a
product-by-product and country-by-country basis; that is, the
agreement expires with respect to a given product in a given
country whenever our royalty payment obligations with respect to
such product have expired. The agreement may also be terminated
early for cause if either the Company or Onxeo materially breach
the agreement, or if either the Company or Onxeo become
insolvent. The Company may also choose to terminate the agreement,
either in its entirety or as to a certain product and a
certain country, by providing Onxeo with advance
notice.
The Company plans
to internally develop Validive with the near-term goal of
commencing a Phase III clinical trial, which, if successful, may
allow the Company to apply for marketing approval within the next
few years. The Company will need to raise significant funds to
support the further development of Validive.
On August 25, 2017,
the Company executed definitive agreements with Gem
Pharmaceuticals, LLC (“Gem”), pursuant to which Gem
formed a limited liability company, TacticGem LLC
(“TacticGem”) with Tactic Pharma, the Company’s
largest shareholder at that time. Gem contributed certain of
Gem’s drug candidates’ intellectual property and
agreements associated primarily with Gem’s GPX-150 drug
candidate program, along with $5,000,000 in cash (the “Gem
Contributed Assets”) to TacticGem for a 42.633% interest, and
Tactic Pharma contributed 4,111,272.88 shares of common stock of
Monopar to TacticGem for a 57.367% interest. Then, TacticGem
contributed the Gem Contributed Assets to the Company in exchange
for 3,055,394.12 newly issued shares of common stock of the Company
(32.5% on a fully-diluted basis) (the two contributions
collectively, the “Gem Transaction”). The Gem
Transaction closed on August 25, 2017. Following the Gem
Transaction, TacticGem owns 7,166,667 (77.1%) shares of
Monopar’s common stock as of September 30,
2017.
The Gem drug
candidate GPX-150 has been renamed MNPR-201.
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
6.
The Gem Transaction,
continued
The transaction was
recorded as of August 25, 2017 as follows:
|
Cash
recorded on the Company’s Balance Sheet
|
$ 5,000,000
|
|
Assembled
Workforce recorded as In-process Research and Development Expense
on the Company’s Statement of Operations
|
9,886
|
|
GPX-150
recorded as In-process Research and Development Expense on the
Company’s Statement of Operations
|
13,491,736
|
|
Total
Gem Transaction
|
$ 18,501,622
|
Within 90 days of
the effective date of the transaction, Monopar is required to use
its best efforts to file a Form 10 to register Monopar’s
common stock under the Securities Exchange Act of 1934.
Additionally, Arthur Klausner, current CEO of Gem, has been added
to the Monopar Board of Directors (the “Board”) and
will remain on the Board at least until Monopar achieves a listing
on a major stock exchange (such as Nasdaq or NYSE). Richard Olson
and Gerald Walsh, CSO and President of Gem, respectively, have been
retained with one-year consulting agreements to aid in an efficient
transfer of Gem’s GPX-150 and associated
programs.
It is anticipated
that this transaction will increase the Company’s annual cash
burn by at least $750,000, and will be significantly higher if the
Company chooses to conduct clinical trials with the Gem drug
candidate programs.
7.
Related
Party Transactions
During the nine
months ended September 30, 2017 and the year ended December 31,
2016, the Company was advised by four members of its Board of
Directors, who were Managers of the LLC prior to the
Company’s conversion to a C Corporation. The four former
Managers are also current common stockholders (owning approximately
an aggregate 3% of the common stock outstanding as of September 30,
2017). Three of the former Managers are also Managing Members of
Tactic Pharma the Company’s largest and controlling
stockholder (owning 46% of the Company at September 30, 2017 and in
partnership with Gem through TacticGem owning 77%). Monopar paid
Managing Members of Tactic Pharma the following during the nine
months ended September 30, 2017 and the year ended December 31,
2016: Chandler D. Robinson, the Company’s Co-Founder, Chief
Executive Officer, common stockholder, Managing Member of Tactic
Pharma and former Manager of the predecessor LLC $241,500 and
$322,000, respectively; and Andrew P. Mazar, the Company’s
Co-Founder, Chief Scientific Officer, common
Monopar Therapeutics Inc.
Notes to Condensed
Consolidated Financial Statements
September 30,
2017
7.
Related Party Transactions,
continued
stockholder,
Managing Member of Tactic Pharma and former Manager of the
predecessor LLC, $225,000 and $197,500, respectively. The Company
also paid Christopher M. Starr, the Company’s Co-Founder,
Executive Chairman of the Board of Directors, common stockholder
and former Manager of the predecessor LLC $75,673 and $96,339
during the nine months ended September 30, 2107 and the year ended
December 31, 2016, respectively.
In the normal
course of business, the Company’s Chief Executive Officer,
Board Members and consultants incur expenses on behalf of the
Company and are reimbursed within 30 days of submission of relevant
expense reports.
The Company
reimbursed Tactic Pharma, a de minimis amount in monthly storage
fees during the nine months ended September 30, 2017 and the year
ended December 31, 2016. In March 2017, Tactic Pharma wired $1
million to the Company in advance of the sale of the
Company’s common stock at $6 per share under a private
placement memorandum. In April, the Company issued to Tactic Pharma
166,667 shares in exchange for the $1 million at $6 per share once
the Company began selling stock to unaffiliated parties under the
private placement memorandum. In August 2017, Tactic Pharma
surrendered 2,888,727.12 shares of common stock back to the Company
as a contribution to the capital of the Company. This resulted in
reducing Tactic Pharma’s ownership in Monopar from 79.5% to
69.9%. Following the surrender of the common stock, Tactic Pharma
contributed 4,111,272.88 shares of its holdings in Monopar’s
common stock to TacticGem pursuant to the Gem Transaction discussed
in detail in Note 6 above. As of September 30, 2017, Tactic Pharma
owned 46% of Monopar’s common stock, and TacticGem owned 77%
of Monopar’s common stock.
During the nine
months ended September 30, 2017 and the year ended December 31,
2016, the Company paid or accrued legal fees to a large national
law firm, in which a family member of the Company’s Chief
Executive Officer is a law partner, of approximately $201,508 and
$54,000, respectively. The family member personally billed a de
minimis amount of time on the Company’s legal engagement with
the law firm in these periods.
The Company has
evaluated all events occurring from September 30, 2017 through
December 19, 2017, the date which these financial statements were
available to be issued, and did not identify any additional
material disclosable subsequent events.
Monopar Therapeutics
Inc.
Financial
Statements
December
31, 2016 and 2015
____________
Table of Contents
Page(s)
|
Independent
Auditors’ Report
|
F-23
|
|
|
|
|
Balance
Sheets
|
F-24
|
|
|
|
|
Statements
of Operations
|
F-25
|
|
|
|
|
Statement
of Changes in Stockholders’ Equity
|
F-26
|
|
|
|
|
Statements
of Cash Flows
|
F-27
|
|
|
|
|
Notes
to Financial Statements
|
F-28
to F-45
|
Monopar Therapeutics
Inc.
Independent Auditors’
Report
To the
Board of Directors and Stockholders of
Monopar
Therapeutics Inc.:
We have
audited the accompanying balance sheets of Monopar Therapeutics
Inc. (the “Company”) as of December 31, 2016 and
2015, and the related statements of operations, changes in
stockholders’ equity, and cash flows for the years then
ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an
opinion on these financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States) and auditing
standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free from material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration
of internal 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 also includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our audit opinion.
In our
opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Monopar
Therapeutics Inc. as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for the years ended
December 31, 2016 and 2015, in conformity with accounting
principles generally accepted in the United States of
America.
/s/ BPM LLP
San
Francisco, California
February
14, 2017
Monopar Therapeutics
Inc.
Balance Sheets
December 31,
2016 and 2015
|
ASSETS
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$2,072,611
|
$2,005,136
|
|
Prepaid expenses
and other
|
22,562
|
22,860
|
|
|
|
|
|
Total current
assets
|
2,095,173
|
2,027,996
|
|
|
|
|
|
Restricted
cash
|
800,393
|
800,000
|
|
|
|
|
|
Total
assets
|
$2,895,566
|
$2,827,996
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Accounts payable
and accrued expenses
|
$64,510
|
$73,843
|
|
Total current
liabilities
|
64,510
|
73,843
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 8)
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
Preferred stock,
$0.001 par value; 200,000 shares authorized;
|
|
|
|
111,644
shares issued and outstanding; aggregate liquidation
preference
|
|
|
|
of
$33,493,140 at December 31, 2015; 115,894 shares
issued
|
|
|
|
and
outstanding; aggregate liquidation preference of
$34,768,140
|
|
|
|
at
December 31, 2016
|
116
|
112
|
|
Common stock,
$0.001 par value; 300,000 shares authorized;
|
|
|
|
zero
shares issued and outstanding
|
-
|
-
|
|
Additional paid-in
capital
|
4,703,848
|
3,441,352
|
|
Accumulated
deficit
|
(1,872,908)
|
(687,311)
|
|
|
|
|
|
Total
stockholders’ equity
|
2,831,056
|
2,754,153
|
|
|
|
|
|
Total liabilities
and stockholders’ equity
|
$2,895,566
|
$2,827,996
|
|
|
|
|
The
accompanying notes are an integral
part of
these financial statements.
Monopar Therapeutics
Inc.
Statements of
Operations
For the
years ended December 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
$-
|
$-
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
Research and
development
|
280,355
|
101,487
|
|
General and
administrative
|
912,474
|
587,075
|
|
|
|
|
|
Total operating
expenses
|
1,192,829
|
688,562
|
|
|
|
|
|
Operating
loss
|
(1,192,829)
|
(688,562)
|
|
|
|
|
|
Other
income:
|
|
|
|
Interest and other
income
|
7,232
|
1,251
|
|
|
|
|
|
Net
loss
|
$(1,185,597)
|
$(687,311)
|
|
|
|
|
The
accompanying notes are an integral
part of
these financial statements.
Monopar Therapeutics
Inc.
Statement of Changes in
Stockholders’ Equity
For the
years ended December 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
Series A and Z
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2015
|
-
|
$-
|
-
|
$-
|
$-
|
$-
|
$-
|
|
|
|
|
|
|
|
|
|
|
Issuance of series
A convertible preferred stock
|
|
|
|
|
|
|
|
|
at $300 per share
for cash, net of
|
|
|
|
|
|
|
|
|
$51,676 issuance
costs
|
11,644
|
12
|
-
|
-
|
3,441,452
|
-
|
3,441,464
|
|
Issuance of series
Z convertible preferred stock
|
|
|
|
|
|
|
|
|
in exchange
for intellectual property rights
|
100,000
|
100
|
-
|
-
|
(100)
|
-
|
-
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(687,311)
|
(687,311)
|
|
|
|
|
|
|
|
|
|
|
Balance, December
31, 2015
|
111,644
|
112
|
-
|
-
|
3,441,352
|
(687,311)
|
2,754,153
|
|
|
|
|
|
|
|
|
|
|
Issuance of series
A convertible preferred stock
|
|
|
|
|
|
|
|
|
at $300 per share
for cash, net of
|
|
|
|
|
|
|
|
|
$12,500 issuance
costs
|
4,250
|
4
|
-
|
-
|
1,262,496
|
-
|
1,262,500
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
-
|
-
|
-
|
-
|
-
|
(1,185,597)
|
(1,185,597)
|
|
Balance, December
31, 2016
|
115,894
|
$116
|
-
|
$-
|
$4,703,848
|
$(1,872,908)
|
$2,831,056
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these financial
statements.
Monopar Therapeutics
Inc.
Statements of Cash
Flows
For the
years ended December 31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
operating activities:
|
|
|
|
Net
loss
|
$(1,185,597)
|
$(687,311)
|
Adjustments to
reconcile net loss to net cash used in
|
|
|
operating
activities:
|
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
Prepaid expenses
and other current assets
|
298
|
(22,860)
|
|
Accounts payable
and accrued expenses
|
(9,333)
|
73,843
|
|
|
|
|
|
Net cash used in
operating activities
|
(1,194,632)
|
(636,328)
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
Proceeds from
issuance of series A convertible
|
|
|
|
preferred
stock
|
1,275,000
|
3,493,140
|
|
Issuance
costs
|
(12,500)
|
(51,676)
|
|
|
|
|
|
Net cash provided
by financing activities
|
1,262,500
|
3,441,464
|
|
|
|
|
|
Net increase in
cash, cash equivalents and
restricted
cash
|
67,868
|
2,805,136
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash,
beginning of
period
|
2,805,136
|
-
|
|
|
|
|
|
Cash, cash
equivalents and restricted cash, end of period
|
$2,873,004
|
$2,805,136
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral
part of
these financial statements.
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
1.
Nature
of Business and Liquidity
Nature of Business
Monopar
Therapeutics Inc. (the “Company”) is an emerging
biopharmaceutical company focused on developing orphan oncology
drugs. Monopar currently has two compounds in development:
Validive® (clonidine
mucobuccal tablet; clonidine MBT), a mucoadhesive local
anti-inflammatory tablet for the prevention and treatment
of severe oral mucositis in head and neck cancer patients; and
huATN-658, a humanized monoclonal antibody, which targets the
urokinase plasminogen activator receptor (“uPAR”), for
the treatment of advanced solid cancers. Pursuant to a
collaboration agreement, Cancer Research UK is conducting
huATN-658’s early development, including a planned Phase I
clinical trial. The Company was originally formed in the State of
Delaware on December 5, 2014 as a Limited Liability Company
(“LLC”) and on December 16, 2015 converted to a C
Corporation as a tax-free exchange.
Liquidity
The
Company has incurred an accumulated loss of approximately $1.9
million as of December 31, 2016.
To
date, the Company has primarily funded its operations with the net
proceeds from private placements of convertible preferred stock.
Management believes that currently available resources will provide
sufficient funds to enable the Company to meet its minimum
obligations into Q1 2018. The Company’s ability to fund its
future operations, including the clinical development of Validive,
is dependent primarily upon its ability to execute on its business
strategy and obtain additional funding or execute collaboration
research transactions. There can be no certainty that future
financing or collaborative research transactions will
occur.
2.
Significant
Accounting Policies
Basis of Presentation
These
financial statements have been prepared in accordance with
accounting principles generally accepted in the United States
(“U.S. GAAP”). The principal accounting policies
applied in the preparation of these financial statements are set
out below and have been consistently applied to all periods
presented. Certain reclassifications have been made to conform to
the current year presentation. The Company has been primarily
involved in performing research activities, developing product
technologies, and raising capital to support and expand these
activities.
Going Concern Assessment
The
Company adopted Accounting Standards Updates (“ASU”)
2014-15, Disclosure of
Uncertainties about an Entity’s Ability to Continue as a
Going Concern, which the Financial Accounting Standards
Board (“FASB”) issued to provide guidance on
determining when and how reporting companies must disclose
going-concern uncertainties in their financial statements. The ASU
requires management to perform interim
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Going Concern
Assessment, continued
and
annual assessments of an entity’s ability to continue as a
going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, a company must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” In January 2017, the Company analyzed
its minimum cash requirements through February 2018 and has
determined that, based upon the Company’s current available
cash, the Company has no substantial doubt about its ability to
continue as a going concern.
Use of Estimates
The
preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and reported amounts of revenues
and expenses in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Cash Equivalents
The
Company considers all highly liquid investments purchased with an
original maturity of 90 days or less to be cash equivalents. Cash
equivalents as of December 31, 2016 and 2015 consist entirely of
business savings funds.
Restricted Cash
On July
9, 2015, the Company entered into a Clinical Trial and Option
Agreement (“CTOA”) with Cancer Research UK. Pursuant to
the CTOA, the Company deposited $0.8 million into an escrow account
to cover certain future indemnities, claims or potential
termination costs incurred by Cancer Research UK. Restricted cash
was $0.8 million as of December 31, 2016 and
2015.
Prepaid Expenses
Prepayments are
expenditures for goods or services before the goods are used or the
services are received and are charged to operations as the benefits
are realized. Prepaid expenses include insurance premiums and
software costs that are expensed monthly over the life of the
contract and prepaid legal patent fees that will be expensed as
incurred.
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration
of credit risk consist of cash and cash equivalents and restricted
cash. The Company maintains cash and cash equivalents at one
financial institution and restricted cash at another financial
institution. As of December 31, 2016 and 2015, cash and cash
equivalents and restricted cash balances at these two financial
institutions were in excess of the $250,000 Federal Deposit
Insurance Corporation (“FDIC”) insurable
limit.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Fair Value of Financial Instruments
For
financial instruments consisting of cash and cash equivalents,
prepaid expenses, accounts payable and accrued expenses, the
carrying amounts are reasonable estimates of fair value due to
their relative short maturities.
The Company adopted Accounting Standard
Codification (“ASC”) 820, Fair Value Measurements and
Disclosures, as amended,
addressing the measurement of the fair value of financial assets
and financial liabilities. Under this standard, fair value is
defined as the price that would be received to sell an asset or
paid to transfer a liability (i.e., the “exit price”) in an orderly
transaction between market participants at the measurement
date.
In
determining fair values of all reported assets and liabilities that
represent financial instruments, the Company uses the carrying
market values of such amounts. The
standard establishes a hierarchy for inputs used in measuring fair
value that maximizes the use of observable inputs and minimizes the
use of unobservable inputs by requiring that the most observable
inputs be used when available. Observable inputs reflect
assumptions market participants would use in pricing an asset or
liability based on market data obtained from independent sources.
Unobservable inputs reflect a
reporting entity’s pricing an asset or liability developed based on the best information available
in the circumstances. The fair value hierarchy consists of
the following three levels:
Level 1 – instrument
valuations are obtained from real-time quotes for transactions in
active exchange markets involving identical assets.
Level 2 – instrument
valuations are obtained from readily-available pricing sources for
comparable instruments.
Level 3 – instrument
valuations are obtained without observable market values and
require a high-level of judgment to determine the fair
value.
Determining which
category an asset or liability falls within the hierarchy requires
significant judgment. The Company evaluates its hierarchy
disclosures each reporting period. There were no transfers between
Level 1, 2 or 3 of the fair value hierarchy during the years ended
December 31, 2016 and 2015. The following table presents the
assets and liabilities recorded that are reported at fair value on
our balance sheets on a recurring basis.
Assets and Liabilities Measured at Fair Value on a Recurring
Basis
|
December 31,
2016
|
|
|
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$2,009,018
|
$-
|
$2,009,018
|
|
Restricted
cash(2)
|
393
|
800,000
|
800,393
|
|
Total
|
$2,009,411
|
$800,000
|
$2,809,411
|
|
(1)
|
Cash
equivalents represent the fair value of the Company’s
investments in a business savings account at December 31,
2016.
|
|
(2)
|
Restricted
cash represents the fair value of the Company’s investments
in an $800,000 certificate of deposit and $393 in a money
market account.
|
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Fair Value of Financial Instruments
|
December 31,
2015
|
|
|
|
|
Assets
|
|
|
|
|
Cash
equivalents(1)
|
$1,901,266
|
$-
|
$1,901,266
|
|
Restricted
cash(2)
|
-
|
800,000
|
800,000
|
|
Total
|
$1,901,266
|
$800,000
|
$2,701,266
|
(1)
Cash
equivalents represent the fair value of the Company’s
investments in a business savings account at December 31,
2016 and 2015.
(2)
Restricted cash
represents the fair value of the Company’s investments in an
$800,000 certificate of deposit.
Research and Development Expenses
Research and
development (“R&D”) costs are expensed as incurred.
Major components of research and development expenses include
materials and supplies and fees paid to consultants and to the
entities that conduct certain development activities on the
Company’s behalf. R&D expense, including upfront fees and
milestones paid to collaborators, are expensed as goods are
received or services rendered. Costs to acquire technologies to be
used in research and development that have not reached
technological feasibility and have no alternative future use are
also expensed as incurred.
The
Company accrues and expenses the costs for clinical trial
activities performed by third parties based upon estimates of the
percentage of work completed over the life of the individual study
in accordance with agreements established with contract research
organizations and clinical trial sites. The Company determines the
estimates through discussions with internal clinical personnel and
external service providers as to progress or stage of completion of
trials or services and the agreed upon fee to be paid for such
services. Costs of setting up clinical trial sites for
participation in the trials are expensed immediately as research
and development expenses. Clinical trial site costs related to
patient enrollment are accrued as patients are entered into the
trial. During the years ended December 31, 2016 and 2015, the
Company had no clinical trials in progress.
Collaborative Arrangements
The
Company and its collaborative partner are active participants in a
collaborative arrangement and all parties are exposed to
significant risks and rewards depending on the commercial success
of the activities. Contractual payments to the other party in the
collaboration agreement and costs incurred by the Company when the
Company is deemed to be the principal participant for a given
transaction are recognized on a gross basis in research and
development expenses. Royalties and license payments are recorded
as earned.
On July
9, 2015, the Company entered into a CTOA with Cancer Research UK
and Cancer Research Technology Limited, a wholly-owned subsidiary
of Cancer Research UK, in which Cancer Research UK will manufacture
huATN-658, perform preclinical studies and conduct a Phase Ia/Ib
clinical trial. At the Company’s discretion, the Company will
pay an option fee for the right to the Phase Ia/Ib clinical data,
after which time, the Company may choose to enter into a
pre-negotiated license with Cancer Research
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Collaborative
Arrangements, continued
Technology Limited,
which includes developmental and clinical milestones, sales
milestones and royalties, after which time, the Company will carry
100% of the development costs. Should the Company decline to
license the clinical data, the Company will pay nothing to Cancer
Research UK or Cancer Research Technology Limited, and Cancer
Research Technology Limited will be assigned the Company’s
intellectual property to continue the development and
commercialization of huATN-658 in exchange for a revenue share and
minimum royalty.
In
addition, the Company has a non-exclusive license with XOMA Ltd.
for its humanization technology and know-how utilized in the
development of huATN-658. Under the terms of the license, the
Company is required to pay developmental and sales milestones and
zero royalties.
During
the years ended December 31, 2016 and 2015, no milestones were met
and no royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty payments under the CTOA and
XOMA Ltd. license agreement.
License Option Agreement
In June
2016, the Company executed an agreement with Onxeo S.A., a French
public company, which gives Monopar the option to license Validive
(clonidine mucobuccal tablet), a mucoadhesive tablet of clonidine
based on the Lauriad mucoadhesive technology to potentially treat
severe oral mucositis in patients undergoing treatment for head and
neck cancers. The pre-negotiated license agreement included as part
of the option agreement includes clinical and regulatory
developmental milestones, along with sales milestones and
royalties.
During
the years ended December 31, 2016 and 2015, no milestones were met
and no royalties were earned, therefore, the Company did not pay or
accrue/expense any milestone or royalty payments under the Onxeo
option agreement.
Patent Costs
The
Company expenses costs relating to issued patents and patent
applications, including costs relating to legal, renewal and
application fees, as a component of general and administrative
expenses in the accompanying statements of operations.
Income Taxes
In
December 2014, the Company originally elected LLC status under the
Internal Revenue Code, in which the members separately account for
their pro-rata share of income, deductions, losses, and credits. On
December 16, 2015, the Company converted from an LLC to a C
Corporation. Beginning on December 16, 2015, the Company uses an
asset and liability approach for accounting for deferred income
taxes, which requires recognition of deferred income tax assets and
liabilities for the expected future tax consequences
of
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Income Taxes,
continued
events
that have been recognized in its financial statements, but have not
been reflected in its taxable income. Estimates and judgments occur
in the calculation of certain tax liabilities and in the
determination of the recoverability of certain deferred income tax
assets, which arise from temporary differences and carry forwards.
Deferred income tax assets and liabilities are measured using the
currently enacted tax rates that apply to taxable income in effect
for the years in which those tax assets and liabilities are
expected to be realized or settled.
The
Company regularly assesses the likelihood that its deferred income
tax assets will be realized from recoverable income taxes or
recovered from future taxable income. To the extent that the
Company believes any amounts are more likely not to be realized,
the Company records a valuation allowance to reduce the deferred
income tax assets. In the event the Company determines that all or
part of the net deferred tax assets are not realizable in the
future, an adjustment to the valuation allowance would be charged
to earnings in the period such determination is made. Similarly, if
the Company subsequently realizes deferred income tax assets that
were previously determined to be unrealizable, the respective
valuation allowance would be reversed, resulting in an adjustment
to earnings in the period such determination is made.
Based
on the available evidence, the Company believed it was not likely
able to utilize its minimal deferred tax assets in the future and
as a result, the Company recorded a full valuation allowance as of
December 31, 2016 and 2015. The Company intends to maintain the
valuation allowance until sufficient evidence exists to support its
reversal. The Company regularly reviews its tax positions and for a
tax benefit to be recognized, the related tax position must be more
likely than not to be sustained upon examination. Any amount
recognized is generally the largest benefit that is more likely
than not to be realized upon settlement. The Company’s policy
is to recognize interest and penalties related to income tax
matters as an income tax expense. For the year ended December 31,
2016 and the short tax year from December 16, 2015 to
December 31, 2015, the Company did not have any interest or
penalties associated with unrecognized tax benefits.
As of
December 31, 2016, the Company had research and development
(“R&D”) credit carryforwards of approximately
$4,357 and $171 available to reduce future taxable income, if any,
for both Federal and state income tax purposes, respectively. The
Federal R&D credit carryforwards expire beginning 2035,
California R&D credit carryforward indefinitely and Illinois
R&D credit carryforwards expire beginning 2020. As of December
31, 2016, the Company had $260,000 of net operating loss
carryforwards, which begin to expire beginning 2035. As of
December 31, 2015, the Company had de minimus R&D credits
and net operating loss carryforwards.
The
Company is subject to U.S. federal, Illinois and California income
taxes. Tax regulations within each jurisdiction are subject to the
interpretation of the related tax laws and regulations and require
significant judgment to apply. The Company was incorporated on
December 16, 2015 and is subject to U.S. federal, state and local
tax examinations by tax authorities for the year ended December 31,
2016 and for the short tax period from December 16, 2015 to
December 31, 2015. The Company does not anticipate significant
changes to its current uncertain tax positions through
December 31, 2016.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Stock-Based
Compensation
The
Company accounts for stock-based compensation arrangements with
employees, nonemployee directors and consultants using a fair value
method, which requires the recognition of compensation expense for
costs related to all stock-based payments, including stock options.
The fair value method requires the Company to estimate the fair
value of stock-based payment awards on the date of grant using an
option pricing model.
Stock-based
compensation costs for options granted to employees and nonemployee
directors are based on the fair value of the underlying option
calculated using the Black-Scholes option-pricing model on the date
of grant for stock options and recognized as expense on a
straight-line basis over the requisite service period, which is the
vesting period. Determining the appropriate fair value model and
related assumptions requires judgment, including estimating stock
price volatility, forfeiture rates and expected term. The expected
volatility rates are estimated based on the actual volatility of
comparable public companies over the expected term. The Company
selected these companies based on comparable characteristics,
including enterprise value, risk profiles, stage of development and
with historical share price information sufficient to meet the
expected life of the stock-based awards. The expected term for
options granted during the year ended December 31, 2016 is
estimated using the simplified method. Forfeitures are estimated at
the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. The Company has
not paid dividends and does not anticipate paying a cash dividend
in the foreseeable future and, accordingly, uses an expected
dividend yield of zero. The risk-free interest rate is based on the
rate of U.S. Treasury securities with maturities consistent with
the estimated expected term of the awards. The measurement of
consultant share-based compensation is subject to periodic
adjustments as the underlying equity instruments vest and is
recognized as an expense over the period over which services are
rendered.
Recent Accounting Pronouncements
In
August 2014, FASB issued ASU 2014-15, Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern, which
provides guidance on determining when and how reporting companies
must disclose going-concern uncertainties in their financial
statements. The ASU requires management to perform interim and
annual assessments of an entity’s ability to continue as a
going concern within one year of the date of issuance of the
entity’s financial statements (or within one year after the
date on which the financial statements are available to be issued,
when applicable). Further, a company must provide certain
disclosures if there is “substantial doubt about the
entity’s ability to continue as a going
concern.” This ASU is effective for annual periods
ending after December 15, 2016 and interim periods within annual
periods beginning after December 15, 2016, and early adoption
permitted. The Company has adopted this new accounting standard on
its financial statements and footnote disclosures.
In
November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred
Taxes. This is part of FASB’s simplification
initiative. The amendments in this ASU require that deferred tax
liabilities and assets be classified as noncurrent in a classified
statement of financial position. This ASU is effective for the
Company in the first quarter of 2017. Early adoption is
permitted. The Company does not expect the adoption of
this amendment to have a material effect on its financial condition
and results of operations.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
2.
Significant
Accounting Policies, continued
Recent Accounting
Pronouncements, continued
In
January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial
Assets and Financial Liabilities. The purpose is
to enhance the reporting model for financial instruments to provide
users of financial statements with more decision-useful
information. This ASU is effective for the Company
in the
first quarter of 2018. Early adoption is not permitted
except for limited provisions. The Company does not
expect the adoption of this amendment to have a material effect on
its financial condition and results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases, which for operating leases,
requires a lessee to recognize a right-of-use asset and a lease
liability, initially measured at the present value of the lease
payments, in its balance sheet. The standard also requires a lessee
to recognize a single lease cost, calculated so that the cost of
the lease is allocated over the lease term, on a generally
straight-line basis. ASU 2016-02 will be effective for the Company
in the first quarter of 2019, and early adoption is permitted. The
Company is currently assessing the impact that adopting this new
accounting standard will have on its financial statements and
footnote disclosures.
In
March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment
Accounting, which simplifies several aspects of the
accounting for employee share-based payment transactions for both
public and nonpublic companies, including the accounting for income
taxes, forfeitures, and statutory tax withholding requirements, as
well as classification in the statement of cash flows. The ASU will
be effective for the Company in the first quarter of 2017, and
early adoption is permitted. The Company is currently assessing the
impact that adopting this new accounting standard will have on its
financial statements and footnote disclosures.
In
November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash. The
amendments apply to all entities that have restricted cash or
restricted cash equivalents and are required to present a statement
of cash flows. The amendments address diversity in practice that
exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments
require that a statement of cash flows explain the change during
the period in the total of cash, cash equivalents, and amounts
generally described as restricted cash or restricted cash
equivalents. As a result, amounts generally described as restricted
cash and restricted cash equivalents should be included with cash
and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The amendments do not provide a definition of restricted cash or
restricted cash equivalents. The amendments are effective for
public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. For all
other entities, the amendments are effective for fiscal years
beginning after December 15, 2018, and interim periods within
fiscal years beginning after December 15, 2019. Early adoption is
permitted. The Company has early adopted the amendments and has
applied them using a retrospective transition method to each period
presented. Therefore, the Company has included restricted cash in
cash equivalents and restricted cash on its statements of cash
flows for the years ended December 31, 2016 and 2015.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
Convertible Preferred Stock
On
December 16, 2015, the Company converted from an LLC to a C
Corporation at which time the Company effected a 1 for 10 reverse
stock split. All references to convertible preferred stock
authorized, issued and outstanding and common stock authorized take
into account the 1 for 10 reverse stock split.
The
Company is authorized to issue 200,000 shares of convertible
preferred stock with a par value of $0.001 per share. As of
December 31, 2016, the Company has the following convertible
preferred stock authorized, issued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
50,000
|
15,894
|
$300
|
$4,768,140
|
|
|
150,000
|
100,000
|
$300
|
30,000,000
|
|
|
|
|
|
|
|
|
200,000
|
115,894
|
|
$34,768,140
|
As of
December 31, 2015, the Company has the following convertible
preferred stock authorized, issued and outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A
|
50,000
|
11,644
|
$300
|
$3,493,140
|
|
Z
|
150,000
|
100,000
|
$300
|
30,000,000
|
|
|
|
|
|
|
|
|
200,000
|
111,644
|
|
$33,493,140
|
|
|
|
|
|
|
The
Company’s initial investor, Tactic Pharma, LLC, contributed
to the Company technology and intangible assets related to the
development of huATN-658 in exchange for 100,000 shares of Series Z
convertible preferred stock, representing approximately 86.3%
ownership of the Company as of December 31, 2016. At the time of
the contribution, the Company valued the Series Z convertible
preferred stock at $300 per share. The issued Series Z convertible
preferred stock is recorded at par value $0.001 per share on the
balance sheet reflecting the historical capitalized cost basis, due
to the fact that huATN-658’s development costs were
previously expensed (not capitalized) by Tactic Pharma,
LLC.
From
May 2015 to April 2016, the Company sold Series A convertible
preferred stock at $300 per share to various accredited private
investors, issuing a total of 15,894 shares of Series A convertible
preferred stock for aggregate proceeds to the Company of
approximately $4.8 million.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
3.
Capital
Stock, continued
Convertible Preferred
Stock, continued
The
rights, preferences, privileges, and restrictions for the
convertible preferred stock are as follows:
●
Holders of Series A
convertible preferred stock (in preference to Series Z convertible
preferred stock and common stock) and Series Z convertible
preferred stock (in preference to common stock) are entitled to
receive cumulative dividends at the dividend rate of up to $300 on
each outstanding share.
●
Once such
preferential dividends have been paid to the holders of convertible
preferred stock, any additional dividends declared by the Board of
Directors will be distributed ratably between the holders of common
stock and convertible preferred stock, with convertible preferred
stock participating on a one-for-one basis as common stock. As of
December 31, 2016, no dividends on convertible preferred stock or
common stock have been declared by the Board of
Directors.
●
In the event of any
liquidation, dissolution, or winding up of the Company, the holders
of Series A convertible preferred stock (in preference to
Series Z convertible preferred stock and common stock) and Series Z
convertible preferred stock (in preference to common stock) are
entitled to receive an amount equal to $300 per share less any
cumulative dividends already received, plus any declared but unpaid
dividends. Any remaining amounts shall be distributed to the
holders of common stock in proportion to the shares of common stock
held.
●
Holders of Series A
convertible preferred stock and Series Z convertible preferred
stock are entitled to one vote for each share of convertible
preferred stock on all matters submitted to a vote of the
stockholders of the Company.
●
If any further new
or additional shares of any class of stock, other than the 10,000
common shares set aside in the additional common stock pool, are
issued to investors by the Company at a per share price which is
less than $300 per share, the Company is required to issue new or
additional shares to holders of Series A convertible preferred
stock at the time of such issuance.
●
If the
Company’s Board of Directors newly authorizes the sale of
additional shares of stock, the Amended and Restated Certificate of
Incorporation requires the shares to be first offered to all of the
then existing stockholders, who, for a period of 30 days, will have
the right to purchase their proportionate part of the offered
shares on the terms and conditions specified in the offer. If the
existing stockholders do not elect to purchase all of the offered
shares, the Board of Directors may proceed with the issuance of the
remaining shares to such other persons as the Board of Directors
may choose, on the terms and conditions specified in the offer. Any
issuance of equity based compensation, including profit shares,
options, or other equity-based incentive does not trigger the
preemptive rights. The Company can issue up to 10,000 shares of
common stock, including to existing stockholders, without
triggering pre-emptive rights or anti-dilution rights. In April
2016, the Company adopted a stock option plan and the
Company’s Board of Directors reserved 10,000 shares of common
stock for issuances under the plan.
●
All shares of
convertible preferred stock are convertible at the liquidation
price, on a one to one basis into common stock at the option of the
holder, at any time after the date of issuance, subject to
adjustment for stock splits, stock dividends, and dilution. Shares
of convertible preferred stock will automatically convert into
common stock at a one-for one conversion ratio upon the affirmative
vote of the majority of the then outstanding shares of convertible
preferred stock, voting as a single class
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
3.
Capital
Stock, continued
Convertible Preferred
Stock, continued
or upon
the completion of an initial public offering at a minimum per share
price of $300 subject to adjustment for stock splits, stock
dividends, and dilution.
●
Under the
Company’s Bylaws, if a third party offers to purchase 100% of
the outstanding shares of stock, at a total purchase price of not
less than $36 million, and stockholders holding 55% or more of the
outstanding shares of the Company accept the offer, all of the
stockholders must transfer their shares to the offeror on the same
terms and conditions as the accepting stockholders.
Common Stock
Subject
to any senior rights of the Series A convertible preferred stock
and the Series Z convertible preferred stock which may from time to
time be outstanding, holders of the common stock are entitled to
receive such dividends as may be declared by the Board of Directors
out of funds legally available therefor. Upon dissolution and
liquidation of the Company, holders of the common stock are
entitled to a ratable share of the net assets of the Company
remaining after payments to creditors of the Company and to the
holders of the Series A convertible preferred stock and the Series
Z convertible preferred stock of the full preferential amounts to
which they may be entitled. The holders of shares of common stock
are entitled to one vote per share for the election of directors
and on all other matters submitted to a vote of stockholders, and
vote without distinction as to class with the holders of the Series
A convertible preferred stock and the holders of the Series Z
convertible preferred stock.
The
Company’s amended and restated certificate of incorporation
authorize the Company to issue 300,000 shares of common stock with
a par value of $0.001 per share. As of December 31, 2016, the
Company had zero shares of common stock issued and
outstanding.
In
addition, the Company’s amended and restated certificate of
incorporation authorizes the Company’s Board of Directors to
issue a common stock pool of up to 10,000 shares. In April 2016,
the Company adopted the 2016 Stock Incentive Plan and the
Company’s Board of Directors reserved 10,000 shares of common
stock for issuances under the plan.
In
April 2016, the Company’s Board of Directors and the
convertible preferred stockholders representing a majority of the
Company’s outstanding stock approved, the Monopar
Therapeutics Inc. 2016 Stock Incentive Plan (the
“Plan”) allowing the Company to grant up to an
aggregate 10,000 shares of stock awards, stock options, stock
appreciation rights and other stock-based awards to employees,
directors and consultants. Concurrently, the Board of Directors
granted to certain board members and the Company’s acting
chief financial officer stock options to purchase up to an
aggregate 3,900 shares of the Company’s common stock at an
exercise price of $0.001 par value based upon a third party
valuation of the Company’s common stock.
In
December 2016, the Board of Directors granted stock options to
purchase up to 100 shares of the Company’s common stock at an
exercise price of $0.001 par value to the Company’s acting
chief medical officer. Under the Plan, the per share exercise price
for the shares to be issued upon exercise of an option shall be
determined by the Plan administrator, except that the per share
exercise price shall be no less than 100% of the fair market value
per share on the grant date. Fair market value is established by
the Company’s Board of Directors, using third party valuation
reports. Options generally expire after ten years.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
4.
Stock Option Plan,
continued
The
fair market value of the 4,000 options granted during 2016 was de
minimis.
Stock
option activity under the Plan is as follows:
|
|
|
|
|
|
|
|
Weighted-Average
Exercise Price
|
|
|
|
|
|
|
Balances,
December 31, 2015
|
-
|
-
|
-
|
|
Option
pool
|
10,000
|
-
|
-
|
|
Granted
|
(4,000)
|
4,000
|
$0.001
|
|
Forfeited
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Balances,
December 31, 2016
|
6,000
|
4,000
|
$0.001
|
A
summary of options outstanding as of December 31, 2016 is shown
below:
|
|
Number
of Shares Outstanding
|
Weighted
Average Remaining Contractual Term
|
Number
of Shares Fully Vested and Exercisable
|
Weighted
Average Remaining Contractual Term
|
|
$0.001
|
4,000
|
9.28
|
2,925
|
9.26
|
No
income tax benefits have been recognized in the statements of
operations for stock-based compensation arrangements and no
stock-based compensation costs have been capitalized as part of
inventory or property and equipment as of December 31, 2016 and
2015.
The
Company recognizes as an expense the fair value of options granted
to persons who are neither employees nor directors.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
5.
Related
Party Transactions
During
the year ended December 31, 2015, the Company was advised by four
members of its Board of Directors, who were Managing Members of the
LLC prior to the Company’s conversion to a C Corporation. The
four former Managing Members are also current Series A convertible
preferred stockholders (owning approximately an aggregate 27% of
the Series A convertible preferred stock outstanding as of December
31, 2015). Three of the former Managing Members are also Managing
Members of Tactic Pharma, LLC, the Company’s largest and
controlling stockholder (owning 89.6% of the Company at December
31, 2015). The Company paid the following Managing Member fees
during the year ended December 31, 2015 to such individuals
described above: Chandler D. Robinson, the Company’s
Co-Founder, Chief Executive Officer, Series A convertible preferred
stockholder, Managing Member of Tactic Pharma, LLC and former
Managing Member of the Company $218,750; Christopher M. Starr, the
Company’s Co-Founder, Executive Chairman of the Board of
Directors, Series A convertible preferred stockholder and former
Managing Member of the Company $35,000; Andrew P. Mazar, the
Company’s Co-Founder, Chief Scientific Officer, Series A
convertible preferred stockholder, Managing Member of Tactic
Pharma, LLC and former Managing Member of the Company $87,500; and
Michael Brown, Managing Member of Tactic Pharma, LLC and former
Managing Member of the Company, owning approximately 21% of the
Series A convertible preferred stock as of December 31, 2015 was
paid no fees.
At
December 31, 2016, Tactic Pharma, LLC owned 86.3% of the Company
and Managing Members of Tactic Pharma, LLC were paid the following
during the year ended December 31, 2016: Chandler D. Robinson, the
Company’s Co-Founder, Chief Executive Officer, Series A
convertible preferred stockholder, Managing Member of Tactic
Pharma, LLC and former Managing Member of the Company $322,000; and
Andrew P. Mazar, the Company’s Co-Founder, Chief Scientific
Officer, Series A convertible preferred stockholder, Managing
Member of Tactic Pharma, LLC and former Managing Member of the
Company $197,500. We also paid Christopher M. Starr, the
Company’s Co-Founder, Executive Chairman of the Board of
Directors, Series A convertible preferred stockholder and former
Managing Member of the Company $96,339 during the year ended
December 31, 2016.
The
Company reimbursed Tactic Pharma, LLC, $2,000 in storage fees
during the year ended December 31, 2016 and $103,400 in legal fees
and $1,300 in storage fees during the year ended December 31,
2015.
During
the years ended December 31, 2016 and 2015, the Company paid legal
fees to a large national law firm, in which the Company’s
Chief Executive Officer’s family member is a law partner, of
approximately $54,000 and $38,000, respectively. The family member
billed a de minimis amount of time on the Company’s legal
engagement with the law firm.
ASC 740
requires that the tax benefit of net operating losses, temporary
differences, and credit carryforwards be recorded as an asset to
the extent that management assesses that realization is "more
likely than not." Realization of the future tax benefits is
dependent on the Company's ability to generate sufficient taxable
income within the carryforward period. The Company has reviewed the
positive and negative evidence relating to the realizability of the
deferred tax assets and has concluded that the deferred tax assets
are more likely than not to be realized. Accordingly, the valuation
allowance has not been released related to these assets. The
valuation allowance increased by $460,003 during the year ended
December 31, 2016 and increased by $75,251 during the short tax
year from December 16, 2015 to December 31, 2015.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
6.
Income Taxes, continued
The
provision for income taxes for December 31, 2016 and 2015 consists
of the following:
|
|
|
|
|
|
|
|
Current:
|
|
|
|
Federal
|
$-
|
$-
|
|
State
|
800
|
-
|
|
Total
current
|
800
|
-
|
|
Deferred:
|
|
|
|
Federal
|
463,520
|
56,323
|
|
State
|
71,734
|
18,928
|
|
Total
deferred
|
535,254
|
75,251
|
|
Full valuation
allowance
|
(535,254)
|
(75,251)
|
|
Total
provision(1)
|
$800
|
$-
|
(1)
Total provision
consists of California minimum tax which the Company has recorded
in general and administrative expenses on its statements of
operations.
The
difference between the effective tax rate and the U.S. federal tax
rate is as follows:
|
|
|
|
Federal income
tax
|
34.00%
|
|
State income taxes,
less federal benefit
|
4.45%
|
|
Tax
credits
|
-0.35%
|
|
Permanent
differences
|
-0.01%
|
|
Tax basis
intangibles
|
-26.62%
|
|
Change in valuation
allowance
|
-11.47%
|
|
Effective tax
rate
|
0.00%
|
Deferred
tax assets and liabilities consist of the following:
|
|
|
|
|
|
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$111,245
|
$12,346
|
|
Tax credit
carryforwards
|
4,470
|
284
|
|
Intangible asset
basis differences
|
419,539
|
62,621
|
|
|
535,254
|
75,251
|
|
Valuation
allowance
|
(535,254)
|
(75,251)
|
|
Net deferred tax
assets
|
$-
|
$-
|
|
|
|
|
|
Net deferred tax
liabilities
|
$-
|
$-
|
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
6.
Income Taxes, continued
As of
December 31, 2016, the Company had federal net operating loss
carryforwards of approximately $260,000, which will begin to expire
in 2035 for federal tax purposes. At December 31, 2016, the Company
had state net operating loss carryforwards of approximately
$260,000, which will begin to expire in 2027. The net operating
loss related deferred tax assets do not include excess tax benefits
from employee stock option exercises.
As of
December 31, 2016, the Company had R&D credit carryforwards of
approximately $4,357 and $171 available to reduce future taxable
income, if any, for both Federal and state income tax purposes,
respectively. The Federal R&D credit carryforwards expire
beginning 2035, California R&D credits carryforward
indefinitely and Illinois R&D credit carryforwards expire
beginning 2020.
The Tax
Reform Act of 1986 limits the use of net operating carryforwards in
certain situations where changes occur in the stock ownership of a
company. In the event the Company has had a change in ownership,
utilization of the carryforwards could be limited. The Company has
not performed such a study.
On
January 1, 2015, the Company adopted the provisions of FASB ASC
740-10, "Accounting for
Uncertainty in Income
Taxes." ASC 740-10 prescribes a comprehensive model for the
recognition, measurement, presentation and disclosure in financial
statements of any uncertain tax positions that have been taken or
expected to be taken on a tax return. The cumulative effect of
adopting ASC 740-10 resulted in no adjustment to retained earnings
as of December 31, 2016. It is Company's policy to include
penalties and interest expense related to income taxes as a
component of other expense and interest expense, respectively, as
necessary.
No
liability is recorded on the financial statements related to
uncertain tax positions. There are no unrecognized tax benefits as
of December 31, 2016. The Company does not expect that uncertain
tax benefits will materially change in the next 12
months.
All tax
returns will remain open for examination by the federal and state
taxing authorities for three and four years, respectively, from the
date of utilization of any net operating loss carryforwards or
R&D credits.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
7.
Development
and Collaboration Agreements
Cancer Research UK
In July
2015, the Company entered into a CTOA with Cancer Research UK and
Cancer Research Technology Limited, a wholly-owned subsidiary of
Cancer Research UK. As part of the CTOA, the Company was obligated
to submit $0.8 million in escrow to cover certain potential future
claims, intellectual property infringement costs or termination
costs incurred by Cancer Research UK.
Under
the CTOA, Cancer Research UK will manufacture huATN-658, perform
preclinical studies and conduct a Phase Ia/Ib clinical trial. At
the Company’s discretion, the Company will pay an option fee
for the right to the Phase Ia/Ib clinical data, after which time,
the Company may choose to enter into a pre-negotiated license with
Cancer Research Technology Limited which includes developmental and
clinical milestones, sales milestones and royalties. If the Company
enters into the pre-negotiated license agreement, the Company will
carry 100% of the development costs. Should the Company decline to
enter into the pre-negotiated license, the Company will pay nothing
to Cancer Research UK or Cancer Research Technology Limited, and
Cancer Research Technology Limited will be assigned the
Company’s intellectual property to continue the development
and commercialization of huATN-658 in exchange for a revenue share
and minimum royalty. As of December 31, 2016, the Phase Ia/Ib
clinical trial has not commenced and the Company has not entered
into the pre-negotiated license agreement with Cancer Research
Technology Limited and has not been required to pay Cancer Research
UK or Cancer Research Technology Limited any funds under the
CTOA.
XOMA Ltd.
The
intellectual property rights contributed by Tactic Pharma, LLC to
the Company included the non-exclusive license agreement with XOMA
Ltd. for the humanization technology used in the development of
huATN-658. Pursuant to such license agreement, the Company is
obligated to pay XOMA Ltd. clinical, regulatory and sales
milestones for huATN-658 and zero royalties. As of December 31,
2016, the Company has not reached any milestones and has not been
required to pay XOMA Ltd. any funds under this license
agreement.
Onxeo SA
In June
2016, the Company executed an agreement with Onxeo S.A., a French
public company, which gives Monopar the option to license
Validive® (clonidine
mucobuccal tablet), a mucoadhesive tablet of clonidine based on the
Lauriad mucoadhesive technology to potentially treat severe oral
mucositis in patients undergoing treatment for head and neck
cancers. The pre-negotiated license agreement included as part of
the option agreement includes clinical and regulatory developmental
milestones, along with sales milestones and royalties. As of
December 31, 2016, the Company has not exercised the option nor
entered into the pre-negotiated license agreement with Onxeo, and
has not been required to pay Onxeo any funds under the license
option agreement.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
7.
Development and Collaboration
Agreements, continued
Onxeo SA,
continued
The
Company plans to internally develop Validive with the near-term
goal of commencing a Phase III clinical trial, which, if
successful, may allow the Company to apply for marketing approval
within the next few years. The Company will need to raise
significant funds to support the further development of
Validive.
8.
Commitments
and Contingencies
Development and Collaboration Agreements
In July
2015, the Company entered into a CTOA with Cancer Research UK and
Cancer Research Technology Limited, a wholly-owned subsidiary of
Cancer Research UK. As part of the CTOA, the Company was obligated
to submit $0.8 million in escrow to cover certain potential future
claims, intellectual property infringement costs or termination
costs incurred by Cancer Research UK.
Under
the CTOA, Cancer Research UK will manufacture huATN-658, perform
preclinical studies and conduct a Phase Ia/Ib clinical trial. At
the Company’s discretion, the Company will pay an option fee
for the right to the Phase Ia/Ib clinical data, after which time,
the Company may choose to enter into a pre-negotiated license with
Cancer Research Technology Limited which includes developmental and
clinical milestones, sales milestones and royalties. If the Company
enters into the pre-negotiated license agreement, the Company will
carry 100% of the development costs. Should the Company decline to
enter into the pre-negotiated license, the Company will pay nothing
to Cancer Research UK or Cancer Research Technology Limited, who be
assigned the Company’s intellectual property to continue the
development and commercialization of huATN-658 in exchange for a
revenue share and minimum royalty. As of December 31, 2016, the
Phase Ia/Ib clinical trial has not commenced and the Company has
not entered into the pre-negotiated license agreement with Cancer
Research Technology Limited and has not been required to pay Cancer
Research UK or Cancer Research Technology Limited any funds under
the CTOA.
The
intellectual property rights contributed by Tactic Pharma, LLC to
the Company included the non-exclusive license agreement with XOMA
Ltd. for the humanization technology used in the development of
huATN-658. Pursuant to such license agreement, the Company is
obligated to pay XOMA Ltd. clinical, regulatory and sales
milestones for huATN-658 and zero royalties. As of December 31,
2016, the Company has not reached any milestones and has not been
required to pay XOMA Ltd. any funds under this license
agreement.
Legal Contingencies
The
Company is subject to claims and assessments from time to time in
the ordinary course of business. The Company’s management
does not believe that any such matters, individually or in the
aggregate, will have a material adverse effect on the
Company’s business, financial condition, results of
operations or cash flows.
Continued
Monopar Therapeutics
Inc.
Notes
to Financial Statements
December
31, 2016 and 2015
8.
Commitments and Contingencies,
continued
Indemnification
In the
normal course of business, the Company enters into contracts and
agreements that contain a variety of representations and warranties
and provide for general indemnification. The Company’s
exposure under these agreements is unknown because it involves
claims that may be made against the Company in the future, but that
have not yet been made. To date, the Company has not paid any
claims or been required to defend any action related to its
indemnification obligations. However, the Company may record
charges in the future as a result of these indemnification
obligations.
In
accordance with its amended and restated certificate of
incorporation and bylaws, the Company has indemnification
obligations to its officers and directors for certain events or
occurrences, subject to certain limits, while they are serving at
the Company’s request in such capacity. There have been no
claims to date.
The
Company has evaluated all events occurring from December 31, 2016
through February 14, 2017, the date which these financial
statements were available to be issued, and did not identify any
additional material disclosable subsequent events.
SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
|
|
Monopar Therapeutics
Inc.
|
|
|
|
|
|
|
|
Date:
December 19, 2017
|
By:
|
/s/
Chandler
D. Robinson
|
|
|
|
|
Chandler
D. Robinson
|
|
|
|
|
Chief Executive Officer
|
|